Patient Business Development for Solar CeWed, 02/19/2014 - 14:49
The Mexican solar energy industry is a net importer of photovoltaic technology. Solartec, a Mexican company, realized the market was flooded with products manufactured in Asia or Europe. After exhaustive research and development, the company produced its first solar panel in early 2010. Solartec’s continuous drive for innovation has enabled it to manufacture new products that take into account the specific needs of the Mexican solar energy sector. “Three years ago, we created the first micro-inverter especially designed for the Mexican market, which remains one of our biggest products,” says Gustavo Tomé, CEO of Solartec. “We also created a very cheap mounting system for the modules with a PET pipe firm, a sister company of Solartec. Both of these are examples of our focus on innovation to capture a bigger share of the market.”
Tomé explains that the process of producing modules is rather easy: the glass, frame and many other components are bought from external providers before Solartec assembles them in Mexico. Where the company really innovates is in sales. It adds value to its products by researching the different ways in which the modules can be adapted. “The micro-inverters we use are assembled in China, but we have the patent for that product. We can also reduce the costs of the mounting systems by designing them with the combined expertise of our PET company partner,” Tomé states. Currently, Solartec has a module production capacity of only 25MW, whereas companies in China have tenfold that capacity. Even though the Mexican solar energy industry has not taken off yet, the company is ready to take advantage of business opportunities the sector provides. The acquisition of Photovoltech, a Belgian producer of multicrystalline silicon solar cells, in February 2013 enabled Solartec to become the only manufacturer of this product in Latin America.
Four years ago, Solartec’s main objective was to export to the US. The firm realized how complicated this was back in 2011 when faced with the much lower prices Chinese companies could offer. However, the market shifted in 2012. Soaring wages in China added to high transportation costs enabled Solartec to become a player in the US market. The company is currently exporting 20% of its total production but aims to increase this to 50% in 2014. “If we wanted, we could focus only on the US market. With our capacity, we can have one or two big clients and allocate our full capacity to them, but we also want to grow in the Mexican market,” Tomé adds. Solartec’s strategy is growing one step at a time, with smaller companies that install solar panels with lower capacity projects. However, bigger
companies have also started knocking on Solartec’s door, asking for 5MW and above capacity per month.
But how exactly did Solartec manage to acquire part of the American market and compete with the biggest Chinese players? Tomé emphasizes that the distance between the US and China worked to Solartec’s advantage since the company is able to deliver its products much faster as well as guarantee a quicker turnaround time than Chinese manufacturers, which makes its clients feel more comfortable. “Another factor is that many people in the US prefer consuming Mexican products than Chinese ones. Since we are certified manufacturers, we can produce the same or better quality technology than that made in China,” he adds. Additionally, enhancing customer relations by focusing on offering its clients a face-to-face relationship rather than having them travel to China, has proven to be a successful part of the company’s strategy.
Solartec is working to get the CSI (California Solar Initiative) certifications which will enable it to acquire more clients in the state. Despite this, there is still doubt about Solartec’s ability to survive in the market over time. Tomé explains that, in order to create certainty, the company is now focused on smaller projects but he recognizes the need to take the next step to tackle larger ventures. “We need to move quickly to not miss the opportunity, but we need to avoid growing the company too fast. We are in the process of looking for an insurance company to guarantee the high quality of our products. Another step that we need to take soon is to open more local offices in the US. We have one in California with our partner WCAP, but if we are working to get bigger projects and clients, we will need to expand,” he stresses.
The Mexican market has also presented many challenges, including the lack of knowledge about solar power back in 2009. “It is difficult to persuade people to invest in a system that will make them save money in the long term when they would rather buy an expensive flat-panel TV,” Tomé emphasizes. Convincing Mexicans that they should turn to green solutions has proven to be complicated. Nevertheless, the company knows the importance of promoting and working together as an industry to achieve a bigger goal: the consolidation of solar energy in Mexico.
“We want to help our customers establish themselves in the photovoltaic industry and ensure that they get the training they need to replicate these projects. We want to get this technology installed in many homes across Mexico,” Tomé adds.
The solar industry boom that California underwent in 2009-2010 reminded Alejo López of a gold rush. He saw the craze where those with sun-kissed land and access to a power line invested without investigating the amount of radiation or the quality of the land. Predictably, this created a long line of projects left in limbo as many of them were not financeable. López, the Mexico Country Manager for Hanwha Q CELLS, sees the same bottleneck now happening in Mexico. “We are going through that phase where inexperienced small developers try to do a project. They should keep doing so, but they need to understand that even a 10MW project requires a significant investment and contract guarantees that small companies cannot afford,” observes López. From the perspective of the Korean-owned conglomerate, real opportunities are cropping up at a time when nobody seems to have figured out the best strategy for now to secure projects. However, several factors will combine to force the market to mature. López believes a cycle of mergers and acquisitions is needed to filter out those companies that do not have staying power and allow the stronger players to make their mark. During this process, banks would set out requirements to help level the playing field. López also feels CFE should “impose more stringent requirements on developers to block transmission capacity.”
Hanwha Q CELLS’ view may come from just over a year operating in Mexico but it is a heavyweight perspective nonetheless. Hanwha is part of the Global Fortune 500 and one of South Korea’s ten largest companies. Its solar efforts operate alongside its interests in the construction and chemical industries, as well as financial services. Subsidiaries like Hanwha SolarOne, which manufactures wafer ingots and modules, make for a small component of the company’s US$105 billion balance sheet. However, this diversification means that its solar outfit can be nimble while relying on a powerful parent organization. Then in 2012 came the buyout of Germany’s QCells, once the largest solar cell maker in the world. This buyout allowed Hanwha to execute on its downstream integration strategy, which includes greenfield project development, M&A, and project financing. It was the new entity dubbed Hanwha Q CELLS, combining Hanwha’s engineering and financial ability with Q Cells’ R&D and EPC track record in the solar industry, which entered Mexico in 2012. “We saw that Latin America would soon become a crucial market. The first step to enter Latin America was to move to Puerto Rico as it is part of the US but is very Latin in the way business is done there. Mexico was next and we fully entered the country in October 2012,” explains López.
López is excited about the small power producer projects, and places his faith in the development of the rooftop sector. “Rooftops are a very exciting market because a lot of customers are paying a lot of money for power today,” says López. The giant’s experience in the US showed that any project is feasible if the right financing is found. In this light, the real challenge in Mexico will be customer aggregation, says López. This process involves finding enough customers for a project so it becomes attractive as a financing option for banks. The steps outlined above are just the first ones that Hanwha Q CELLS plans to take to legitimize the potential of small producers. By the end of 2014, the company would like to have deployed at least two commercial projects. “We are aiming to get anywhere above 10MW of installed capacity. This would serve as conclusive proof that this sector is real and that projects can be executed. It would prove this not just to our company but also to our partners, our customers, and the financial community.” As it looks to larger projects, Hanwha Q CELLS is basing its strategy on co-development, finding local partners that bring added value. López quips that the firm can afford to be choosy, seeking mostly to partner with large energy users to develop and finance solutions for them. In terms of positioning in the broader market, Hanwha Q CELLS does not intend on making many announcements, preferring to focus on developing projects using their execution capacity. As López points out, few firms in Mexico have the resources and expertise to execute a project at the 10MW scale. But Hanwha has built over 500MW in projects and has many more on the go. This has translated into a very rational approach to the Mexican market, where investment does not flow to projects with low viability. While this might disappoint some, this is a by-product of Hanwha Q CELLS’ pledge to commit to a project, follow through and get it done.