Cheap as 'First Solar' in 2010: China’s Trina Takes On PV Industry Leader

In a matter of months, China-based Trina Solar will be able to compete with low-cost industry darling First Solar on cost and price for the first time – courtesy of cheap silicon.

"Next year, our cost reduction roadmap will allow us to compete with First Solar in the balance of system level, so that module wise we will compete with them some time next year," said Terry Wang, Trina's chief financial officer.

That could be causing Arizona-based First Solar to sweat. But solar watchers worldwide should be pleased. It's another sign the industry is starting to recover after a tough 12 months, which saw the sector beaten down by financial recession.

The competitive threat came as part of a surprising record-breaking profit announcement by Trina.

The firm's profits shot up 11 percent in the second quarter from last year, to $18.9 million. It shipped 63.9 MW of solar modules, up 34 percent on the same period in 2008.

The numbers defy the solar industry's recent run of poor financial results. Except for First Solar. Its second-quarter profits were even more impressive, doubling from the previous year to a whopping $180 million.

In fact, the photovoltaics (PV) company has seen a string of achievements as of late. Its Lieberose Solar Farm in Germany has become that nation's biggest solar power plant, and the world's second biggest. It also signed a major deal to build two solar farms in Southern California for utility Southern California Edison this week. The new installations will have a total generation capacity of 550 MW.

That deal takes First Solar over the 1GW mark in its U.S. utility-scale efforts. And it underscores its place as the world's largest manufacturer of solar cells.

That begs the question: Is First Solar's lead really in danger, as Trina Solar suggests?

The answer, it seems, is yes. And the main reason is silicon.

Silicon Price Collapse

First Solar's panels are made not from silicon but cadmium telluride, historically the cheapest of the PV technologies. In the fourth quarter of 2009, the company crossed the coveted buck-a-watt barrier with its proprietary "thin film" panel.

It cost the company just 98 cents a watt to manufacture a module back then. And costs have been dropping ever since.

In 2012, they're expected to plummet to around $0.65 to $0.70 per watt, the company has said.

Trina's silicon-based panels have long had an efficiency advantage over those made from cadmium telluride. And now they're also cheap.

Experts say silicon costs have shrunk 50 percent in the past year alone.

For Trina specifically, the costs of the polysilicon, the industry's key raw material, fell about a third from the first quarter of 2008 to the first quarter of 2009. They plummeted another 30 percent from the first quarter of 2009 to the second quarter. And in the third quarter, costs are expected to fall another 25 percent, and on and on.

By the fourth quarter of 2009, Trina's panels are expected to cost $1.25 per watt to manufacture, a 56 percent reduction over last year.

Trina's not alone. Other Chinese silicon solar players are also narrowing the pricing gap with First Solar, most notably Suntech Power and Yingli Green Energy.

Germany, First Solar's largest market, is expected to suffer the most from this pricing war. UBS analysts have estimated that the solar panels being sold by Asian firms often have price tags that are two-thirds that of those created by German companies, knocking some out of business.

For evidence of the hit its home-grown sector is taking, German company Q-Cells, the world's second largest producer of solar panels, recently announced plans to lay off 500 employees, after posting an operating loss of $67.5 million during the first half of 2009.

Price War: First Solar Fights Back

To defend its "core market" from Chinese silicon competitors, First Solar recently announced plans to hand out rebates to customers who do business in Germany. The customers will receive the rebates when their installations are complete. Michael Ahearn, CEO of First Solar, explained why:

"Across Q2 [2009], we observed some aggressive pricing behavior on the part of some manufacturers in order to drive sales into the German market. ... We will discount if necessary to defend our position in this core market."

Though the company's profits remain solid, and its U.S. business continues to surge on the back of stronger government incentives, investors and analysts saw the rebates as a troubling sign for the company's future. First Solar's stock price tumbled 10 percent on the news.

See also:

China's Trina Solar Bets on America's Thriving Photovoltaics Market

In a League of Its Own: First Solar Breaks the $1-a-Watt Barrier

First Solar, the "Google of Solar Energy," Is Coming to America

Knocked Down But Not Out: America Could Be Global Solar Leader by 2014

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