Thin Film Is on Thin Ice

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Includes: FSLR, STP
by: Joel West

Solyndra’s well-publicized annus horribilis was usually explained as being specific to the company: its technology didn’t improve quickly enough, it didn’t execute, it wasn't able to scale commensurate with its sizable capitalization.

Others see it as part of a broader problem of Silicon Valley’s cleantech infatuation, in particular the inability of high-cost American firms to use technology to compete with low-cost Chinese rivals to produce commodity electrons. I think the jury is still out on that point.

A clearer picture is the failure of the thin film experiment. [FirstSolar (NASDAQ:FSLR) excepted.] Cheap low-efficiency thin film panels are losing to cheap average efficiency crystalline silicon panel, as the volumes of cSI drives ongoing cost reductions.

DowJones has an (apparently exclusive) report about a cramdown for MiaSolé, the Santa Clara-based maker of CIGS thin film panels. According to DJ’s sources, the $100+m Series F round closed with a pre-money valuation of $550 million, versus $1.2 billion three years earlier.

The article identifies a pattern of troubles for similar companies. Companies seeking a valuation above $350m will find few takers. The price of panels has plummeted since 2008, in part because the temporary spike in polysilicon materials has passed. However, the biggest problem seems to be economies of scale — or lack thereof — in a commodity industry where cost savings are driven by scale.

Although MiaSolé has achieved enviable efficiency for a thin film maker — planning to ship panels with a 13% efficiency later this year — the company and its technology are fighting the scale economies of its mainstream rivals. Or as the final paragraph put it,

By moving into efficiencies in the mid-teens, the company is beginning to compete directly with polysilicon-based modules. But the small scale of production means that costs are still high. Miasole's 22 MW last year is a drop in the global photovoltaics market that was around 18 gigawatts last year, according to Barclays Capital.

I can see one other problem for the go-it-alone, technology-based Silicon Valley thin film startups: there’s no exit strategy.

Companies with capacity aligned to the mainstream silicon market can merge and combine with other companies to increase their scale economies. But the firms building their own processes and technologies and production have no potential mate — and with falling valuations, no IPO options either.

Once the world’s leading solar manufacturer by volume, in 2010 First Solar may have slipped behind China’s Suntech (NYSE:STP) to become number two, but it’s still the first company to ship more than a gigawatt of capacity in two consecutive years. That makes it the only thin film maker to achieve scale on its own, and the latest news continues to suggest that its US rivals will be hard pressed to match that scale.