Ted Simons: Tempe-based First Solar announced layoffs this week of 2,000 workers worldwide. 120 of those layoffs involve U.S. employees. First Solar is a leader in thin film solar technology and the company is currently building a major manufacturing plant in Mesa. What do the layoffs at First Solar say about the state of the solar industry? For an answer we talked to Tim James, research professor at W.P. Carey School of Business. Thanks for joining us on "Arizona Horizon."
Tim James: Good to be here.
First solar laying off 2,000 workers worldwide. First of all, is that a bit of a surprise?
Tim James: I don't think it is really. I think if you look at what's going on with the energy market generally, and solar specifically, it's in flux at the moment. Europe is suffering economically and that's meant the Germans, the Spanish the Italians, the French, and the British are all reducing subsidies to spend on renewable energy. That means that market is dying, and that's where First Solar has made a lot of its inroads in the solar market.
Ted Simons: It sounds like First Solar was concentrating on Germany, and Germany, again, decided subsidies no more, at least for now. Big impact huh?
Tim James: Yeah, I mean Germany has a way of trying to introduce more solar, distributed generation and utility scale solar. This involved large subsidies and then incentives for people to put solar on their roofs. The German claim at one time was there were 1 million roofs in southern Germany alone with rooftop solar. That's all coming to an end because the Germans are finding it more and more difficult justifying spending large amounts of public money on subsidies. Really the Spanish market has died because their economy is in a worse state than the German market, so Europe is not a good place to be if you're a new energy company at the moment.
Ted Simons: Is there -- I've heard there's an oversupply of solar panels on the market. Is that true?
Tim James: There's overcapacity probably in terms of what you can sell feasibly at the moment. One of the reasons for that is that really China has moved into solar manufacturing, PV - photovoltaic manufacturing of various kinds, really quite heavily over the last few years. Developments have also meant the price of competing technology has been driven down. So it's making for a glutton in terms of the amount of solar capacity there is. That's really what is driving prices down.
Ted Simons: So manufacturing capacity is outpacing demand.
Tim James: Well, yeah. We're in a situation where there isn't the demand -- the public subsidies are no longer backing the market. So there is a reduction in terms of what people are willing to put out, compared to what people have been doing in the past. Then people have geared up in the expectation that renewable market would carry on. So there's got to be some restructuring, and I think the whole First Solar move is a clever way to make sure you realign associated the way you think world demand is likely to grow.
Ted Simons: Interesting. Now is there a cheaper way -- you mentioned China. Are they finding a cheaper way? Is there a new development or an innovation that is undercutting what First Solar was expert in?
Tim James: First Solar is a thin film manufacturer. And they're crystalline Manufacturers as well, and they compete with each other as far as in terms of R&D expenditures they make and the kind of developments that they make. And it's -- nobody really knows, there's an argument to made maybe Crystalline Manufacturers are a little bit ahead in terms of cost per megavolt, and that might mean they have a cost advantage. But there's a kind of battle taking place in terms of R&D to make more and more efficient P.V. solutions. And at one stage one group will be ahead another stage another one will. So it don't mean the game is over, just that we're in a competitive phase in terms of --
Ted Simons: What does it mean about this plant being built in Mesa. The first solar is building a manufacturing plant in Mesa, it's still being built. I guess they'll complete it, but what's going to come of it?
Tim James: That's a really big question. I don't know the answer to it. Hopefully we'll be able to provide a solution in state where we can export some of the potential we have to generate power using solar. It's one of the big interests of the state. We've got a state next door that needs more renewable energy, if we can supply them with solar power. If we build an appropriate transmission system, hopefully there will still a big market. And that will mean maybe the Mesa plant will get off the ground.
Ted Simons: You're seeing first solar more in terms of restructuring, and looking at the market and trying to play it smart as opposed to, what, the first of a death rattle in this case?
Tim James: Yeah. I think they're making sure they're realigning themselves so they're not trying to supply a market which no longer exists, which is Western Europe. They're also curtailing the amount of capacity they've got in Malaysia, which is also one of the big palnts as well. And maybe the U.S. can lead us out of the recession that we've been in, and that will mean we'll grow a renewable energy here first and that will lead to them going back to the other areas that they were prosperous previously.
Ted Simons: A quote from management at First Solar – ‘our current operational structure is not sustainable given today's market realities’. That's basically what you've been talking about. So again, is this a survival move, or delaying the inevitable?
Tim James: I think -- I hope First Solar will survive. They're in a better situation than other solar organizations. They're a big player. They're important to the state going forward. And they certainly have advantages the others don't have. Hopefully this is just part after restructuring move which will make them more fit for purpose going forward.
Ted Simons: Would fit for purpose mean more attractive for sale?
Tim James: Sale to who?
Ted Simons: That's the question. Is anyone interested in buying them?
Tim James: There's going to be restructuring in solar. As people take advantage of economies of came, some of the big players might acquire each other or merge. Who knows what's going to go on?
Ted Simons: What does it say overall? What's going?
Tim James: One of our problems, nobody knows. Because you've got this big problem with governments having supported renewable energy for a long period of time, now it's coming to an end. Even in the U.S. federal incentive will come to an end in 2016 we think. That makes them -- the demands in the market very uncertain. The supply side is in flux as well. Because natural gas prices are quite low, which is making natural gas, the amount of it available in the U.S. like an attractive option in comparison with what we were looking at before. Renewable was a way of replacing carbon intensive fuels we were using.
Ted Simons: Can you look at it on the bright side, though, more in a positive light, this is innovation, it's rapid innovation and a rapidly innovating industry, forcing First Solar to restructure to rethink that would be a good thing.
Tim James: I think there is some truth there. Adversity is the thing that often makes you change things or change the way have been behaving. You are forced to become more competitive and target particular markets where you know you can be successful.
Ted Simons: Last question, what should we look for in the sow radar market in the solar industry to give us an indication of where all this is going?
Tim James: That's a really difficult question. Because I don't think anybody has a crystal ball here. I don't know whether that a pun or not. But---
Ted Simons: Is there any indicator?
Tim James: I don't think -- I think -- we need power going forward, energy going forward. But the form of energy we're going to use, I don't think anybody is certain about. Because the thing that got thrown into the mix over the last four or five years is the economic downturn. Which meant the market as it existed prior to 2007 was completely different to the one that exists now. So really the driver for all this climate change is being put on the back burner. What we're really doing is trying get in a situation where the economy is better, and I think we'll start thinking about what we need to do in terms of our energy usage going forward to fit with more of our long-term goals, reducing carbon footprints.
Ted Simons: We'll keep an eye out Tim. Thanks for joining us.
Tim James: Thank you.