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First Solar: Nothing but Blue Skies

By William d Alessandro on June 01, 2016 at 3:27pm.
Solar radiation falling on the headquarters of First Solar in Tempe, Arizona, is nearly more than on any building in the US.  The athletics teams competing at the state university there are called the Sun Devils.  The climate is like in a desert.  

First Solar manufactures solar photovoltaic (PV) cells at two factories but not in the Southwest.  One is in Ohio.  The other is in Malaysia.  In 2014, the calendar year covered by this first sustainability report, the manufacturing capacity was 2,700 megawatts.  For comparison the single nuclear reactor unit that partially melted down at Three Mile Island had a rating of 906 megawatts.

Crystalline silicon cells comprise more than 85% of the world’s output.   First Solar’s cells, however, use a thin film of cadmium-telluride semiconductor material.  CD-Te cells are a distant second in the global PV market.  No shame, however.  The pace of CD-Te is a consequence of the pathway of R&D over the past 40 years.  In fact, First Solar’s CD-Te PV modules are more efficient, and more cost effective, now than many silicon competitors.     

First Solar pairs their proprietary and secret film technology with a similarly unique business plan.  The company designs, builds, owns, and sells utility-scale solar farms.  (They have a stake, too, in silicon cell technology through ownership of TetraSun acquired in 2013.) 

As of January 2015 First Solar installed a record-setting 10,000 megawatts (10 gigawatts) of PV capacity in 35 countries (but overwhelmingly sited in the US).  That amount could supply the equivalent of less than one-half of one percent of the nation’s electricity generation. 

First Solar’s profile, though, comes into sharp focus only by looking through a rear-view lens.  In the 1980s an inventor, Harold McMaster, laid the groundwork for depositing PV material on glass.

McMaster founded Permaglass in 1948.  Eventually, he would merge it into Guardian Industries becoming one of the largest glass makers in the world.  

Like every solar entrepreneur (then and now), McMaster had a bumpy ride.  The arduous journey wound up in 1999 when a venture capitalist firm purchased a controlling interest in McMaster’s company and renamed it First Solar.  The man behind the takeover was Mike Ahearn, a graduate of Arizona State University.  Today Ahearn is the chairman of the board.   

The previous CEO, appointed by Ahearn and recently replaced, had been a top executive at the notorious Enron Corp.  His successor is an accountant whose resume features positions with NCR, Dell, Lucent Technologies, and Bristol Myers/Squibb.

First Solar is listed on Standard & Poor’s 500 index of large cap equities.  The stock began trading late in 2006.  Speculators have First Solar on their radar sights.  Financial analysts keep the company’s turbulent performance in the investment news. 

The first of what is planned to be biennial sustainability reporting is “in accordance with” the core requirements of the guidelines from the Global Reporting Initiative version four (GRI G4).  First Solar addresses 35 (34 is the minimum allowable) of 58 general elements in G4 describing a corporation’s economic, environmental, social, and governance (ESG) operations.   Three are identified as “not applicable” because this is the first sustainability report.  So the basic disclosures in First Solar’s report actually number just 32.  

GRI “core” reporters are also supposed to choose at least one “specific standard disclosure” — G4 contains 91 of them — for each material aspect identified by the company.  First Solar lists 27 material aspects in a table.  But they report on just 24 specific indicators.  

Text in the report identifies the company’s top priorities.  They are lifecycle environmental footprint analysis, greenhouse gas emissions intensity reduction, responsible land use, waste management, supply chain sustainability, and recycling.  They are chiefly environmental considerations.   The content of the report centres around them. 

Roughly 40% of the report constitutes either an argument for the superior environmental attributes of CD-Te PV or testifies to CD-Te’s sustainable lifecycle.  An eight-page section renders the benefits of First Solar’s PV power plants vs. conventional electric generating stations.

About 25% of the space in the 64-page report is filled by photographs and section breaks.   

The report is puzzling.  The pieces don’t quite fit.  

The message from the CEO on page one contains a block quote in bold face type:  "For geographic markets with growing electricity needs, solar is a compelling, sustainable part of the solution."  Check that assertion against the annual report for 2015.  They don’t match.  

