First Solar's Inconvenient Truth

| About: First Solar, (FSLR)
This article is now exclusive for PRO subscribers.


First Solar, the leading manufacturer of thin-film modules for utility-scale deployments, faces an inconvenient truth.

As the market for First Solar's products grows, and as its global deployments create a sustainable renewable energy foundation, the company’s technology also poses new environmental threats for future generations.

In 2012, at the insistence of its electric utility customers, First Solar abandoned its commitment to pre-funded recycling of the company's toxic PV modules.

Without the pre-funded commitment, First Solar cannot guarantee accountability for reclamation, recycling, and rehabilitation of environmental waste.

To exercise appropriate environmental stewardship, First Solar must accept its producer responsibilities for environmental costs from which it profits.

First Solar's (NASDAQ:FSLR) thin-film technology solar modules offer cost per watt, application flexibility, sustainability, and performance advantages over traditional crystalline silicon (c-Si) technologies. In recent years, despite plunging costs of c-Si, these advantages have propelled the firm to the head of the class among solar technology companies, particularly in the market for utility-scale solar deployments.

But First Solar's success arrives at a cost and presents an irony. As the market for the company's products grows, and as its deployments help to create a sustainable renewable energy foundation, First Solar's technology also poses new environmental threats for future generations. This irony spotlights significant challenges confronting the clean energy industry going forward.

Photovoltaic technologies are a subset of semiconductor technologies, typically associated with the rapidly evolving field of photonics, and inconceivable without many of the advances in information processing and chip manufacturing of the past half-century. While digital companies such as Intel (NASDAQ:INTC) and Apple (NASDAQ:AAPL) present themselves as sleek, post-industrial knowledge companies, their businesses depend on the packaging of sophisticated electronics manufactured with toxic metals and chemicals. Perhaps more importantly, the consumer electronics industry has fostered an ethos of disposability and waste, in which "renewable" acquires a meaning entirely at odds with its common associations with environmental sustainability.

Like other electronics companies, businesses developing and selling solar energy components and systems maintain a balance of positive and negative environmental impacts that shift over time. Negative environmental impacts represent external costs - often of enormous magnitude - that someone must eventually bear. The market on its own, which is far less anticipatory or prophetic than many investors believe, can certainly not anticipate and demand an accounting for these external costs, particularly as they often appear only years or decades into the future. And yet, this truly is an accounting problem - both financial and moral - a matter of contingent liabilities. Accounting statements and moral ledgers (yes, companies do have these) that do not recognize external costs of this sort are at best opaque and at worst fraudulent.

This essay explores the environmental challenges and opportunities for clean energy companies such as First Solar by focusing on: 1) First Solar's perception machine; 2) CdTe toxicity and groundwater risks; 3) First Solar's decommissioning and recycling practices; and 4) producer responsibility for environmental outcomes. But first we need to imagine the full scope of the environmental waste challenge unfolding over the next 50 years.

A Meditation on Waste

PV waste is a subset of electronic waste, which is itself a subset of solid waste, which is in turn a subset of physical waste, which is finally a subset of all waste - organic and inorganic - extruded from systems in some form that denudes them of any useful purpose. In 1997, the United Nations Statistics Division provided a global definition of waste:

Wastes are materials that are not prime products (that is products produced for the market) for which the initial user has no further use in terms of his/her own purposes of production, transformation or consumption, and of which he/she wants to dispose. Wastes may be generated during the extraction of raw materials, the processing of raw materials into intermediate and final products, the consumption of final products, and other human activities. Residuals recycled or reused at the place of generation are excluded.

Another way to think about waste is in terms of environmental feedback loops. We might ourselves define waste as any extrusion resulting from the consumption of a given unit of energy that natural systems cannot easily reabsorb and reuse without causing harm within that system. From this perspective, PV waste and electronic waste that expose natural systems to any form of contamination break feedback loops, and to that degree, are functionally similar to human waste that exposes humans to a broad set of life-threatening, socially harmful diseases.

