Michael Ahearn: First Solar Founder Says Europe's Energy Policies Leaving U.S. Behind


Mike Ahearn

A company based in Arizona's Valley of the Sun went abroad to the much less sunny Germany to find the market opportunity that made it one of the fastest growing manufacturers of solar modules in the world, said its CEO, Michael Ahearn.

Ahearn, founder as well as CEO of First Solar, Inc., was named the 2009 Dean's Council of 100 Executive of the Year by the W. P. Carey School of Business. In his acceptance speech he said that the U.S. lags behind European Union member nations, which are moving toward a carbon-neutral model that will be a global competitive advantage in coming decades.

This question of energy policy is a key issue today -- not just in the U.S. but world wide. And I think it's very likely that we'll look back a few years from now and realize that we are on the cusp of a major transformation in the fundamentals of energy policy, Ahearn said.

When people think of solar, they think of something that goes on a roof, that's very expensive, that's a niche product that they know is around but not in volume or scale, he said. Yet, it intuitively makes sense to people that we ought to have more solar. I get this [question] all the time: When is that going to happen? When are costs going to come down?

Ahearn is in a good position to comment on those concerns. First Solar has succeeded in driving two-thirds of the cost out of the manufacture of its solar panels, and that efficiency is expected to increase. On April 29, First Solar announced that it was beginning a search for a new CEO, eventually freeing Ahearn to concentrate on public policy concerning low-carbon infrastructures. Ahearn will continue full time as executive chairman of the company.

First Solar

Ahearn started his career as an attorney specializing in start-ups. In 1999, he and John Walton, son of Wal-Mart founder Sam Walton, formed a venture capital firm called True North Partners, which spawned First Solar. Formed with $43 million in capital, First Solar developed a semi-conductor technology that promised to drive down the cost of manufacturing solar panels.

If you visit a First Solar factory, Ahearn said, you'll see robots unloading two-by-four foot glass panels onto a conveyor belt. A film of semiconductor material the thickness of a single hair is applied to the sheets of glass and processed. Two hours later the gray glass-on-glass panels emerge, ready to install. The semiconductor material converts photons from the sun into electrons, forming current.

Because it is automated, involves a small amount of material and can be completed in a short period of time, the process dramatically reduced manufacturing costs. If you can get that to work, and if you can scale it up to volume, then the economies of scale and the technology improvements that come with learning cycles offer the ability to create trajectories like you've seen with other semi-conductor products over the years, Ahearn said.

At the end of the first two years, Ahearn expected First Solar to have built the world's largest solar manufacturing plant. Six years and $150 million later, the company had its plant. It was about 20 percent the size Ahearn had envisioned, but the trajectory was about to turn upward. In 2005, First Solar produced 20 megawatts -- enough to power 3-4,000 homes. But by 2008, production spiked to 500 megawatts -- a 2,500 percent increase -- and in 2009 production is expect to reach one gigawatt.

Meantime, manufacturing costs headed in the opposite direction. In 2004 First Solar's costs matched the industry average of $3 per watt, but at the end of 2008 costs were down to $.98 per watt -- a two-thirds reduction in four years.

When I talk to people I always get the question -- well, do you think there's anything left? Do you think you can do more? Ahearn said. I'm just giving you a snapshot in time. We're right in the midst of these trajectories, so the volumes are going to go up and the costs are going to come down for quite some time as we continue to optimize the potential of this technology.

The market opportunity

In its early years First Solar experienced several years of slow development, followed by that steep upward spike. This pattern was the result of the maturing of the technology, which had been in the research stages for 10 years before First Solar was founded and continued to develop after the company was formed. Another part was execution. I could spend a whole day telling you about [execution], he said.

But if you have technology and execution, there is a third piece that turns out to be absolutely critical to make this happen, and that is a market opportunity, or a market structure, that allows companies to scale quickly and cost-effectively, Ahearn said.

Electricity is a regulated market everywhere in the world, he said, and there is no 'automatic market' for renewable energy -- especially for the new, expensive technologies. To achieve rapid growth, First Solar needed a lucky break -- which it found in Germany.

