Sujoy Ghosh, Country head of First Solar India, says on solar energy has a place in the generation mix

    In the two years it has been in India, the American solar panel manufacturer, First Solar, has gathered as much mind-share as market share. The company has been in the news for both positive and negative reasons. On the positive side it is seen as an aggressive company that has quickly bagged orders from developers and EPC contractors.

Today, it has about a fifth of the market under its belt. The country’s first grid connected utility scale plant — Moser Baer’s 5 MW plant in Sivaganga, Tamil Nadu — has First Solar’s thin film panels. Recently, the company secured an order for 25 MW of panels from Green Infra, a sizeable order in the solar industry.

On the negative side, First Solar is seen as a company that has succeeded on the back of some aggressive lending by the US Exim Bank. Besides, the company’s Cadmium Telluride-based technology is frowned upon by environmentalists and its order book has been fattened by an ill-advised skew in the procurement policy of India’s largest solar programme. The National Solar Mission allows developers to import thin-film based modules, but mandates local procurement if they opt for crystalline silicon technology.

Sujoy Ghosh took over in May as the country head of First Solar India, which contributes 8 per cent to First Solar’s revenues ($2.8 b in 2011). Sujoy earlier worked for GE and Tata Honeywell. In an interview to Business Line, Sujoy speaks on the maths and myths of First Solar. Excerpts:

What is your order book position today?

Today, there are 225 MW of operating assets with First Solar modules. There are several more under construction by developers who won projects in Batch-II (of the first phase of the National Solar Mission), but I would not like to disclose the details because it is up to our customers to disclose them.

We now have about 20 per cent share of the Indian solar market and we will maintain the market share.

You have incorporated your company here. What is the idea?

When we entered India in 2010 —that’s the time National Solar Mission was taking off — we had a fairly satisfactory run of the market, in terms of selling modules to either third-party developers or EPC contractors — first to some of the ‘migration projects’ and then to Batch-I of Phase-I of the NSM and then Gujarat. Over the two years we have developed confidence in the Indian market that solar is here to stay. Solar has a space in the overall generation mix of the country.

What prompted us to open an entity is we want to build local capabilities on the ground and have a much broader relationship with the solar market in India.

Could you amplify on that?

Sure. When I say local capabilities — look at First Solar’s capabilities. We have the expertise to develop projects, do EPC, get financed, both on debt and equity, maintain those assets for the investors. The thing which we like about the development business is it helps to develop a pipeline. While the programme in India has been successful, it is lumpy in terms of demand. All the PPAs get signed on one day, everybody wants COD on the same day, decisions are delayed till the last moment, either on expectations of a drop in prices or to work through the documentation. This creates stress on the system in terms of people like us or EPC contractors who have to stock inventories and keep people on the bench, or let go of the opportunity.

For us as a company, our manufacturing process is continuous, unlike crystalline silicon. We are still the lowest cost manufacturer because we run out production lines optimally to full capacity to hit those cost points. If we run out lines only three months in a year we can’t.Therefore, it helps if we start developing our own pipeline of projects, it helps us to bring predictability of demand which then enables us to leverage our backend organisation — not just manufacturing, but system design and EPC and plan for building capacity as it comes. That helps us become more competitive.

That’s what prompted us to look at India as a key market. One of the five ‘sustainable solar markets’ for us based on their natural economic need, good irradiation or the country wanting to conserve their fossil resources are India, Australia, Saudi Arabia, South Africa and Chile — India and Chile because of the high penetration of diesel.

Our technology enjoys a good footprint in India and we want to broad base that relationship and get into a bit of development from our side, bring in our systems engineering expertise. A lot of these plants — the first wave of plants, either under NSM or Gujarat — have been built, in a lot of cases, by EPCs who don’t have much experience in doing solar. Yes, there have been a lot of European EPCs who have plenty of solar experience in terms of building assets, but there have also been an equal number of home-grown EPCs who have come in and built plants.

I think asset quality in some cases might have been compromised. Fifty per cent of the cost of energy is the funding cost. I think, as a stakeholder in the industry, it is our duty to make lenders comfortable with the asset. Only then will they lower their risks and only then will we see good quality capital. Right now, many of these projects have been built with recourse to the balance sheet. That is not really project financing. For Indian banks, ‘will it work’ is the question that they want to see because there is not much record of generation. Large Indian lenders, for instance PFC and REC, who lend to other parts of the power sector, have not really got into solar and unless that happens you cannot sustain an industry in India.

Do you organise funding for your customers?

Our customers have been able to organise finance, a combination of local banks and foreign banks, we are not privy to the nature of the …

There is an impression that you have been successful in India because of the backing you have received in the form of low-cost financing by the US Exim Bank.Well, first of all, US Exim is not captive to First Solar — there are other US manufacturers in the market besides First Solar.