When we refer to many grid utility operations - in which communities take responsibility for building and properly using sanitation and wastewater systems, energy systems, agricultural systems, materials extraction systems, and other "higher-level" systems such as healthcare and education - we are acknowledging the importance of these systems for supporting and maintaining the environmental feedback loops upon which human life depends. The idea of the grid utility as a basis for provisioning basic human needs accepts an important reality - waste is a cost of economic life that requires accounting for. The purpose of the grid utility is to internalize - to bring back within the feedback loops that sustain natural systems - the external costs of waste.

When populations (numbers of humans) and economies (wealth of humans) grow, the velocity of GDP growth and total energy consumption accelerates. Waste factors resulting from accelerating velocity of global energy consumption multiply parabolically. Managing waste extrusion under conditions of population growth, economic growth, technology innovation, and energy consumption is one of the existential challenges of our age, encompassing global business practices, environmental risk, metals and chemicals recycling markets, political and cultural relationships, commercial regulation, global poverty, economic opportunity, and economic development.

[Waste Production Must Peak This Century,, October 20, 2013]

In 2014, global consumer electronics spending will approach $4 trillion and include the sale of approximately 2.5 billion computers, tablets, and mobile phones. In the next three years, the annual global volume of electronic waste will increase 33 percent, from approximately 50 million tons in 2014 to more than 65 million tons in 2017, the equivalent of 1.6 million 40-ton trailers stretching 18,000 miles.

Electronic waste recycling percentages in the United States have improved considerably - from 10 percent in 2000 to nearly 30 percent in 2012. Beginning in 2011, the total quantity of e-waste that we simply discard began for the first time to decline. Nonetheless, rapid product release cycles for mobile computing, communications, and media consumption devices from technology companies such as Apple and Samsung have transformed concepts of ownership and possession, and the quantity of discarded items in units has increased far more rapidly than the quantity in weight.

Difficulties managing waste of this sort on a global scale multiply when considering solar energy systems. These systems generally are heavy, surface-intensive installations deploying sophisticated, light-sensitive electronics and significant quantities of heavy metals, rare earth metals, and other potentially toxic materials. For example, a typical First Solar PV module covers nearly 8 square feet of surface and weighs 26 pounds, roughly equivalent to a 48-inch flat-screen television.

As of 2012, First Solar has manufactured 100 million modules for its 6.5 GW of installations. Global PV capacity approached 100 GW. Extrapolations from First Solar module volumes indicate global volume modules at the end of 2012 exceeded 1.5 billion, for an installed capacity of approximately 100 GW.

An (optimistic) estimate of 600+ GW of all global PV installations by 2020 therefore implies nearly 10 billion modules of this size in 6 years, a quantity which would at that time simply dwarf the global number of televisions and computer display monitors. This quantity of modules would total about 3,000 square miles of the earth's surface, an area significantly larger than the state of Delaware. Stretched end to end, a "solar road" constructed of these modules would extend 6 million miles.

[Solar Power: Darkest Before Dawn, McKinsey & Company, April 2012]

Of course, PV module numbers will continue to experience parabolic growth well beyond 2020, possibly for many decades into the future. In this time frame, we can expect improvements in the materials, efficiency, weight, life-cycle, and toxicity of PV modules. However, it is fair to surmise that by 2040, solar energy systems might well encompass hundreds of billions of these modules, all of which will eventually need to be safely reclaimed and recycled.

The other factor to bear in mind when considering PV waste management is that as solar installations proliferate in many more nations around the world - particularly in Latin America, Asia, Africa, and the Middle East - regulatory, collection, process, transport, and data-gathering challenges will mount precipitously. Related cost and funding impacts will accompany this proliferation. Recycling PV modules is process-heavy.

The history of existing collection and recycling programs for non-PV electronic waste - consumer appliances, televisions, display monitors, computers, and mobile devices - provides important information about both the global scope of this problem and evolving methods for acknowledging, accounting for, and managing its costs. The European Union's PV Cycle program, which recently announced cumulative collection of 10,000 tons of PV materials, also bears watching as a pioneering effort to integrate collection and recycling activities within a comprehensive life-cycle approach to PV module management.

