Thin-film PV giant First Solar intends to walk away from its German factories and “indefinitely idle” four of its 24 production lines in Malaysia, as the blood continues to spill across the European solar sector.
First Solar’s facility in Frankfurt (Oder), in the eastern German state of Brandenburg, will cease production by the end of October and close permanently by the end of the year in response to ever-waning support for PV in core European markets.
Recent reductions in German and Italian feed-in tariff rates continue a trend intensifying across the Continent and “will have a dramatic impact on demand, as the vast majority of the European market is not viable without significant subsidies”, First Solar chief financial officer Mark Widmar says.
“Due to the lack of legislative support for utility-scale solar projects in the EU, we do not see a business case for continuing manufacturing operations in Germany.”
The Arizona-based company opened a second plant at the site only last November, doubling its German production capacity to about 500MW. Widmar says company executives, including chairman and interim chief executive Mike Ahearn, were in the country this week to negotiate details of the shutdown with government officials and the German Workers Council. Some of the newer equipment may be redeployed to other factories.
The four lines to be idled in Kulim, Malaysia – where First Solar performs the bulk of its manufacturing – will be shut from 1 May, as First Solar looks to align its production capacity with slowing growth in global demand. Another 20 lines there may be idled periodically to upgrade tooling and improve efficiency, while also managing production to match lower demand.
Alongside other “personnel reductions” taking place in Europe and the US, the purge will see First Solar dump 2,000 of its workers – or 30% of its global total as the company seeks to reduce operating expenses from 17% of revenue to about 8%. Production capacity will be reduced from 2.5GW to 1.7GW.
The announcement represents a tremendous blow to Germany’s PV manufacturing sector, which is already on life support and may not be long for this world.
The list of German PV companies either filing for bankruptcy or shutting factories grows longer by the week. Since the beginning of April alone, Q-Cells filed for insolvency and Phoenix Solar delayed filing its annual report as it “adjusts” its business plan.
First Solar’s commitment to Germany – it announced the expansion of its Brandenburg factory in 2010 – was of huge symbolic importance to the sector, and the company has always relied heavily on sales in the German market.
“Decisions like this are not easy, especially given how important the European markets and our associates in Europe have been to the development of [First Solar] and the industry as a whole,” says Ahearn, who co-founded the company in 1999 and returned to the role of chief executive since the shock departure of Rob Gillette last October.
First Solar says it will swallow restructuring charges of $245m-$370m as a result of the closures – including $150m-$250m in asset impairment, $50m-$70m in severance pay, and a $30m repayment of a government grant related to the Frankfurt (Oder) factory.
Most of the charges will be included in the company’s first-quarter financial results, and come on top of previously announced 2012 impairment charges of up to $140m. About $100m of the earlier charge is for the discontinuation of work at a proposed factory in Vietnam, a decision announced a week after the company ousted Gillette and slashed its 2011 earnings forecast.
Partly as a result of the closures, First Solar says it has lowered its 2012 production cost target from $0.74 per watt to $0.70-$0.72 per watt – which will fall to $0.60-$0.64 next year.
First Solar – which recorded a $68.7m operating loss in 2011 – forecasts demand of 1.5GW-1.8GW of modules this year, most of which will go toward its utility-scale project pipeline.
First Solar will cut 2,000 jobs, including the following specific reductions:
German factories: 1,200
Malaysian factories: 550
European sales and support: 150
US non-manufacturing: less than 200