The Game of High Efficiency and First Solar

FSLR should be able to steadily improve its module efficiency in the next few years. If its roadmap holds, its efficiency gap with its c-Si competitors may actually narrow depending on the pace of the other side

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First Solar has experienced a rough time lately with a free fall on its stock. Besides the "bad batch" (or "excursion" called by FSLR) and the module efficiency degradation problems (covered in a recent blog), it faced a dwindling project pipeline and a tough competition on its module business. It recently announced a major restructuring by closing its Germany plant and cut staffing at its Europe group and its headquarters.

In this article, I will detail the challenges FSLR is facing in the high efficiency game of solar PV modules. The conclusion is that while FSLR's CdTe thin-film (TF) module has lower efficiency than the crystalline silicon (c-Si) competitors, the gap is not large and may get smaller in the next two years - if FSLR's roadmap on cost and efficiency holds. Therefore, the situation is not nearly as dire as some short position traders painted.

Currently the mainstream solar PV modules can be divided into two camps: c-Si and thin-film, with c-Si dominating the market with close to 90% of market share (https://www.greentechmedia.com/research/report/thin-film-2012-2016/). There are some varieties in each camp: multi-crystalline, quasi-mono crystalline and mono-crystalline belong to the c-Si camp and amorphous-silicon (a-Si), CdTe and CIGS are in the thin-film camp.

Since last year, there is a wave of c-Si module makers moving into the high-efficiency game in order to differentiate themselves from others. There used to be a strong criticism on the module makers for being just ‘manufacturers’ – using the same equipment making largely the same products. Therefore some of the large makers started to try various technologies to improve the conversion efficiency. Being able to supply high efficiency products is a way to have a bragging right. The momentum has slowed down, nevertheless, in 2012 largely due to the rapid fall of module ASP. The planned cut of Germany FIT has driven module price into 70-80 cents range in Europe where demand is quite high so far this year. Therefore, solar companies have to be extremely cost sensitive in their production mix. High efficiency modules, while able to fetch a higher price, do not carry higher margin as they cost more to produce.

Improving efficiency can be done at each of the 3 latter verticals in module manufacturing: wafering, cell-making, and module-packaging. Above mentioned multi, quasi-mono and mono refer to different type of wafers. The typical module efficiencies using multi-crystalline, quasi-mono crystalline and mono-crystalline wafers are: 14.5% (multi), 15.5% (quasi-mono) and 16.1% (mono). Of course, there is an efficiency range for each wafer type due to slightly different cell and module technologies by different makers. The cost of production for each wafer type also differs with higher efficiency wafers costing more than lower efficiency ones, often disproportionally. That is, the increased cost of higher efficiency wafers is not linearly related to the increased efficiency. Therefore, it is not surprising that the majority c-Si modules on the market are multi as the present driving force is a low-cost and a low selling price. Mono modules usually sell at a the premium price but their margin is not much different from the other two types. My estimation is about 80% of c-Si market is occupied by the multi modules.

In current PV market, a ‘typical’ module is a multi c-Si module with 60 solar cells. Each cell has a dimension 156x156 mm with 4 corners slightly cropped. The size of the module is 1.63-1.64 square meters. A high efficiency module typically has a peak power output no less than 250 Wp. For a module rated 250 Wp, its efficiency is about 250/1000/1.635 = 15.3%. Of course, a ‘typical’ module is not a high efficiency one. Rather than 250 Wp, it has an output of 230-240 Wp, corresponding to an efficiency 14.1%-14.7%.

Regarding to the high efficiency c-Si modules, Robert Dydo of SPVI has an excellent article half a year ago (link at bottom). The information in the article still hold mostly today although Q-Cells filed bankruptcy in early April and LDK announced an ugly 2011-Q4 quarter yesterday. The major players in the high efficiency c-Si module game are: Canadian Solar, Trina Solar, Yingli Green Energy, Suntech Power and JA Solar. Additional names worth to mention are GCL, Renesola, LDK and Comtec as they are the major suppliers of high efficiency wafers. Recent news from Taiwan suggested that Taiwan wafer makers (GET and SAS) are shifting away from quasi-mono due to production issues, instead they focus on higher efficiency multi wafers. There might be a similar trend for the wafer makers at mainland China.