The other thing is — while I am not sure about the exact percentage — a majority of our 225 MW is not financed by US Exim. The number of projects financed by US Exim is probably a third.

The point is, we are selling because our technology, at least in hot climatic conditions, produces more power than polycrystalline silicon.

We hear very divergent views on that.

See, it is like this. Our nameplate efficiency figure is about 12.7 per cent. The poly guys maybe at 15.5 to 16 per cent. The mono crystalline may go up to 20 per cent. All these efficiencies are at ‘25 degrees C, one atmosphere’ conditions. Now, each manufacturer publishes what is called a temperature co-efficient. The degradation curve — as your ambient temperature rises, your efficiency will fall. For the First Solar modules, that degradation is 0.25 per cent per degree rise in temperature. For the average polycrystalline, it is 0.45.

So, as the ambient starts hitting 40 and above, our modules start producing more. This is ambient 40. Typically, the cell temperature is 15-20 per cent higher than the module temperature. FS modules typically produce 8-10 per cent higher energy under high ambient conditions.

The second thing about thin films generally is that the impact of diffused sunlight —cloudy conditions, or dusty conditions — that causes poly output to drop further, compared with TF. India is a combination of high ambient and diffused. So generally we find that we get a higher energy yield in India. That’s been fundamentally the reason for our success. That helps to lower the LCOE (levelised cost of energy).

Thin Films, in general, and First Solar panels, require more space. But the incremental cost of land is outweighed by the incremental yield

In how many months in a year in India would the temperature be higher than 40 degrees?

Rajasthan and Gujarat practically nine months in a year.

First Solar modules are best suited only for these states then?

In other places, even if the ambient temperature is lower, the cell temperature is 15 per cent higher. If the ambient temperature is 35, then the cell temperature is 50. I am saying, at more than 40 degrees our panels start producing more electricity.

The other impression going around is that thin film has a market in India because of the skew in Government policies (that permits import of thin film modules, but requires crystalline silicon modules to be made here.)

In Gujarat there is no such policy lacuna. The National Solar Mission was 150 MW, and Gujarat was 600 MW. We got more share in Gujarat than in NSM competing against Chinese companies.

I think people have bought us primarily because of our yield performance. Second, they see First Solar as a profitable company. In projects that are financed on non-recourse basis, the lenders demand a great amount of due diligence and look at the solvency of the supplier for enforceability of guarantee and warranty obligations.

True, US Exim has indeed helped people who have bought from us. But then exim financing is available from other countries too. Exim is not a captive product of the US. Exim is an enabler, but people first make a technology choice. If they go for Chinese technology, they have access to the same level of funding from the Chinese banks. It is unfair to say that the only reason why we are successful or we got this kind of installed base in India is because of EXIM.

Some experts say that thin film modules made sense when the price differential between thin film and crystalline silicon was large. But now the delta is so small and hence thin film modules do not make sense.

That argument is absolutely correct under temperate conditions and rooftops. Because you end up paying higher price for ‘balance of system’ for marginally higher price of the modules. But because of the yield and because of the diffused sunlight and relatively low cost of land in the overall economics of the project, there is still a significant amount of advantage that the thin film brings.

The other point that we must remember is that crystalline silicon pricing seen in the market today — in our view and as is evident from the balance sheets of the companies — they are selling below their manufacturing cost. So, the question is whether this cost is sustainable.

So, you have the balance of systems penalty for TF and the higher yield advantage. Net-net, thin film is still advantageous.

Within thin film, do you think your Cad-Tel technology will continue to rule the market?

Within thin film, we have CIGS, Cad-Tel and amorphous silicon. I don’t know whether you are aware or not, First Solar was also looking at CIGS, very actively, trying to build an alternative technology. The cost of CIGS in our view is at a point that it will take them a long time to catch up with us.

It is one thing to say ‘we have hit a certain efficiency level in the lab’ and quite another thing to say ‘we are bringing such efficiencies on a sustainable basis in our production line’. That’s a considerable gap.

Second, are the efficiency levels (claimed by CIGS manufacturers) bankable? How much data do you have to back that efficiency? Any lender will say, you have reached that efficiency in the lab, fine, but show me where it is working.

Crystalline guys would then have the same argument against you? Do you have the same performance data as they do?

Why, we have performance data for 16 years.

In India?

In India also we have data. In India, even the crystalline guys have date only for two years, because the grid-connected plants are only two years. Off-grid is not a real measure of efficiency.

What about amorphous silicon?

