On April 17, Arizona-based thin-film module manufacturer First Solar announced it is restructuring in response to worsening market conditions in Europe.
Next month, the firm will indefinitely idle four production lines in Malaysia, and plans to close manufacturing operations in Frankfurt, Germany, in the fourth quarter of this year.
“After a thorough analysis, it is clear the European market has deteriorated to the extent that our operations there are no longer economically sustainable, and maintaining those operations is not in the best long-term interest of our stakeholders,” said Mike Ahearn, Chairman and Interim CEO of First Solar.
The world’s largest producer of thin-film solar modules — which are cheaper but less efficient than conventional polysilicon-based photovoltaic (PV) panels — says the restructuring will result in a total of 2,000 layoffs in Germany and Malaysia as well as in other parts of Europe and the U.S., amounting to about 30 percent of its full staff.
First Solar's facility in Frankfurt, Germany. Photo Credit: First Solar
First Solar also cited the overall market downturn as a motivation for downsizing. The solar industry has suffered from a precipitous decline in polysilicon prices over the past few years. While First Solar produces solar modules using thin-film, not polysilicon, the decline in price of photovoltaics has eaten away at the firm’s cost advantage.
“The solar market has fundamentally changed, and we are quickly adapting our market approach and operations to maintain and build upon our competitive advantage,” said Ahearn.
Ahearn also cited the expiration of subsidies in European markets – especially Germany – as a reason for decreased demand. “After a period of robust growth, First Solar is scaled to operate at higher volumes than currently exist following the reduction of subsidies in key legacy markets,” he said.
“As a result, it is essential that we reduce production and decrease expenses to reflect the smaller volume of high-probability demand we forecast. These actions will enable us to focus our resources on developing the markets where we expect to generate significant growth in coming years.”
The company expects that these changes will reduce costs by $30-60 million in 2012 and $100-120 million annually thereafter. First Solar faces costs of $245-370 million in the restructuring process, including severance payments and the repayment of a grant from the German government. The thin-film manufacturer will incur these costs mainly during the first quarter of 2012.
Nevertheless, the firm projects that the average cost to manufacture its thin-film modules will decrease to $0.70-$0.72 per watt in 2012, beating the expectations of $0.74 per watt, and estimates these costs to fall to $0.60-$0.64 per watt in 2013.
First Solar’s share price has dropped almost 85 percent in the past year. But this news seems to have boosted investor confidence, with a rise in share price rose by 10.3 percent on the day of the announcement.
Rhone Resch, president and CEO of the Solar Energy Industries Association (SEIA), said First Solar’s restructuring “demonstrates the impacts that result from inconsistent policy. Policy certainty is critical for all energy markets, and the solar industry is no different.”
“With drastic policy changes in the leading European markets, First Solar has chosen to focus its activities in areas that provide a higher level of policy stability and product demand, including the U.S., First Solar’s largest market.”
Likely to counter any decline in confidence in the solar industry, Resch touted the U.S. market growth over the past year and future potential, noting that “First Solar’s projects are continuing to drive the utility-scale market in the U.S. in line with its business plan and the U.S. remains First Solar’s largest market.”
