First Solar: Why grid parity does not matter

James Hughes, the chief executive of First Solar, the world’s biggest manufacturer of solar photovoltaic modules, has dismissed the industry’s obsession with“grid parity”, saying solar technologies are not yet ready to match the cost of conventional baseload power.

But he also said that doesn’t matter, because solar technologies are already competitive enough in the intermediate and peaking markets, where it competes with gas. And he has no doubts that solar will grab “at least” a 10-20 per cent share of the global electricity market over the next two decades.

“Everyone wants to talk about “grid parity” – I’ve banned that phrase from the lexicon of First Solar,” he told RenewEconomy in a wide-ranging interview this week. He said competing with base-load energy would be a difficult proposition for “quite a while,” but solar was already competitive in other parts of the energy market value chain and could become a sizeable industry in any case..

“You will see people comment that the problem with solar is that you only have a 25 per cent capacity factor. And as a former utility guy my response to that is when you have a demand curve that looks like a sine wave, something in the system has to have a capacity factor of 25 per cent.

“So the question is not whether you have a 25 per cent capacity factor, it’s who can deliver the most cost-effective energy at a 25 per cent capacity factor. And when you look at it on that basis, even at relatively low natural gas prices, we (solar) are competitive in the peak portion of the curve.”

And that, he said would displace a lot of carbon, sell a lot of product, and build a significant and sizeable industry. “I tend to focus my effort on let’s get the low hanging fruit before we start beating our head against the wall on baseload.”

But he indicated that day would come. The company is already delivering electricity at a cost of less than $100/MWh in some parts of the US – its broad intermediate goal was an average cost of $100-$140MWh – and he was confident that the US Department of Energy’s Sunshot program would deliver modules installed at a cost of $1/watt – by which time it would compete with coal.

The attraction of solar, he said, was that unlike other renewables, it would not encounter resource limitations. “Solar has the highest, longest-term potential of any renewable technology,” he said.

First solar is the world’s largest PV manufacturer by market capitalisation, and is currently building the world’s biggest single solar PV plants – the 550MW Desert Sunlight project owned by GE, NextEra & Sumitomo, and the similarly sized Topaz Solar Farms (pictured right, which are owned by MidAmerican Energy, the utility arm of Warren Buffett’s Berkshire Hathaway). Both are in California.

Hughes said the sweet spot for utility-scale solar PV was likely to be in the 20MW to 120MW range, but said it was possible large projects could be built in the Gulf states, which want solar so they can maintain revenues from the export of hydrocarbons, and in northern Africa, which could deploy such plants to export energy to Europe.

Hughes said his company would continue to focus on the utility-scale market, while many of his competitors focus on the rooftop solar market. He said it was more secure, had better policy certainty, and more reliable outcomes – it was not subject to the same oversupply as rooftop solar. And he said that while decentralised generation would grow, he believed that the centralised energy systems would continue to form the backbone of the energy markets.

Hughes said the most attractive markets were in China, the Middle east and Gulf regions, the Pacific coast of Latin America, in India, and south-east Asia. In industry segments, solar PV was already able to compete with liquid fuels wherever there was good sun, and mining projects – particularly in Australia – were a major target market, as mines were spending up to 30 per cent of their cost base on liquid fuels.

Finally, Hughes acknowledged that 2012 had been a difficult year for the solar industry, including First Solar, which saw its share price fall dramatically through to August. There had been many bankruptcies, changes to policies, and its own share price moving dramatically. Now, he says, after being attacked by hedge fund investors who saw a weakness in the solar market, his company was benefiting from a reassessment of the solar industry by those very same investors.

“People realise that not every solar company in the world is going to go bankrupt, that the death of European feed-in tariffs is not the death of the industry, that the cost reductions that have occurred as a result of industry overcapacity have actually facilitated demand that paint a long-term brighter future for the industry.”

For the full interview with Jim Hughes, please click here.