In today’s world any new breakthrough technology requires a lot of money to scale up commercially. The incumbent technology people will also continue to improve their technology. Even we are working on our technology to improve our efficiencies. It will be incremental.

On the poly side, you put in more material you will get more efficiency. If you scan the global solar scale, you might see a lot of interesting concepts. But if a company like GE, which was pursuing its own solar programme gave it up, I’m sure other smaller players will find it very difficult.

Thin film is really about the manufacturing process. How you lower your rejection rate? How you are able to consistently produce the same module-after-module, deposit the same material in the same way so that you get the same results? It is about consistency in the process. It takes considerable amount of time before you hit that. Till you hit that there is a lot of rejection.

We have passed that point. Relatively we are pretty stabilised.

Is the market then a blue ocean for you?

I am not saying that. It is not a blue ocean. India has got other challenges. We are just discussing technology. I think from a technology standpoint we have got certain advantages when it comes to utility scale solar. That’s one dimension.

The challenge is our competition pricing their products at probably below cost. I think the bigger challenge, as these programmes get built in India is about ‘will this policy sustain’? Will the grid keep pace? You can build a solar plant, but you do face grid congestions.

Finally, solar has to reach a point where wind is today, for it to be really sustainable. Pricing of power, cost of power from that aspect, has to be something where you need a FIT (feed-in tariff) to keep the wheels turning. As an industry, all of us are trying to look into that point. Because all of us do believe there is a shortage, and if we can bridge some of the gap — it may not be huge in energy terms — people might be willing to pay a higher price because right now the alternative is no power.

Do you see a situation where for a want of funds for FiT, the industry is pushed to only bilateral PPAs?

The National Solar Mission is going to be there. The Government has made a commitment.

But where is the money for NSM?

Look at it this way. The average price of Batch-II was Rs 8.50. The average HT price is at Rs 6 — and in the southern states even if you pay the price you get power for three days a week. So, there is a demand. Question is, are people willing to pay more for the demand? Second is, how much are they willing to bet on the future price of coal. Solar is a good hedge against that, because fuel is free.

A lot of us in the industry are trying to discover a demand outside of FiT. But at the same time I think the NSM will be needed to give scale. Indian industry needs to scale up. For that, both forms of programmes (FiT and bilateral PPAs) need to co-exist.

Who is going to pay for the FiT?

Today, the gap between the price of conventional power on the higher end and the price of solar power coming from FiT is not that big. The differential has come down. You should intuitively believe that coal prices should go up. Who predicted coal prices will be $140 a tonne. That’s where you hit the grid parity point.

The question is, even if grid parity happens, will it uncork large demand? Just by doing grid parity, it may not. You need other things such as open access, how you are going to wheel and bank this power … really the grid and the grid operator being comfortable with this kind of power coming in. The solar assets which one creates also need to have features that make them dispatch-able.

We are building assets such as a 550 MW A/C in the US. These are large chunks of power coming into the grid. There is a well defined grid code which we have to install in the design of the solar plant which will make this power-grid-friendly.

I think as the plants in India, NSM Batch II come up, people will begin to see some of those features being installed. Same like wind. From the 250 kV class machines today you have 2 MW class machines. A 2 MW machine has got a lot more features in terms of voltage ride-through, voltage control, and some of those features which allow the machine to not go off-grid when there is a grid disturbance — it rides through the disturbance.

A solar plant is also similar in nature. In wind you have what’s called a converter. In solar it’s an inverter. It’s virtually the same thing. What these Government programmes will do is, to help people to scale, demonstrate that the power can be integrated into the grid properly, which will give confidence.

Bilateral deals will happen, but again, we will not see bilateral deals such as 100 MW happen in year one. People will test the waters. Even if I have a PPA — even if I am generating, who is assuring me that the grid is available? That’s where in this whole ‘bilateral deals’ we will still have to figure out how to take the grid companies along with us.

So you still continue to depend upon these Government-sponsored programmes?

We need both. I am saying that while the Government programmes are important to scale…

Look at it this way. We’ll see probably the first few deals happening on bilateral basis. If it works, I am sure there is enough demand for people to move into these bilateral deals.

Today it is not about the appetite to take power — there is the appetite. There is appetite to put the assets up. The key is really the grid.

What are First Solar’s ambitions in India?

Our goal is to see if we can create a pipeline which is predictable enough for us to then figure out if the Indian market is mature enough for us to put in manufacturing operations here.

How do you intend to create a pipeline?

By developing our own projects. We are in discussions. As you would recognize, when we do development … development and EPC construction requires a lot of local expertise. We do believe that in India there is enough local expertise available already.

