Interview with Dr. Karl Kuhlmann, Chairman of S.A.G. Solarstrom AG
What are your goals for 2010?
In 2010, we want to achieve sales of between €190 and €210 million and an EBIT between €8 and €11 million. We are planning to once again achieve our minimum EBIT target margin of 5% this year.
Does the decision on the reduction in the feed-in tariff in 2010 put your forecast at risk?
No. S.A.G. Solarstrom AG is internationally aligned and is sufficiently flexible to absorb local developments in individual markets. In 2008 we were faced with a similar situation in Spain, but were still able to present excellent operating results for 2009. This is due to our ability to react quickly to changes on the market and to efficiently tap new markets. With products such as roof-top installations, which remain appealing to investors despite the recently discussed German regulations, Germany will remain an important market for S.A.G. Solarstrom AG. However, the trend in total sales percentage will drop, due in part to the somewhat stronger growth in international markets.
Although the impact is manageable for us, we still expect a significant negative outcome for the German solar industry, particularly for the module manufacturers based in Germany, and the German trade businesses who assemble the systems in Germany.
How risky are such political developments for your business model in general?
From our point of view, it would be highly questionable to set up a business model based on political conditions. The political support for renewable energies in Germany and other countries has, of course, provided considerable stimulus for the market. Eventually, however, even long-term support runs out. We must be and will be prepared for this event. Three aspects will help us to achieve this – the price of solar system components has already declined due to the expansion of production capacities and will continue to decrease in the medium and long-term in the course of technological improvements. In other words, our estimates indicate that solar facilities will produce electricity at competitive prices in the foreseeable future.
The second aspect is the price trend of conventional energy sources. Fossil fuels are finite; we thus assume that the respective prices will increase over the long term. Electricity production at the same costs – also known as grid parity – is only a matter of time.
Finally, the third aspect is sustainability. In the future – and in some cases, even now – companies will be assessed by their CO2 balance. Solar energy is an excellent opportunity to positively influence their carbon footprint.
From a general standpoint, our focus on high-quality, efficient plant configurations safeguarded by our system partnerships will guarantee the continued success of our business model.
Which markets are you focusing on in 2010?
The German market will be particularly strong in the first half year. Apart from the 9.6 MWp project in Apulia, we are working on several interesting projects in Italy. In France, we will also be working on implementing an increasing number of new projects, such as the agricultural medium-sized roof-top projects. Apart from these projects, we are also still very active in Spain and the Czech Republic.
The United States remains an interesting option, one that we continue to pursue closely through meteocontrol. We have already established a number of promising initial business contacts there, but will definitely assess any involvement carefully and only establish presence if and when doing so would be immediately profitable, and particularly if we can cover personnel capacities with our own experts.
How do you perceive the development of module prices?
After a substantial decline in 2009, prices once again increased towards the end of the year and have remained at this level due to the currently prevailing high demand. The prices for inverters and base frames have remained steady by comparison, whereas inverters with a higher performance are often being offered at the same cost.
We include price clauses dependent on the market price in our supply agreements, so we do not need to be concerned about a negative impact on our business. We offer both Chinese and German quality modules to our customers. The absolute price difference between Chinese and German quality modules is declining, although, for quite some time, the difference has not been borne out by a direct comparison of quality and performance in our opinion. We have conducted our own tests and it is not possible to make a general definitive quality statement based only on the origin of the modules. Excellent Chinese premium modules are available, but at the same time, China also offers inferior modules – the same also applies for Germany. At the end of the day, we already set great store in balancing price and performance, to which the overall market will have to adapt in the medium term.
On the other hand, purchasing goods on the highly-volatile spot market is not an option for us. We ensure that our customers receive the best performance for their money, and we can only achieve that if we make our quality our standard. However, our long-term supply agreements with system partners have definitely paid off, as they have enabled us to secure a sufficient number of components while profiting from the trend in market prices.
How do your own solar power plants fit into your business model?
Our power plants offer three main advantages. First, they give us predictable income. Second, they provide us with valuable information concerning maintenance and optimization needs and degression. These facilities serve as a type of toolbox that we use to continually improve our offerings. We have also observed time again that customers and suppliers very much appreciate the expertise we have gained from everyday operations and enjoy working with us for the same reason. And third, we ultimately view our facilities as interesting assets – for example, for partners such as major energy utility companies seeking to invest specifically in renewable energies. If such a partner were to expand a park or construct a new one, our project planning segment – the actual core of our business – would stand to benefit.
In 2009, we took over 4.2 MWp of the Dehner Garden Center roof-top system into our own portfolio. This year, we will continue to invest in own facilities where it makes economic sense.
How are you positioning the company in increasingly competitive surroundings?
We offer investors a comprehensive value added chain in our group, covering everything from yield assessments, planning, technical due diligence, procurement, construction, operations and plant monitoring, optimization, repowering, and – if required – dismantling. This is unique in our market. Many competitors focus on plant construction, while others manufacture their own modules. Our attitude, however, is that construction alone is insufficient. A photovoltaic facility should produce reliable yield for at least 20 years; this is possible if the planning and yield forecasts are accurate, the quality and design of the components are appropriate, and the facility is monitored such that malfunctions and disruptions can be addressed immediately.
Being independent of manufacturers gives us a great advantage: We can fine-tune all of a facility’s components according to the desired output. This is precisely the reason why we have concluded long-term supply agreements with selected manufacturers of high-quality components. Such system partnerships are the only way to ensure our ability to implement projects at the level of quality we promote in a timely manner. In addition, we work with the manufacturers on technical improvements in the components we use.
Initial consolidations can be observed in the solar market. Are you actively seeking targets?
We are convinced that we have laid the foundations for implementing further growth by virtue of our own strength. Currently, we do not see S.A.G. Solarstrom AG in an active role in the consolidation market. However, that can change completely with an appropriate target that provides us with a fast market entry or a higher market coverage in a new target market.
How important is sustainability to S.A.G. Solarstrom AG?
We are a sustainable company in a number of ways – ecologically, economically, and socially. Solar companies are not automatically sustainable companies simply because they produce electricity in an ecological manner. We enable investors to generate renewable energies; we produce solar electricity ourselves; we avoid CO2 emissions in our business operations. We also make sure we operate profitably and sustainably, provide secure employment, and assume responsibility for our actions. One example of this is our project “More Energy for Children,” in which we are seeking to support SOS Children’s Villages with solar installations. Responsible, ethical behavior is a basic principle of business at S.A.G. – and that also applies to the cooperation with our suppliers. We require our suppliers to sign a Code of Conduct, which involves committing to upholding human rights, combating corruption and child labor, and complying with legislation concerning the environment and occupational health and safety.
All this demonstrates our effort to conform to the three dimensions of sustainability at S.A.G.