Executive Summary

Opportunity The global Photovoltaic (PV) market is expected to grow 50% annually over the next four years due to high Government renewable energy targets. By 2020, at least 1 in 5 watts generated must be from renewable sources in many European countries and the United States.  In order to meet such targets, substantial Government investment in PV cells is required. Nanosolar has a less expensive commodity product and is prepared to expand in the European market and potentially enter the large US market.

Key Risks Continued deterioration of macroeconomic climate European margin erosion due to Lower Euro/Dollar rate

[-13% yearly 2008-2009]

Lack of project financing Government Policy Change

[Regulatory and Incentive Context]

Continued Oversupply leading to Commoditization [Economic Context]

Improving cost performance of competitors including Solar Thermal, c-Si and Cdte

Strategic Options 1. Do not enter the US market. Continue to invest in European and Asian markets.

2. Enter US Utilities and Commercial Market Immediately.3. Delay entry into the US market. Conduct an industrial

scale pilot project in the US. Based on the results, decide whether to and when to enter the US Market.

Recommendation Option 3.

Tactical Recommendations

Optimize pricing strategy to maintain Government Incentives while growing market share.

Maximize Production Yield, Asset Utilization Maximize Product reliability Minimize transportation costs Harness Government Incentives Increase the size of US sales force to build strong Installer

and Utility company relationships

Analysis SummaryNanosolar is focused on selling a single type of thin-film PV module called the “Nanosolar Utility Panel”. The utility panel is 50% less energy efficient than bulkier c-Si modules, but makes up for this fact by being 90% less expensive to produce. Due in part to the deteriorating

macroeconomic climate, the global market for PV modules was 15% oversupplied in 2008 (6.85GW supplied for 5.95 GW demanded), and the product is rapidly commoditizing. Government support is less predictable in the US than Europe because of overlapping state and federal programs, and overlapping regulation. While some states such as California may have generous incentives and a lower risk of regulatory change, the PV market in those states is highly competitive. In such a competitive market, product differentiation and a strong and focused sales force is required to approach industrial and commercial customers to sell the relative cost and ease of installation benefits of Nanosolar’s modules. In Europe the important approach point is system integrators who make the panel selection decision.Nanosolar’s value proposition is its lower cost per watt to purchase and install (see Figure 1 on page 2). Because thin-film PVs require 43% more roof space per watt generated, it is more valuable to larger commercial and utility customers than residential customers. However, there is a trend toward using the sleeker thin-film panels in residential installations due to aesthetics, and Nanosolar’s primary competitor, First Solar has established this market. First Solar’s 2009 production cost is identical to Nanosolar and challenges Nanosolar’s low price proposition. By reaching the US market first, First Solar already established a relationship with Solar City, a residential installer, after a successful utilities pilot project. It is recommended that Nanosolar take a similar approach to the US market by first conducting a pilot project for utility and commercial customers, and based on those results deciding whether to enter the US market in earnest. Nanosolar’s focus should remain on industrial scale projects that benefit most from its lower installation costs.The US residential market should be approached with caution because a significant investment is required to establish installer relationships there. Nanosolar’s focus on production efficiency and its virtually non-existent sales force (1 person in the US and 1 person in Switzerland) require that a significant investment be made to hire, train, and task sales staff.Figure 1: Nanosolar Competitor Relative Performance (source: case page 5) 

36% improvement in material utilization         25% reduction in mounting hardware cost 90% reduction of cabling cost                         30% reduction in installation time:                 25% reduction Balance of overall System (BoS) costs

Worldwide Solar MarketWith final assembly in Germany, Nanosolar is well poised to continue serving utility and commercial customers in Europe. Shipping completed modules to the US would require 3% additional cost and put it at a disadvantage compared to First Solar which has a manufacturing plant in Ohio (Exhibit 9).By having its final assembly in Germany, Nanosolar is geographically positioned to meet the needs of developing countries such as India and China while growing its distribution of panels throughout Europe. It has established a strong relationship with system integrators such as Becks Energy.Because of diminishing feed in tariffs and incentives over time, it benefits PV manufacturers in the short term to be early to market. However, there is a learning curve for meeting the efficiency needs of industrial customers and this was seen in the delay of the 2007 Beck’s project (case page 6). Nanosolar’s CEO was correct in his assessment of the short term nature of first mover advantage. First mover advantage exists because of lucrative short term incentives, but in the long term all PV technologies will compete based on price and performance, two characteristics that his company is focused on.Effective Utilization of Government Incentives by Region