So what we are trying to do is to structure partnerships. Like: you got local developers who want to build projects. First Solar is here. We’ve got the technology, got the experience to do this. We know how to put a quality asset together. We also have some leverage in terms of financing. So we are trying to put our combined expertise together instead of recreating competencies.

Does it mean that you will not own the assets?

We ideally would not. We are not an IPP. We are a technology company. What we want to do by development is really try to enable a pipeline.

Are you going to adopt the ‘wind model’, where a manufacturer puts up a wind farm and then sells slices of it to investors or IPPs?

We are trying to make that a model. The challenge for us, unlike say Suzlon building a farm, is the price of power. Also, the Suzlon model was built around ‘accelerated depreciation’. Whereas what we are trying to do is to enable more solar energy coming into the grid. Slight differences, but in the end the model remains same.

We want to create the assets and then ultimately transfer the ownership to somebody who wants to own it long term and then have an O&M agreement so that we deliver our performance for as long as the guy wants to be comfortable with the asset. This is what we do in the US, Canada and elsewhere.

At what stage is this thinking?

It would be premature for us to disclose to plans, but we are looking at States where there is good solar irradiation, and States which have good demand. Bilateral PPAs make more sense in South India. Currently, that is where the power constraint is more. The Southern grid is starved of energy. The bilateral PPAs will immediately make sense here.

What are your major concerns?

The big question mark is the enforceability of the RPOs (renewable purchase obligations). It has not really happened, even if it happens in the industrial sector —because in energy terms they are a big consumer — if you start enforcing it across discoms, how are you going to monitor, there is not enough monitoring capacity available — even if you enforce it on a limited scale on the industries, I think that will give a fillip to the market. REC/RPO is a good programme, but without enforcement it has no meaning.

We are in the initial development stages with some partners, looking at land options, looking at how we get the optimal PPA pricing and as soon as we sort out some of these things we could probably begin construction.

Will the removal of accelerated depreciation for wind power developers work in your favor?

There is some interest from some of those who have AD appetite, but to my knowledge no deal has got closed. But remember, these AD customers will start placing orders in February. So, it is early days yet.

What is your take on the manufacturing in India? Should the Government mandate local procurement or not?

Our view, as a developer, is that there should not be any restriction on their ability to source stuff. For the manufacturers, it is a function of predictable demand — solar manufacturing is all about scale. Also cost of power, cost of utilities in India is extremely high. We have to really see what kind of incentives Government is giving to people who are putting capital. That is secondary. The biggest issue is, is there enough scale domestically created which can justify manufacturing at the same time not impact the developers.

Because, if you set up a smaller scale manufacturing plant…globally there is over capacity. The solar developer community is trying to lower the cost of power so that it creates more demand, and at this point in time if you impose restrictions on them, saying they have to source only from domestic, they lose the advantage.

Therefore, it is a function of a) on the front-end, how do you create scale, which will come if policies are consistently enforced. Enforce RPO, you immediately create a market. If it is a natural economic need, definitely people will come and put up manufacturing. We cannot have and should not have a policy where you restrict the ability of the developer to bring to you the lowest cost of power. If you do that, if cost of solar power goes up, it is going to shrink the market, and it will be a non-starter. It will have exactly the opposite effect of what you are trying to create.

Do you think there is scope to bring down costs outside modules, say, in Balance of Systems?

I am not an expert on that subject, but here is what I would say: the amount of cost focus that has been there has not been there on the BoS front. But at the same time, remember, the BoS has got like fifty different components.

Take the biggest — the inverter — is there a good scope for cost reduction?

Even if you take 30 per cent cost of the current inverters—inverter is like 2 cents per watt in an overall project cost of, say, $ 1 .75. It is not going to make much difference.

But the module is only 50 per cent of the overall cost. In some cases it is just about engineering, more than taking cost out — things such as structures. In the first wave, the good ones, the EPCs mostly came from abroad, because there was no Indian. They adopted the global designs to do the first level of projects. People have learnt from that.

The Indian EPCs looked at their experience in non-solar and built something. They have learnt from that. The way you do electrical systems, foundations etc. There is scope to take BoS costs out, but a lot of it is about how you engineer the plant and get more efficiency around engineering—how do you design the plant for Indian conditions. People have learnt a lot.

What would you say about the high warranty claim reserves set off by your parent company?

Any semi-conductor material which goes into higher temperature will experience more abuse. It is physics. What we said was historically 90-95 production used to go to temperate climates. Over the past few years, India had about 8 per cent of our global revenues; we are building a lot of plants in the US in very hot conditions. What we said was as our demand changes from 90-10, to exactly the opposite, we will have more warranty reserves, because we could naturally expect some recall of projects, because of the more abusive conditions. That’s all to it.