The US is the source of 87% of First Solar’s net sales.  The bulk of advance sales are in the US, too.  But the growth in the demand for electricity in the US has been zero since 2007. 

The company’s materiality assessment identifying crucial ESG issues appears at the tail end of the sustainability report.  Right up front, instead, is a full page listing 16 awards and recognitions earned in 2014 and 2015.  

A chapter is titled “Working At First Solar.”   It breaks down data on the workforce by gender and age.  Men under 30 dominate new hires.  The section says a little bit more about training and career enhancement at the company.  But the recordable injury rates (though admirable) are found elsewhere in the report.  They come under an unusually broad category titled “Operational Excellence.”  That section includes data on outputs such as effluents and waste.  

A chapter in the report covers social responsibility.  It is nearly exclusively about charitable giving.  Social responsibility in First Solar’s definition includes programmes the company underwrites at universities and schools strictly to promote solar technology.

The angles drawn by the information in First Solar’s report are out of kilter just enough to keep keen readers in doubt.  Their confusion is likely to persist until and unless they have an eureka moment.  This first sustainability report from First Solar is actually a technical sales brochure.  Everything makes sense and falls in line after that realisation.   
The Waltons of Walmart fame are the largest investors in First Solar.  They held 26% of the stock at the end of 2015.  Richard Chapman, who is chief financial officer of Walton Enterprises and oversees the family’s business, is on First Solar’s board of directors. 

The Institute for Local Self Reliance, a US NGO working for many decades to support community-based economies, released a damning report on the relationship in 2014, the year covered by First Solar’s  sustainability report.  The gist of the complaint is summed up in the title “How the Walton Family is Threatening Our Clean Energy Future.”  The Waltons give financial and political support to policies helping utility-size PV power plants. 
First Solar was instrumental in a win by the largest utility in Arizona.  APS got regulatory permission to charge extra fees to households with rooftop PV arrays.   First Solar intervenes in similar regulatory fights in other states. 

The Institute for Local Self Reliance concludes the investigation with a final salvo: 

“While there’s room for solar in the Waltons’ desired future, it exists only to the extent that it remains centrally owned and controlled, and only to the degree that it generates income for a small circle of wealthy investors and little opportunity for the rest of us.”

Don’t expect to find mention of any of this controversy in First Solar’s sustainability report.  

One GRI G4 specific standard indicator of economic performance is financial assistance received from government.  Should First Solar address this item in the GRI report?   After all, investors have been badgering the executives to explain how they intend to grow the company in markets not dependent on solar subsidies. 

Not a word is said on the subject.  

Citing outside sources, the Institute for Local Self Reliance says First Solar received over $3 billion in loan guarantees from the US government, plus a $290 million federal loan to finance a project in Chile.  The company has also received more than $16 million to finance its domestic factory.  (Yet most of the production is in Malaysia.)  On top of all that, First Solar’s  US projects occupy over 9,000 acres of publicly owned federal lands.  This doesn’t even begin to reckon the value of the lucrative federal solar energy tax credits. 

First Solar acknowledges the fact — not here but in the annual report mandated by the US Securities and Exchange Commission:  “... in the near term our net sales and profits remain subject to variability based on the availability and size of government subsidies and economic incentives.”

None of this is meant to downplay another issue.  Cadmium is toxic and in regulatory terms is considered to be a hazardous substance.   On this point First Solar does have something to say.  The company initiated a voluntary pay-as-you-go funding option meant to cover the costs of recycling the modules when they reach the end of their useful life in 25 years or so.  But the full ramifications of cadmium recycling on the company’s economic sustainability are spelled out much better in the annual corporate report.    

1.  OK.  So publish this report again for whatever reason.  But rename it; and use better photographs next time.

2. If you really want to explore the opportunities promised by conducting a full-blown analysis of ESG issues, do so in an integrated report.  Your statutory annual accounting already ticks most of the boxes. 

3. Sort all of this out for us.  Please.  No one in the solar business has had more stamina, acumen, or profitability.

William D’Alessandro is president of Victor House News Co., an independent agency reporting on law and the environment for trade publications and executive newsletters.  He also edits Crosslands Bulletin http://www.crosslandsbulletin.com covering strategic corporate environmental management and sustainability issues.