First Solar's Perception Machine

First Solar has long touted its end-of-life collection and recycling programs, and has consistently harvested attention and praise for these programs from the industry press. Riding the coattails of environmental purity, First Solar for many years branded itself as a different kind of company that takes the long view and does the right thing.

The differences between perception and reality are important, and we will get to that distinction, but for now, it simply merits saying that First Solar's public relations, marketing, and governmental affairs operations have been, and remain, proactive, savvy, hard-hitting, and image-conscious. The company aggressively lobbies legislators and regulators, and responds instantly to critics of its environmental practices. First Solar means business, and its relationship management efforts - with media, customers, competitors, regulators, and critics - are all about gaining tactical advantage in the swiftly emerging global market for new energy.

Between its 2006 IPO and 2011, First Solar gained a reputation for environmental stewardship and recycling commitments under company president Bruce Sohn. A pedigreed engineer from MIT and Intel, Sohn instinctively grasped the technical opportunity for leveraging semiconductor industry achievements as a means to more rapidly advance the environmental aims of the renewable energy movement.

During Sohn's tenure as president, First Solar conformed to the general environmental commitments and specific PV life-cycle principles of the European Union. The company established a pre-funded recycling process that firmly established its leadership in the emerging conversation about appropriate producer responsibilities for solar energy's external costs. Between July 2008 and November 2009, the company's description of itself in press releases notably included this sentence: "First Solar set the benchmark for environmentally responsible product life cycle management by introducing the industry's first prefunded, comprehensive collection and recycling program for solar modules."

By contrast, the current First Solar CEO, Jim Hughes, is a Texas attorney with degrees from Southern Methodist University and the University of Texas, who cut his teeth at Enron. Hughes is far more from the electric utilities world than from Silicon Valley, far more a businessman than a technologist, and to this degree, reflects more fully the commitment of the company's principal owners - Wal-Mart's Walton family - to economic and environmental deregulation, states' rights, and the managed, top-down evolution of traditional electric utilities into global alternative energy suppliers.

First Solar's commitments to utility-scale solar projects using CdTe thin-film modules plugged into centralized electric grids inevitably aligns the company with large electric power utilities. In February 2014, Jim Hughes named Paul Kaleta, formerly the general counsel for NV Energy and for Koch Industries, to serve as executive vice-president and general counsel of First Solar, removing any final doubt that the company now approaches the development of renewable, sustainable energy resources through the eyes of the largest electric utility and energy companies.

Jim Hughes has forcefully articulated the benefits of utility-scale solar project that don't require government subsidies (although First Solar has taken them). He doesn't hew to naïve concepts that don't apply in the real world, such as "grid parity" (a term he proudly admits to banning from the lexicon at First Solar headquarters). Hughes also raised eyebrows in 2013, when he published a lengthy, unvarnished assault on residential rooftop solar and net-metering.

The distinctions here are not absolute, of course. First Solar has in the past partnered with Solar City (SCTY), and announced in December 2014 that it was re-entering the "community solar" (micro-grid) market via a partnership with Clean Energy Collective. The company has established tactical relationships with politicians from both parties. And Wal-Mart (NYSE:WMT) has itself moved aggressively to install rooftop panels at its stores and distribution centers as another way to manage its expenses.

However, Jim Hughes himself makes clear that First Solar's rivals are not the grid utilities, but companies such as SunPower (NASDAQ:SPWR), SunEdison (SUNE), and SolarCity that are investing in the growth of residential rooftop solar. The politics of this attack are intricate (and interesting), but for now, the significant message is that First Solar, which has had several near-death experiences in the past, has gone on the attack, and the war it seeks is not with the power utilities or even with the fossil fuels on which most utilities still largely depend - but with the residential rooftop solar market and with concepts of autonomous power generation that existentially threaten centralized grid utilities. First Solar does not take this threat lightly. And it does not take prisoners.

CdTe Toxicity and Groundwater Risks

First Solar PV thin-film PV modules contain significant amounts of cadmium (Cd), in the form of cadmium-telluride (CdTe), about one pound for every 50 modules produced. A 50 MW utility-scale installation serving the power needs of approximately 12,000 families (or a small town) might include 600,000 PV modules spanning 250 acres, or approximately six tons of Cd. Let's call it one pound of Cd per family. First Solar installed global PV base as of 2012, totaling 100 million modules, represents the power needs of upwards of two million households, and potential exposure to one thousand tons of Cd. Despite claims to the contrary, that's a lot of Cd.

