By Ucilia Wang
First Solar (NASDAQ:FSLR) CEO Michael Ahearn said Wednesday his company is in good shape to weather the financial market crisis but warned that the potentially higher cost of building solar power systems could lead to a "dramatic effect on the cost of electricity.
Ahearn spoke on a Solar Power International conference panel with executives from Duke Energy (NYSE:DUK), SolarCity and Abengoa Solar (OTCPK:ABGOF) and discussed a variety of topics that ranged from building a new grid to problems consumers and utilities face in making sure they get what they pay for.
The impact of the credit crunch and worsening economy was the top question posed to the panel. Ahearn said the Tempe, Ariz.-based First Solar has built a good business selling its thin-film panels to Europe, where strong government incentives have made Germany and Spain the two largest solar energy markets in the world.
Ahearn also pointed out that the cost of solar electricity is closely tied to the cost of engineering and installing a solar energy system, whether it's for a utility or a homeowner. As a result, the faltering economy and the credit crunch could increase the cost of setting up a solar power system for utilities or consumers.
"You can't continue like this for very long," Ahearn said. "There is a potential higher cost of the capital, and we will have to see what impact it will have. It's hard to say."
He said the recent passage of tax credits for utilities, businesses and homeowners to develop and install solar energy systems will make it easier for companies like First Solar to expand its reach in the United States.
In fact, the tax credits, which Congress approved earlier this month and will take effect in January, might change who develops and operates solar power plants in the utility market, Ahearn said. For the first time, utilities can use the tax credits, which will give them the incentives to develop power plants themselves.
Currently, utilities sign contracts with project developers – some of them solar equipment makers – to buy electricity from solar power plants that will be built, owned and operated by the developers. The model is cheaper for utilities, many of which have to meet state mandates that require a certain percentage of the electricity sold to come from renewable sources.
"We might see a whole-sale shift, from [the power purchase agreement model] to utility retained generation. That could make a certain amount of sense," Ahearn said.
Lyndon Rive, CEO and founder of Foster City, Calif.-based SolarCity, said educating consumers about the benefits of tax credits, which will cut the solar energy system cost by 30 percent, will be key in persuading consumers to invest in solar during the economic downturn. Convincing banks to loan money to solar energy system installer such as SolarCity also will become tougher.
"The banks are being more strict on businesses plans and execution," Rive said.
Rive said another problem that installation and service company like his faces is a lack of standards to assure consumers that they are getting their money's worth.
Without some metrics, consumers have a hard time distinguishing among a slew of solar energy service companies that have emerged in recent years.
"We have to step out and guarantee what the production is going to be, and you have to be there to support it," Rive said. "It will eliminate fears from consumers."
Ahearn said no good policies exist that encourage accountability from solar power developers carrying out million-dollar projects to sell energy to utilities. The same issue also happens in the residential solar market, he said.
"There is no policing around the quality of offers. If you look at the warranties today, it will be difficult for consumers to understand where there is a claim proven and who's responsible," Ahearn said. "You can get wide-spread disappointment over time, and it will come back to bite us."