Monthly Archives: April 2010
Increased utility-scale pipeline dominance and a marked difference between the downstream strategies of First Solar and SunPowerApril 28, 2010 Shayle Kann
This morning, First Solar announced the acquisition of Nextlight Renewable Power, LLC for about $285 million. In doing so, it combined the largest utility-scale PV project pipeline in the U.S. with the second largest. First Solar already had over 1.4 GW in development through a mix of multi-hundred megawatt projects (Sunlight, Stateline and Topaz) and a number of smaller projects. Nextlight, which was founded by Energy Capital Partners, a private equity firm with over $3 billion in funds under management, had a 570 MW contracted pipeline of mostly large-scale projects which have now been added to First Solar’s coffers.
First Solar’s downstream integration strategy has largely been built around the acquisition of expertise and pipelines. In 2007 it acquired Turner Renewable Energy, gaining an internal EPC team. This was followed by two pipeline acquisitions: Optisolar in 2009 and Edison Mission Group earlier this year.
Today’s acquisition does two things for First Solar. First, it builds First Solar’s development and EPC team. One of Nextlight’s biggest selling points was its management team, which has deep roots in the energy project development business. If First Solar is shifting its resources more heavily toward the downstream side of the market, it will benefit from a larger project development experience base.
Second, it ensures First Solar’s near-term dominance in the U.S. utility-scale project development game. First Solar’s contracted pipeline already dwarfed its next competitor (which happened to be Nextlight), but now we estimate it to be more than seven times the size of the next largest U.S. pipeline.
Source: GTM Research
Aside from the impact on First Solar’s business, this can be viewed as an incremental negative for other module suppliers, particularly SunPower. By locking up a large proportion of contracted utility-scale projects in the U.S. to use its own modules, First Solar is effectively limiting the total market for its upstream competitors. The utility-scale market in the U.S. has thus far been a tale of two suppliers: First Solar and SunPower. Until this announcement, Nextlight was rumored to be considering using SunPower’s high efficiency crystalline modules on one-axis trackers for a number of its projects — but that possibility has now disappeared.
But not to fear for SunPower, because it has been focusing its downstream efforts on the high-return Mediterranean markets, as evidenced by its recent acquisition of SunRay. This difference between the downstream efforts of each company reflects a dynamic that GTM Research has noted for some time now. In markets with high fixed incentives such as Spain, Italy, Greece and France, project developers are easily able to meet investor threshold returns at a range of reasonable module prices. Equity investors will not base an investment decision on the difference between, say, 20 percent and 22 percent internal rates of return (IRRs). The developer’s best strategy, then, is to maximize gross project returns — to maximize the total value of funds upon which it can earn attractive returns. In contrast, markets such as the United States and Germany, in which investor returns are tighter and incentives smaller, place greater emphasis on maximizing equity IRRs. In order to meet threshold rates of return, developers must seek to cut project costs as much as possible.
Given current pricing and efficiency, lower cost, lower efficiency thin-film modules (particularly First Solar’s CdTe) tend to provide slightly higher equity IRRs. But higher cost, higher efficiency crystalline silicon modules (such as SunPower’s “Super Mono c-Si” modules) offer larger gross returns. The figure below displays the differential between two representative 10 MW ground mount systems in Spain, one using CdTe modules on a fixed substructure and the other using Super Mono c-Si modules on a 1-axis tracking system. Over time, gross returns (represented by project NPV) decline along with the Spanish feed-in tariff but falling system prices enable steady equity IRRs.
Source: GTM Research
This serves as a partial explanation for First Solar’s dominance, both in terms of modules and project development, in the U.S. and German utility-scale PV markets. It also partially explains SunPower’s focus on growing Mediterranean countries and other high feed-in tariff markets for its utility-scale project development operations. Over time, this differential between technologies may fall and project pipelines could become more evenly spread amongst technologies and suppliers. But in the meantime, watch for First Solar to maintain its position atop all suppliers and developers in the U.S. utility-scale PV market.