Cd is a byproduct of base metals smelting (particularly zinc), used in the control rods of nuclear reactors and in nickel-cadmium batteries. Cd is also a carcinogen, considered extremely toxic by the EPA and the U.S. Occupational Safety and Health Association (OSHA). Potential health impacts include kidney, liver, bone, and blood damage from ingestion via settled dust or the water supply, and lung cancer from inhalation. The European Economic Community (EEC) has prohibited the sale of most products containing cadmium for health and safety reasons.

In the past decade, First Solar has sponsored an array of studies regarding the environmental and human health risks of Cd in its CdTe form. For the most part, these studies have concluded that the CdTe in the First Solar PV modules does not pose significant risks to the environment or to humans, particularly in comparison to Cd emissions from energy sources such as oil and coal.

With these testimonials in hand, and with the imprimatur of the very establishment National Renewable Energy Laboratory, First Solar promotes the environmental safety of CdTe, and dismisses those who doubt its assurances. For years, the company has repeated the following propositions to control the debate on the relative merits of CdTe in relation to other thin-film module options:

  • The acute inhalation and oral toxicity of CdTe is far less than Cd.
  • First Solar's recycling program keeps the company out ahead of the risk.
  • PV module construction itself produces fail-safe outcomes when stressed (with the surrounding glass, for example, impermeably fusing the CdTe in the event of a fire).
  • The most important claim, which has largely been accepted without challenge, is that CdTe in the modules is water-insoluble, and which therefore presents no risk to groundwater or from rainwater.

In recent years, solar technology pioneer Zoltan Kiss has waged a lonely battle to curb complacency about toxic risks of CdTe in PV modules. In particular, Kiss has disputed the methods used by other scientists to test the water-solubility of the CdTe in these modules. For Kiss, using distilled water to test water-solubility does not approach the real-world conditions of the water where CdTe might find itself, in which varying pH levels can produce significant leaching of the Cd into water tables.

Kiss can point to a number of studies that support his skepticism, including: a) research concerning Water Solubility of Cadmium Telluride conducted on his behalf by research scientists affiliated with the Vitreous State Laboratory of the Physics Department at Catholic University in Washington, D.C.; b) a slideshow concerning Toxic Materials in Photovoltaic Modules, authored by research scientists from Stuttgart, Germany, who work in the fields of photovoltaics, water quality, and solid waste management; and c) another paper authored by the Stuttgart scientist on Toxic Substances in Photovoltaic Materials, presented at the 2011 International Photovoltaic Science and Engineering Conference in Fukuoka, Japan. In this paper, the authors emphasize a set of alternative propositions to those advanced by First Solar:

  • Most PV modules contain toxic substances "without need."
  • On a per GW basis, CdTe modules contain approximately eight times the amount of toxins held within c-Si modules.
  • "Worst-case" leaching experiments on milled CdTe modules indicate leaching of up to 50 percent of module Cd within 50 days in water with pH values between 3.1 and 5.0 (the pH of rainwater is about 5.5).

First Solar supporters argue that most utility-scale solar energy systems are sited in hot, dry portions of the globe, where there is little rain and where water tables lie very deep below the surface, and that these conditions moot the conclusions of the dissenting research on CdTe water-solubility, even if they had merit. They also present evidence that however toxic CdTe in PV modules might be, it remains far less toxic than other forms of Cd used in other mineral and energy applications, and so provides a productive and relatively safe way to reabsorb this material into the energy loop rather than simply to discard it as waste into landfills

And these First Solar supporters might be correct. Or at least insufficiently incorrect to warrant placing obstacles in the path of a solution to the challenges of greenhouse gas and global warming because of risks that everyone, including Kiss, acknowledges will likely not achieve critical mass for another decade. However, several conclusions follow from this mixed bag of data that probably also moot the First Solar position, and that at a minimum place the burden back on the company to reexamine and challenge its own assumptions about CdTe safety:

  • Given the risks, the fail-safe premise doesn't pass the smell test with respect to both fire and water.
  • If the risks are so minute, why has the Silicon Valley Toxics Coalition awarded First Solar zero points on the "toxicity" portion of its 2014 Solar Scorecard?
  • Even if the exposure risk per module is small, the almost inconceivably large quantity of modules needed to support each GW increase in electric power capacity (approximately 10 million modules) means that the aggregate risk is very large.

