Solar Isn't A Commodity: The Advantages Of First Solar's CdTe Technology Explained

| About: First Solar, (FSLR)

Summary

The widespread use of traditional C-Si solar cells has led many to believe that solar panels are a commodity and module efficiency is the only point of differentiation.

First Solar's CdTe technology has numerous benefits not captured by solely comparing module efficiencies, such as their superior performance under higher temperatures and in shaded conditions.

These superior performance characteristics allow First Solar CdTe modules to produce up to 10% more power than a comparable, industry standard C-Si module.

CdTe technology is currently extremely competitive from both a cost and performance perspective, but is still far away from theoretical efficiency limits, leaving ample room for future efficiency improvements.

Efficiency improvements in the competing C-Si technology have stagnated as the technology approaches its theoretical maximum efficiency, making C-Si a poor long-term bet on the future of solar.

Many argue that the solar modules are a commodity, where producers can essentially only compete on price. This is brutally true for solar manufacturers within the same technology, such as crystalline silicon (c-Si), as there is little notable opportunity for differentiation outside of module efficiency improvements.

Due to its ease of use and the pervasiveness of c-Si solar modules, module efficiency comparison has caught on as the primary method of comparing the different modules offered by solar manufacturers. This primarily seems to be the case with outsiders to the solar industry, and understandably so, as the vast majority of solar manufacturers utilize c-Si technology, which makes it a simple method of comparison (in an industry where things can get very complicated).

The problem is that many solar industry outsiders have wrongfully begun to use this as their sole criteria when comparing solar modules, which has led to misunderstandings regarding companies such as First Solar (NASDAQ:FSLR), which are among the very few manufacturers who utilize a different technology that offers distinct benefits that are not accounted for when comparing module efficiencies.

First Solar's Advantage

First Solar is currently the only notable company to utilize Cadmium Telluride (CdTe) solar technology. As I alluded to earlier, CdTe offers distinct advantages over crystalline Silicon (c-Si) that allow it to produce more power per rated Watt in real-world conditions.

Solar modules are rated for a certain power output, and the nameplate capacity of a solar project is the sum of the nameplate capacity of the solar modules that comprise it. The nameplate capacity of a solar module is equal to how a module performs under "standard test conditions" (STC).

STC is an industry-wide standard so that those who install solar arrays know what kind of output they can roughly expect. It assumes a cell temperature of 25°C and an irradiance of 1000W/M2 at an air mass of 1.5. This essentially simulates ideal conditions for a solar module. The problem is that this almost never happens in real life. There are numerous variables that affect solar module performance, with a few notable ones being temperature, irradiance and shading.

So now that we've established that solar modules often deviate from their rated capacity due to very idealistic STC, we need to look at how these different solar technologies actually perform in real-world conditions.

Temperature

All solar modules suffer from decreased performance in higher temperatures. Solar arrays are often installed in desert areas, where the ambient temperature can easily surpass 25°C, so solar module performance under these conditions is an important variable.

A 2012 research paper published in the 17th edition of Photovoltaics International (an industry publication affiliated with PV-tech.org) dug deeper into the performance characteristics of First Solar's CdTe and traditional s-Si solar modules in high temperature environments. This research paper found that traditional c-Si solar modules have temperature coefficients (essentially a measure of how much output a solar module loses as it heats up) of around -.4-.5, while First Solar CdTe modules have a temperature coefficient of -.25.

In English, this means that at a solar module temperature of 65°C, a c-Si module will lose 20% of its output, while a CdTe module will lose just 10%.

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(Source: Photovoltaics International 17th Edition, 2012)

As can be see in the chart above, the sensitivity to heat of CdTe modules is about half as much a comparable c-Si module. So from this we can draw that in hot environments, CdTe technology outperforms. The crucial question now becomes, how prevalent are these hotter temperatures?

Before diving into this, one should note that solar modules will often reach temperatures that exceed that of the ambient environment. For example, if you look at the chart below, you can see that while the ambient temperature of the sample First Solar solar array is under 25°C just over 50% of the year, the temperature of the solar modules themselves is actually greater than 25°C about 70% of the time.