As a final note, it is important to remember that there are two reasons why the window of opportunity in the U.S. is far from closing for other module suppliers. First, the utility-scale market in the U.S. remains nascent and a true ramp-up will far exceed the 2,000 MW under contract with First Solar. In other words, there is still plenty of room for entry. Second, utilities may ultimately become wary of increasing their exposure to a single developer (i.e., First Solar) in order to meet their renewable energy or solar mandates. As a result, we may begin to see utilities with existing First Solar contracts selecting other developers in future RFP cycles.
Thursday, 22 April 2010 09:32
In October 1984, the management of Magcobar (now M-I SWACO) and Nanhai West Oil Co. (now China Oilfield Services Ltd.) joined forces to create a drilling fluids joint venture, China Nanhai Magcobar Mud Corp. Ltd. (MCC), with the aim of delivering world class drilling fluid services to the emerging offshore drilling industry in China. Since that time, MCC has grown to become the most successful international fluids company in China, and one of the longest serving commercial joint ventures in China.
Since the first well was drilled with TOTAL in 1984 in the Beibu Gulf, the company has participated in over 1,000 wells in China in the past 25 years, including world-class extended reach wells, record high temperature wells, the deepest wells drilled in China, and is now dominating the emerging deepwater market in the South China Sea.
MCC has established offices, supply bases and laboratories throughout China and successfully deployed some of the leading fluid technologies from M-I SWACO. The UltraDril* water-base system and the FloPro* NT reservoir drill-in fluid have been excellent performers in the reactive shale and complex reservoirs of Bohai Bay, while the Rheliant* flat rheology synthetic-base drilling fluid is becoming the system of choice for deepwater operators in South China. The UltraDril system has now been used on more than 170 wells in China with the Rheliant system being used on more than 90% of the deepwater wells drilled to date in China. The Versaclean* drilling fluid system has been extremely successful for MCC, helping drill record extended reach wells. In recent times, MCC has established a foothold in the highly competitive onshore market with the MegaDril* one-drum solution.
MCC has worked throughout China, from the far west of Tarim Basin, to the northern extremes of Daqing oilfield, to the oldest and most prolific Shengli oilfield in the east, and down to the deepwater frontier in the South China Sea. Clients have included all the major national oil companies in China—the China National Petroleum Corporation (CNPC), China Petroleum and Chemical Corporation (SINOPEC) and China National Offshore Oil Company (CNOOC)—as well as a vast array of IOCs. Current IOC clients include ConocoPhillips, Anadarko, Husky Energy, EOG Resources, Devon, amongst others.
“To become as successful as MCC has, the company has relied heavily on an outstanding team of field engineers and professionals that has continued to grow and evolve over the years,” China Country Manager David Power said. “MCC has continually invested in training and development of our field engineers since first sending engineers to mud school in Houston in 1985. Over the years MCC has trained over 130 Chinese nationals. The professionalism of the MCC team is highlighted by the current 1,700 plus days without a LTI. We currently employ more than 60 national mud engineers, and most have attended M-I SWACO mud schools in Bangkok and Houston. The MCC team is now more than 93% Chinese nationals.”
M-I SWACO recently celebrated the 25 years of continual service to the Chinese petroleum industry with gala banquets in Beijing and Shekou. Top executives from both companies, including Li Yong, COSL President; Zhang Xing Yun, COSL General Manager and Magcobar Board Chairman; David Paterson, M-I SWACO SVP Eastern Hemisphere; Max Richey, M-I SWACO SVP; and Sandy Park, Magcobar Director and M-I SWACO VP Asia Pacific, were joined by various clients and friends of MCC to celebrate this tremendous achievement.
M-I SWACO and COSL management continue to see a very bright future for MCC as China’s petroleum industry continues to surge ahead. Today more and more IOCs are competing for acreage in China and the Chinese government continues to support development of China’s domestic hydrocarbon resources, in particular the deepwater fields of South China. The team at MCC looks forward to many exciting times and rewarding challenges in the coming years.
- New Terminal JV in China for Odfjell SE (mb50.wordpress.com)