Pre-Funding and Its Discontents

Like every solar technology company, First Solar's business hit the skids in 2012. Having invested in growth, the market for the company's solar panels collapsed, tearing a hole in its finances and shattering its confidence. In 16 months, the company's share price tumbled 93 percent, from $169 to $12. Facing plunging sales, public rebuke, investor lawsuits, and organizational upheaval, the company boldly pivoted its business.

  • In April 2012, responding to reduced government subsidies for solar power, declining demand for its modules, manufacturing overcapacity, and fierce price competition, First Solar laid off 2,000 employees (one-third of its workforce) and announced the closure of its factory in Frankfurt, Germany.
  • In May 2012, First Solar appointed Jim Hughes Chief Executive Officer, signaling its intentions to focus exclusively on utility-scale solar power projects.
  • In August 2012, the European Union Waste Electrical and Electronic Equipment (WEEE) Directive for the first time applied producer recycling mandates to PV solar modules.
  • In the 4th quarter of 2012, First Solar rolled back its commitment to pre-funding the collection and recycling of its PV modules outside the European Union.

First Solar's new "damn the torpedoes and damn Europe" approach to its business under the leadership of Jim Hughes only confirmed that the company's commitment to owning the costs of PV module recycling had been mostly a market-driven (and marketing-driven) tactic, a concession to prospective European regulatory requirements in a period of time when Europe was pretty much the entire market for solar installations. When the recycling rubber finally met the road in 2012, utility-scale opportunities in friendlier desert climates provided an opportune moment for First Solar to exit Europe and to sideline its firmest environmental obligations as a producer of potentially toxic environmental waste.

In reality, the First Solar pre-funded module recycling program may never have been quite the commitment some imagined it to be, both because the pre-funding part has likely been inadequate, and because the non-financial logistics of managing accountability for these commitments are thorny.

First Solar set aside $0.04/watt to cover end-of-life recycling costs of installed PV modules, replenishing this fund on a quarterly basis through December 2012. Accrued liabilities at that time totaled $212 million, based on about 6.5 GW of installed capacity. First Solar invested its pre-funded recycling liabilities in conservative debt instruments (primarily sovereign debt, it seems). Commutation of customer recycling agreements requires return of deposited funds plus an annual rate of return of 5.3 percent. For now, we may use this return as a proxy for the CAGR First Solar receives from its fund investments. After 25 years, a 5.3 percent CAGR for the $212 million deposited by First Solar returns $770 million (without adjusting for inflation).

First Solar assumes a cost of $0.04/watt to recycle its modules, which translates to a cost of $260 million for its 6.5 GW of installed capacity at the end of 2012. If First Solar's cost assumptions and rate-of-return assumptions are accurate, the company should easily be able to absorb recycling costs, even with an inflation rate that cuts this return in half. The $0.04/watt recycling assumption (which is at the lowest end of all estimates, some of which are now quite dated) may turn out to be exceedingly optimistic, however.

First Solar describes services covered under its pre-funded recycling commitment variously as "reclamation and recycling" or "collection and recycling." The fullest description states that estimated costs cover "packaging the solar modules for transport, the cost of freight from the solar module installation sites to a recycling center, the material, labor, capital costs, and scale of recycling centers, and an estimated third-party profit margin and return on risk for collection and recycling services." Even under the pre-funding agreement, it appears that the customer - or some other party - will be liable for site restoration or rehabilitation. Under the most favorable circumstances, then, significant external costs of the First Solution thin-film solution remain outside the company's life-cycle accounting methods.