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(Source: Photovoltaics International 17th Edition, 2012)

Due to the prevalence of module temperatures in excess of the 25°C specified by STC, and the sunny, clear skies that often accompany these high temperatures, most power production will realistically occur during these hot, sunny hours.

As can be seen in the chart below, about 79% of energy production occurs when module temperature is at 40°C or higher, and about 95% occurs when the module is hotter than the STC.

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(Source: Photovoltaics International 17th Edition, 2012)

From the above data, we can conclude that First Solar's CdTe modules are vastly superior to traditional c-Si solar modules in the hotter regions of the world. The study goes on to note that a solar array comprised of the company's CdTe modules can expect to produce 5-9% more power than a comparable c-Si solar array on account of the superior temperature coefficient as well as the better spectral response.

Shading

Clouds and other methods of shading are natural enemies of solar arrays. Many solar modules suffer from the "Christmas tree light effect", where if one cell or module in a string is shaded, it lowers the performance of the rest of the string as well.

Due to this, how well a solar module performs under shaded conditions is an important consideration when comparing solar modules from different manufacturers. A research paper published by the International Journal of Electrical, Computer, Energetic, Electronic and Communication Engineering noted the differences in power output under shaded conditions for all the mainstream solar technologies.

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(Source: International Journal of Electrical, Computer, Energetic, Electronic and Communication Engineering Vol:8, No:9, 2014)

As one can easily see in the chart above, c-Si solar modules are extremely susceptible to shading relative to the thin-film solar technologies (a-Si, CIGS and CdTe). CdTe solar modules can tolerate 3x more shading before they are incapable of generating power. The superior performance of First Solar's CdTe modules in shaded conditions allows CdTe solar arrays to produce up to 1% more than comparable c-Si solar arrays.

Theoretical Efficiency Limits

Industrial c-Si solar cells (solid blue square and hollow blue square) have seen cell efficiencies stagnate in recent years, with little progress in over a decade. c-Si manufacturers have generally shown complacency in recent years and haven't made much in the way of notable breakthroughs. Mono-silicon c-Si research cells are right at the brink of their theoretical maximum efficiency of just under 30%, limiting future potential of the technology.

The below chart is not entirely up to date and ends as of 2015, so it doesn't include a recent First Solar CdTe breakthrough which pegs the company's research cell efficiencies at 22.1%. This trumps multi-silicon c-Si efficiencies, and is getting close to mono-silicon c-Si. The efficiency of CdTe technology has been aggressively improving as of late, getting ever closer to its theoretical maximum efficiency of ~30%, but with plenty of room for the technology to grow.

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(Source: EnergyInformative.org)

Industry nomenclature categorizes c-Si solar modules as "First Generation" and thin-film technologies (such as CdTe) as "Second Generation". This suggests c-Si will eventually be replaced in the long term, which is the consensus of many industry experts, making c-Si manufacturers a poor long-term bet on the future of solar.

While it may be a while until c-Si panels are phased out, the inevitable replacement of c-Si panels with CdTe and other thin-film technologies should be a consideration of any long-term investor in the solar industry.

Conclusion

First Solar offers a superior product than its c-Si competitors, which produces up to 10% more power per rated Watt at a competitive price. If past progress is any indication, the company's CdTe technology is much more likely to continue to break efficiency records in the race to the maximum theoretical efficiency. In the long term, First Solar's CdTe modules are less likely to be replaced by new technology and more likely to be cost competitive relative to c-Si.

In a past article, which you can view by clicking here, I laid out my bull case for First Solar. In that article, I take a look at how First Solar's focus on utility-scale solar, its solid balance sheet, increasing international booking opportunities and the success in completely booking its 2016 production all bode well for the company's future.

I believe FSLR is a strong buy at these price levels and a great long-term investment.

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Disclosure: I am/we are long FSLR.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long FSLR via credit spreads.