While Robert’s article focused on the efficiency and the technology, here we take a look at the cost and capacity. On the cost front, there are discussions on the high efficiency modules by Trina, Yingli and Canadian Solar as they are the primary suppliers. It is said that ‘Honey’ by Trina has about the same production cost as a normal module, while Canadian Solar’s ‘ELPS’ cost 5% more and Yingli’s ‘Panda’ more than 5%. However, a few industry insiders said those estimate are too optimistic and the tinkering of cell and module production are more difficult than early expectations. Not long ago Renesola’s CEO said as long as a module maker purchases the latest equipment, it will be doing very well in both cost and efficiency. His comments suggested that there is a long way to go for producing customized high efficiency modules at low costs and several industry insiders agreed. On the capacity side, the 2012 targets for Trina, Canadian Solar, and Yingli are 500 MW (Honey), 280 MW (ELPS) and 600 MW (Panda), respectively. Compared to the estimated 25 GW c-Si module market, it is a small number. Of course, there are a few others not included in the count. Still, those are targets and my sense is that Trina and the rest, are likely flexible as the low-cost is more important at this moment. So for the year 2012, I do not expect it to be a year with many activities on high efficiency modules and the end-year mainstream module efficiency should be about 15%.

Now let us move to the thin-film camp. There are clearly two leaders in this camp: Japan’s Frontier and First Solar. Both have module efficiency passing the 12% mark with comparable costs to c-Si modules. Most amorphous silicon modules have efficiencies 10% or lower so it is less competitive as a technology. FSLR’s closing of its Germany plant is more for high costs and less for lower efficiency. It is not only FSLR, we have already seen a string of plant closures for c-Si manufacturers in Europe.

FSLR’s current Series 3 modules have an average efficiency about 12.4%. So it cannot claim high efficiency as its efficiency is lower than mainstream c-Si competitors. Therefore criticism on FSLR’s low efficiency has certain merits. However, as outlined above, the gap between its CdTe module and mainstream multi c-Si module is about 2.1%, actually narrower than about a year ago.

Following paragraphs are taken from FSLR’s last conference call in February:

"Our average line conversion efficiency for our modules was 12.2% in the fourth quarter, which was up 0.6 percentage points year-over-year and up 0.4 percentage points quarter-over-quarter. This is our largest sequential increase since 2007. Our best plant improved to 12.6%, which is up from 12.4% last quarter and 11.6% last year. We continued to make significant progress in conversion efficiency. And for 2012 year-to-date, our average conversion line efficiency is 12.4%, up 200 basis points from the end of the year. And the current efficiency rate of our modules produced on our best lines in 13.1%.

We expect sustained improvements in efficiencies as we continue to invest in our technology. Last month, we announced that we received confirmation from the National Renewable Energy Labs or NREL that First Solar achieved a record 14.4% efficiency for CdTe thin-film module, which eclipses the prior record of 13.4%, also held by First Solar. The record performance comes to us 6 months after First Solar announced that they had achieved a record 17.3% efficiency for CdTe thin-film cells.

We now expect to average a module efficiency of 12.7% in 2012, up from the prior guidance of 12.6%."

In Q&A, there is an exchange between an analyst and FSLR’s CFO Widmar.

“Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

One point, guys. You guys talked about each line being 90-megawatt up from your prior goals of 80 megawatts, right? What is the embedded assumption in that for your module efficiency, as well as cost per watt target for you guys?

Mark R. Widmar

Yes, that would be consistent with what we indicated in last December. We indicated that our module efficiency should start to trend towards 14.5% within that range, closer to 15% as we exited 2015. And the module cost per watt should start to trend down to the low 50s, call it, kind of between $0.50 and $0.52.”

Therefore, FSLR is likely to be able to increase its 2012 module efficiency by 1% from 2011 level which is 11.7%. Next year its module efficiency should be above 13%. At 2014, it is likely to exceed 14%. In comparison, there could be more actions in the c-Si camp to increase efficiency in 2013 – but it is certainly not easy to achieve mass production and contain costs at the same time. The mainstream module efficiency is likely to surpass 15% but unlikely to get to the 16% mark. Beyond 2013, it is hard to speculate at the moment.

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