At $0.04/watt, the recovery cost per CdTe module works out to about $2.38/module. Can First Solar truly pay for packaging, freight, material, labor, capital costs, scale, profit margin, and return on risk for $2.38 module? Evidence is spotty, and in the absence of more transparency from First Solar (not to mention from other solar module manufacturers), we cannot know for sure what technology breakthroughs and efficiencies can emerge going forward. First Solar itself has discussed developing mobile recycling centers that can travel site to site. The company also continuously refines its collection and recycling methods. Finally, utility-scale siting presumably creates cost-reducing operational efficiencies. With a window of approximately 10-15 years before recycling efforts need to ramp, it does seem conceivable that even if costs exceed $0.04/watt in 2014, they may well descend to that level (accounting for inflation or not) within 10-15 years.

However, to accept this narrative requires a very optimistic - and hence imprudent - reading of the future. Will reclamation and recycling costs really ever reach $0.04/watt? In 2013, Abound Solar bankruptcy trustees estimated that properly recycling 100,000 CdTe modules (approximately 7 MW of capacity) and cleaning up thousands of gallons of Cd-contaminated waste from Abound facilities would cost a minimum of $2.2 million, a figure that subsequently ballooned to $3.7 million. These numbers provide a more concrete basis for assessing reclamation, recycling, and rehabilitation costs.

First Solar itself admits to receiving and recycling nearly 500 tons of discarded Abound modules, which meshes closely with independent reports that the company received shipment of 28,000 modules from Abound bankruptcy trustees. These numbers do not perfectly align, but they are sufficiently within the same exponent so as to pass the smell test.

When one considers what is involved in packing up, shipping, receiving, unpacking, crushing, milling, acid-bathing, and stepping through the multitude of other tasks required to recycle and dispose properly of 100,000 CdTe modules, it's difficult to imagine even First Solar executives could define down the costs to $0.04/watt (or $280,000) with a straight face. For recycling alone, we are probably minimally looking at $0.20-$0.30/watt. The Sacramento Municipal Utility District received a $1 million (or $0.61/watt) bid to retire a 1.6 MW PV project, an estimate that can perhaps provide a reasonable outer bound for a full accounting of the reclamation, recycling, and rehabilitation costs required to retire a PV system.

Real-world reassessments of this sort pose a problem for First Solar's recycling fund financial model. Because at $0.20/watt, the cost of retiring 100 million (6.5 GW) CdTe modules will exceed $1.3 billion. The relatively optimistic 5.3 percent return we believe First Solar is using to estimate the value of its pre-funded liabilities in 25 years yields $770 million (again, without accounting for inflation), a handsome sum, yes, but nothing remotely close to the requirements for setting free 100 million modules.

And assumptions do not need to change much to render far more damage to the First Solar pre-funded liabilities financial model. To bear the full $1.3 billion ($0.20/watt) cost of module retirement and recycling in 25 years, First Solar fund would need a CAGR of 7.5 percent. At $0.40/watt, the fund would require a CAGR of 10.5 percent.

These are typically not the inflation-adjusted returns one gets over 25 years from sovereign debt. The Vanguard Long-Term Treasury Fund Inv (MUTF:VUSTX), for example, has returned an average of 8.11% annually since 1986. After taking into account inflation, however, the real return (before investment expenses and taxes) is well under 6 percent. As the table below indicates, First Solar can only meet its most minimal recycling obligations in 7 out of 20 scenarios. With a CAGR of 6% or less, it can only meet the most conservative scenario. In 9 out of 20 scenarios, the funding deficit exceeds $1 billion.

[Calculations based on extrapolations from First Solar project specifications.]

These are not reassuring numbers. Yet, even after the 2012 decision to end pre-funding, First Solar continued to present itself as the leading environmental steward among clean energy companies. When commenting on First Solar's offer to recycle Abound solar panels early in 2013, the company's public relations director used that opportunity to polish the company's own stewardship image. "The industry as a whole needs to demonstrate a sense of responsibility," he said. "When you make something, you should be responsible for it when it's completed its life cycle."

In August 2013, renewable energy consultant Joseph McCabe posted a thoughtful essay about First Solar's decision to stop pre-funding recycling obligations and to no longer claim them in financial statements as accrued liabilities, a decision that he observed had largely remained below everyone's radar. McCabe voiced plausible bemusement about this decision, noting correctly that "owning the recycling might be the best long-term approach to reduced liability from manufacturing."