In 2004, Germany broadened a feed-in tariff that was originally enacted to benefit wind power to include solar electricity. Since then, Italy, France, Greece, Portugal, S. Korea -- even Ontario, Canada and a few dozen smaller markets -- have followed Germany's example. Feed-in tariffs are government incentives designed to nurture renewable energy projects by requiring utilities to buy the resulting power at above-market prices for a long period of time. Germany's system fixed the rates for 20 years.

Say you build a solar power system on your land or on your roof, Ahearn said. Under feed-in tariffs you don't use the power yourself -- you connect to the grid and sell it to the power company at the price set by the tariff. Suddenly solar is not just 'green' -- it's an attractive, income-producing investment, like an annuity. A surcharge on electricity rates pays the bill, spreading the financial burden over a large number of payers. Every new project comes on at a lower rate, reflecting improvements in technology, until eventually -- hopefully -- rates reach the same cost per watt as conventional generation.

The feed-in tariff programs have provided market certainty, enabling companies to raise a lot of money for projects -- $1 billion in the case of First Solar. The tariffs create clear markets, establish definite price points and set end dates that give companies multiple years to recoup investment and make a profit, Ahearn explained.

The low-carbon infrastructure

Feed-in tariffs have fueled First Solar's growth in Europe, yet Americans are skeptical, Ahearn said. They say the German example sounds very expensive; they think it's a goofy, European sort of quasi-socialist thing.

But Ahearn points out that tariffs are part of a bigger strategy on the part of European nations to prepare for a world that's transforming its energy infrastructure to low-carbon. According to Ahearn, these countries believe the transformation is inevitable, and is picking up pace.

Driving it is what Ahearn calls a scientific consensus that global climate change is a reality. He said the consensus is actually very tight, and that we will need to replace energy sources -- electricity and fuel for transportation -- that emit carbon and greenhouse gases into the atmosphere. By 2050, he said, we need to reduce the 1990 levels of these pollutants by 50 percent.

You can see a range of debate here -- is it 50 percent? Is it 80 percent? I don't think it matters, he said. Anything that reduces 60 years of carbon worldwide will require nothing short of a revolution in the way we generate, distribute and purchase and use power.

The drive toward carbon-neutral is also being propelled by security issues, he said -- the desire of nations that are not rich in fossil fuels to end their dependence on unstable producer nations.

The strategy here is pretty straightforward, then. Take fossil fuel out of the equation and replace it with technology, Ahearn said.

Europe is applying a number of tactics to achieve the goal: carbon cap and trade policies, binding commitments to reaching 20 percent renewable sources by 2020, building a smart grid, inter-country regional planning and more. The payoff for acting now is lower costs, he said -- a one percent GDP price tag today could multiply 5-15 times in the future. The European approach is to make sequential changes affecting industry, institutions and citizens. Then in 2020, Ahearn said, these countries will be ready to export energy and technology worldwide.

U.S. and energy policy: A sea change

Most U.S. energy policy is handled by the states, and although there are some programs in place, compared to Europe they are simply noise level to companies that are aggressively pursuing clean technologies, Ahearn said. But the Obama administration appears to have taken notes on what Europe has done, he added -- a sign that there may well be moves toward a policy transformation in the near future.

Naysayers argue that a recession is the wrong time for quick movement on climate change, Ahearn said. This group also cites other pressing issues facing the nation, and questions what China intends to do about its carbon emissions.

What I think is interesting about these comments is that they go more to timing and nuance. What is not occurring today is fundamental argument about not embracing climate change and low carbon energy structure -- I don't hear that, he said. I think there are people in back corners that disbelieve it, but it doesn't make its way to the table. There's been a sea change.

The world expects the U.S. to act concerning climate change, if not this year then in the first term of the Obama administration, he added.

As for China and India -- numbers two and three carbon emitters following the U.S. -- Ahearn does not expect them to initiate market strategies to lower carbon emissions in the next several years, he said. There's a sense in those countries that it's not the right time given the fact that their economies are still developing and their social issues are pressing. Ahearn added that the industrialized nations are perceived as having created the present buildup of greenhouse gasses, and therefore should take responsibility.

He thinks that both India and China will move more quickly to develop clean technology, however. China especially is trying to shift its economic base from a predominantly export focus to a domestic focus. That domestic market is huge, and companies like First Solar are watching it.