As attention focuses on Evergreen Solar’s bankruptcy filing and ongoing slow-motion train wreck, another story about a failed US-based solar manufacturing enterprise remained a smaller blip on the edge of the industry's radar screen. German-based Solon has decided to shut down its crystalline-silicon module production line in Tucson, AZ, as part of company management taking a hard look at the cost effectiveness of its manufacturing and making a painful yet necessary restructuring in its business operations strategy to compete in the North American market. In Solon’s case though, the move from fighting a losing battle as a commodity module supplier to becoming a differentiated product supplier, conjoined with a healthy project development/power plant business, may allow the firm to remain competitive.
“We came to the strategic conclusion that as a small 60MW manufacturer trying to compete against 200 manufacturers at least, with some of them being multiple times our size, is kind of like beating your head against the wall,” Dan Alcombright, CEO/president of Solon’s North American division, told me during a phone interview.
The possibility of the Tucson shutdown could be read between the corporate lines in the company’s July 21 restructuring announcement, which said that “Solon is accelerating the cost reduction program that is already in place in order to adjust cost structures to the current sales plan. Additional savings potentials have been identified with this objective in mind.
“To reduce production costs, Solon’s management board is working with the restructuring experts on the optimum utilization of the most cost-efficient production locations and is once again scrutinizing its current production situation. The German production facilities in Berlin and Greifswald remain an integral part of the company’s market strategy.
“The successful implementation of the restructuring program entails the significant expansion of Solon’s national and international distribution network,” the release continued. “At the same time, cutbacks will be required in individual areas of the company where the staffing no longer corresponds to the current situation. The concrete plans will be completed by the end of August 2011.”
Alcombright explained that “what we have proactively decided to do is to change our strategy. As opposed to competing head on with a standard 60- or 72-cell panel, what we are focused on… is to develop new differentiated products that the market would perceive as offering a higher value and then focus our PV products unit on designing and supplying those modules to this market.” He cited the company’s SOLbond BIPV system, recently introduced in Europe, as an example of an added-value differentiator.
The question of commoditization versus differentiation often goes directly to the question of scale, with those companies capable of bringing hundreds of megawatts or even gigawatts of production capacity to bear likely to overpower the smaller players on a number of levels when the market becomes flooded with modules that don’t stand out from the pack.
“We’re selling what the market perceives as a ‘me-too module,’” the exec noted. “The [standard blue module] has a nice finish, no doubt about that, but I’m not sure customers really put a value on that. They do place a value on differentiated products, such as ones with higher efficiencies or ease of installation or both. There’s a great quote from Ed Wegener, head of our PV products group, who said ‘We got very good at manufacturing the wrong product,’” a product in this case with middle-of-the-road efficiencies in the mid-14s.
Noting the overall supply-chain cost of doing business as a small manufacturer and the glut of cheap modules, Alcombright made a gambler’s analogy. “If you think of this as a card game, we have a hand that’s not really a good hand. To keep trying to play that hand and anteing into the game doesn’t make sense for our US operations.” Not even the “Buy American” status of modules made in Solon Tucson was enough to stop the bleeding.
Although the cost of the shutdown to the company’s balance sheet has yet to be made public, the human cost has: some 63 employees will be laid off once the module line is shuttered in October, according to Alcombright. “It’s not easy to do this, we have good, loyal, high-skilled workers here. That’s the hard part. But it’s what we need to do here to maintain a stable US business unit and make sure we secure our future growth.”
Other skilled engineering and supply chain personnel will retain their jobs and find positions elsewhere in the organization. For example, “the production manager will become a project manager on our utility projects, and two of our production engineers will be in product development and process development,” he said.
The eventual status of the moduling production equipment and the soon-to-be-vacant factory space has yet to be determined. The tools will be released into the corporate operations equipment pool in Germany, where COO Martin Detje and his team will decide what to do with them—redeploy the gear internally in Solon’s remaining production sites, sell them to a contract manufacturing/colicensing partner, or dispose of them at auction.
As for the production floor in Tucson, the North American head said the company will definitely stay in the building, which will remain its regional headquarters and the site of product development, R&D, engineering, project management, and other activities. “We haven’t decided how we will fill up the vacated space. We have a number of ideas but won’t put them into action until the first part of next year.”
The lack of domestically produced modules will have no impact on Solon North America’s power plant unit, which is run by new hire Joe Benga. “We have been sourcing modules from different regions over the past 12 months,” related Alcombright. “Our projects have received modules manufactured here and manufactured in Asia under a colicensing agreement with sources developed there. The group will do their sourcing from our Asian partners or our direct factory in Europe. We’re not learning a new trick here.”
The power plant business has been a bright spot for Solon amid otherwise troubling financial results, accounting for 57% of its overall revenues during the first half of 2011. Much of that has come from its US unit, where the total installed capacity should reach 85MW by the end of 2011, according to Alcombright.
Despite the layoffs and because of the new strategy, the company is actually adding jobs—there were 10 Tucson openings listed when I last checked the website—and it recently opened offices in Phoenix and San Francisco. “We’re hiring very actively,” he said, noting positions in business development, applications engineering, and project management, among others.
Solon’s closure of its Tucson moduling line runs counter to the small but growing trend of manufacturers opting to build PV production capacity in the US. For every Evergreen, Solon, Siliken, and BP Solar that have pulled the plug on domestic cell or panel factories, the likes of SolarWorld, Suntech, SunPower, Helios Solar Works, Sharp, Motech, Mage Solar, Suniva, and a raft of thin filmers led by First Solar are ramping up and cranking out product.
On a personal note though, Solon’s failed Arizona PV fab foray leaves a bittersweet taste: it was the first crystalline-silicon module facility I visited in the US.
In the spring of 2007, I saw a small manual line capable of producing a few megawatts of panels. It was soon to be replaced by what was to be a highly automated 60MW production operation. The first tools for the new line had arrived and were being installed. The company envisioned thousands of modules coming off that line every week, feeding an ever-growing appetite for commercial- and utility-scale projects that would likely require added manufacturing capacity within a year or two.
The reality of the second half of 2011 is, as Solon’s own slogan goes, solar does not equal solar. Some companies are not equal to the challenges of scale and must differentiate or die. Will the company’s strategic triage helps ensure its survival or just postpone the inevitable in what will be an increasingly shaken-out industry?