First Solar was neither bemused nor amused, however, and in its (perhaps overly) forceful response to the McCabe essay, Alex Heard (the company's vice-president of Environmental Health and Safety, Sustainability, and Recycling Services) served up a full platter of marketing-speak about the company's firm commitment to "extended producer responsibility" and to environmental leadership within its industry that "stands alone" in offering state-of-the-art recycling capabilities and services "at scale."

The core message in the response of Alex Heard, however, is that First Solar utility-scale customers absolutely do not like pre-funding, which spread across the lifetime of the installation, and which unnecessarily elevate the cost of energy across that lifetime. Pivoting toward the electric utility market, First Solar did not hesitate to suspend all pre-funding going forward, and to instead give these financially "sophisticated" (as in "Wall Street-connected") customers freedom to finance these obligations (or not) in the manner that best suits their needs. Hidden in this language was an admission that the rates of return First Solar had been receiving via its pre-funded trust investments were simply inadequate to support the costs of PV module recycling.

It is more efficient to finance PV recycling through later-year project cash flows instead of upfront funding, as solar project rates of return are typically higher than the rates of return First Solar receives via its trust investments.

We know nothing about the legitimacy of First Solar cost calculations for recycling services offered on contract basis, with payments deferred 15-20 years. What we do know is that no ultimate source of accountability now exists to make sure proper funds are reserved and proper steps are taken to safely reclaim and recycle CdTe solar modules.

We can understand why in 2012, First Solar executives - experiencing enormous short-term financial, competitive, legal, and governance risk - would seize an opportunity to relieve the company of long-term environmental risk management burdens bleeding the business of cash needed immediately to survive. After all, events that might transpire in 20 years mean nothing when one faces an extinction event in the next three months. Nonetheless, the external costs associated with long-term environmental risk do not disappear in reality simply because they vanish from the balance sheet. In the final section of this essay, we will explore the First Solar predicament in the context of the obligations of businesses to account for external social costs of production from which they profit.

Producer Responsibility for Environmental Outcomes

We want to imagine clean energy companies as we do digital technology companies. We want to believe their business models are "revolutionary" and "disruptive." We understand these companies as unique, imaginative, "progressive" organizations.

Open offices, rapid development, and all those crazy workplace perks one finds at cash-rich technology companies are of course great. However, fealty to shareholders and to financial markets actually limits how deeply these companies can innovate organizationally.

Public companies (or businesses backed by private equity) can rarely acknowledge and pursue long-term social and environmental goals. Short-term financial pressures and incentives constrain how they can account for and remediate external costs of practices from which they profit. From this perspective, First Solar, which truly is a technological innovator, could organizationally not be more conventional and conservative by almost any measure one might care to use.

When Alex Heard defended the honor of First Solar, we learned two things that he may not have wanted us to learn. We learned that the pre-funded recycling trust could not pay the bills. And we learned that First Solar, pre-funded recycling trust or not - considers itself to be the industry leader in advancing the cause of producer responsibility. But First Solar cannot have it both ways. Without the pre-funded recycling commitment, accountability disappears. Without cost accountability (business costs and social costs), producer responsibility disappears.

Accounting and accountability, therefore, go hand in hand. But for most publicly traded companies, producer responsibility is inconsistent with shareholder fealty. Shareholder fealty all too often encourages businesses to separate accounting from accountability, the business ledger from the moral ledger, and when pressed to the wall, to do the expedient thing, not the right thing.

The major lesson from the Abound Solar bankruptcy was not financial, but legal. When the reality of reclamation, recycling, and rehabilitation liability emerged, no party was clearly accountable for this liability, no party wanted to assume this liability, and - most troubling - no party possessed the information and the knowledge required to fully account for this liability and to take steps necessary to remove it from the balance sheet. And so for a long time, stretching well into 2014, very little happened, leaving a significant warehouse waste hazard that only worsened with each broken window and every dented crate or barrel.

