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Becoming A Project Developer: Better Than Being Just A Manufacturer?

It's a question that solar manufacturers ask themselves: should they add project development to their repertoire? Solar Frontier's answer is yes, and the thin-film solar maker announced Thursday a plan for a joint venture with Belectric called PV CIStems.

The joint venture, which is still subject to regulatory approval, will develop and build power projects and sell them. Although PV CIStem will be based in Germany, it will be looking for opportunities around the world, the companies said. Each company certainly brings something different to the marriage. Belectric makes money from selling solar equipment and developing and building solar projects while Solar Frontier, part of Showa Shell in Japan, makes copper-indium-gallium-selenide (CIGS) solar panels and brought online a 900-megawatt factory last year. That factory has made Solar Frontier the world’s largest maker of CIGS solar panels at a time when other CIGS companies, many of them venture-backed startups, are struggling to scale up production.

With Belectric as a partner, Solar Frontier doesn’t have to worry about its project development acumen on its own. Its role may well be more of an equipment supplier than anything else.

Becoming a project developer has certainly enticed many solar panel makers and even silicon and wafer producers, including SunPower, First Solar and MEMC Electronic Materials. Profit margins have gotten slimmer for solar manufacturers as competition heats up with new market entrants and their products becomes commodities. That has prompted some to consider moving downstream.

First Solar has gobbled up several smaller project developers to gain access to the projects they were developing, so its project development business has grown rather quickly. During an earnings call last month, a financial analyst asked the company’s interim CEO, Michael Ahearn, whether it would retain ownership of its projects rather than selling them in order to broaden its source of revenues. Ahearn said the company wasn’t considering that option partly because of the money that would be required to be a power plant owner. Plus, the company doesn’t believe that owning projects, when compared with the segments of solar business it already is in, will deliver the highest return.

Suntech Power wanted to do the same, and for the U.S. market it formed a joint venture in 2008 to do that. But that joint venture seems to have petered out. The company does have its own engineering and construction team working on projects in China.

China is emerging as a big solar market given the government has set some aggressive installation and pricing goals and introduced a feed-in tariff program last year. Suntech isn’t alone in jumping into the project development side of the business. Its rivals, such as Canadian Solar, are doing the same. In fact, some of them may be doing so only in China while they remain content to be equipment suppliers elsewhere in the world.

That was what JinkoSolar’s head of North American operations, Isabelle Christensen, told me.

“The only way to be successful in the Chinese market is to have a downstream integration,” Christensen said. “Margin on the product side is so slim. It’s just competitive.”

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