Solar First executives possess good intentions. Environmental scientists use rigorous methods. But executive assurances and scientist testimonials in this case mean little. They generally depend on best-case scenarios. They don't properly frame the long-term environmental risks of CdTe PV modules. And they evade the important question: Who assumes ultimate accountability for those environmental risks?

If First Solar is successful - if in 2020 the company is producing 5 or 10 GW of PV capacity, if the company is successful in serving the residential market through the micro-grid program of the Clean Energy Collective - the complexity of any effort to oversee, manage, and coordinate the reclamation, recycling, and rehabilitation risk map multiplies. The company may, in 2020, support hundreds or thousands of projects around the world, each with its own unique environmental footprint. Local administrative and infrastructure capacity in many of these locations be severely limited. Political unrest or instability, war and mayhem may inflame these locations. Only First Solar possesses the vision, the resources, and the incentives (if properly conceived) to make sure the environmental risks of CdTe are both effectively disclosed and properly managed.

For these reasons, First Solar needs to reframe CdTe environmental risk as political, legal, and accounting risk. Once the company reframes this risk, the logic for accepting responsibility and accountability for the environmental end game becomes obvious. Other advantages will also accrue that will then fully earn First Solar the mantle of environmental stewardship it presently tries to claim.

  • Surfacing and accounting for these costs at the beginning of the production process will save enormous amounts of money - discounted value of present expenditures vast.
  • By accurately accounting for these costs, and listing them as accrued liabilities, companies can far more accurately allow investors and analysts to create models that accurately measure and forecast growth and earnings.
  • Environmental foresight and accountability supports decision-making and planning based on more complete information about product costs, both macro and micro.
  • Producer responsibility absorbs into the present calculations about the future we want to give to our children - this future becomes what we're investing in.
  • Responsibly accounting for these costs transforms how we view economic and financial activity in general, institutionalizing an ethic of care that balances the ethic of profit.

And over time, circumstances also can change. Other options beyond pre-funded liabilities may offer flexibility in how to manage accountability (for example, transparent disclosure and public finance approaches that can shift the burden of responsibility to public agencies in exchange for corporate taxation to support this burden). But no accountability can exist and evolve without risk and cost transparency. And only the moral ledger can incorporate and account for social costs of activities from which businesses profit.

Epilogue. An Inconvenient Truth.

When Abound Solar (in which Al Gore invested, and to which the US Department of Energy offered generous loans) foundered and then collapsed in 2012, leaving only its warehouse waste as a sad reminder that it once existed, Heartland Institute and Fox News jeered the shocking, delicious irony as if it were Revelation. Government-funded clean energy contains toxic waste! Right-wing-nuts (of the libertarian variety, at least) may not hate clean energy. But they sure hate the idea that government can play a role in promoting clean energy.

So yes. Haters will be haters. And clearly, the hating on clean energy's tail waste, from any political perspective, risks being counterproductive (let's call it dog-wagging the tail waste) when the alternatives remain carbon-based power plants that spew much higher levels of toxins. Here's the problem, though. Haters will be haters. But businessmen will also be businessmen. And what businessmen think about when they wake in the morning and when they fall asleep at night is, "How can I spend less money?"

Businessmen are haters, too. They hate expenses. They hate costs. Disposition, training, experience, and incentives all conspire to create this aversive businessman bias. One way to manage costs is to trim spending through layoffs or reductions in spending on administrative overhead, marketing, and product research and development.

But cost is truth. And so another way to manage costs is simply to remove the most inconvenient truths from the balance sheet, and to pretend they don't exist. To vanquish them from the lexicon of the ledger. Which is a kind of whitewashing (or, in this case, greenwashing).

When businessmen can do no other, haters become their best friends. Because while businessmen might sleep better at night knowing they don't need to worry about accounting for long-term liabilities, haters will remind them that these liabilities, like Freud's return of the repressed, truly haven't vanished, and when they return, which they will and with a vengeance, the finger-pointing and the blame-dodging that ensues will require litigation lawyers. And when lawyers get to litigating, businesses definitely don't spend less money.

Like wishful thinking, then, kicking the can down the road is not a strategy. A strategy would be to drop the can in the trash, or even better, in the recycling bin.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.