Germany, France, Spain and Italy instituted a diminishing 20 year feed in tariff system that required utilities to purchase electricity at higher rates. Costs were passed onto consumers. The governments mandated that between 20-30% of electricity generation be from renewable sources such as solar. The reliable electricity pricing structure of the region made it attractive for Nanosolar’s initial utility sales.The US had no feed in tariff system, but did provide other incentives. US incentives were offered at the state and federal level.  California was one of the most lucrative for PV module producers. However another type of dis-incentive existed in the United States, namely the myriad of private and public utilities bound by varying state regulations. The investment required for submitting proposals was often costly (case, page 10).Incentives, while important in the short and mid-term, can only help the business to become established in the market. Because European incentives diminish over time, cost efficiency and sales volume must increase to compensate for decreasing profitability. The incentives effectively subsidize initial inefficiencies in the PV manufacturing market and allow less efficient competitors to Nanosolar to establish a presence in the market. Nanosolar’s strategy is designed on winning the long term battle for operational efficiency. However, it is important the Nanosolar engage markets now to establish a foothold.By continuing to focus on and strengthen its presence in Europe, Nanosolar is preparing for a battle against lower labor cost Asian competitors such as China. The US market must be approached, but due to the regulatory complexity and economic uncertainty of 2009, a pilot testing strategy is proposed. This strategy is essentially “dipping a toe in the water” to identify key regulatory and other hurdles before allocating a full sales blitz on the region. Pricing and Customer Selection StrategyNanosolar has begun a strategy of pricing its products directly below its top competitor First Solar for sales to the European Utilities markets. When considering entrance into the US market the price decision becomes bounded on the low end by risking a change in US regulatory framework. On the high end prices are constrained by First Solar which has announced 2012 production cost targets of $0.65/watt (exhibit 10a). First solar also has the advantage of increased capacity (albeit at low utilization) from its Malaysian facilities. If it desired to push Nanosolar on price, it has the volume of product and economy of scale to do so. Therefore, it is in Nanosolar’s best interest to maintain a pilot project price 10-15% below First Solar to reflect the higher utilization and operational efficiencies that currently differentiate it. This will be a significant cost savings to utility companies and large scale industrial and commercial projects. At the same time, the price will still be high enough to encourage and maintain US government incentives in the short term.Strategic Recommendation for Nanosolar CEOWhile continuing to seek out new European utilities projects, a medium scale (1-5MW) pilot utility project should be conducted in the southwest United States. The purpose of this pilot would be to evaluate the regulatory ease at which the project could be initiated, and the benefits in the form of subsidies that could be used to help fund the project. Pilot marketing activities should be initiated with the purpose of identify key needs of utility companies and commercial businesses.Roscheisen would agree that while there is some risk associated with delaying entry into the US market, US economic and government volatility means that the timing is not right to seek consistent state sector support. A pilot project will provide the information necessary to make further informed marketing decisions about future market development and expansion, while allowing time for the US economy to stabilize. 

What is the value proposition of Nanosolar’s thin film solar technology?-cost o Lower cost of manufacturing - requiring substantially less raw material, lighter weight and easier to transport compare to crystalline silicon (c-Si) -Lower cost of distributing - Nanosolar have an assembly plant in Germany because the majority of their initial installations will be in Europe. They can cut some cost down by locating the encapsulation step of process close to their end users. Due to the sensitivity of CIGS semiconductor, it needs glass modules for watertight protection. However, the glasses are expensive to ship. By establishing the assembly plant near their main market, it can reduce the cost of distribution. - Focused on reducing every cost associated with developing, manufacturing, installing, and operating its products Material utilization – achieved 95% of utilization (competitors: 60-70%) Optimizing cost of balance of system (BoS)

Appendix:

Cost reduction for competing c-Si technology (Exhibit 5) Rapid rate of Silicon Cost decrease: 87.5% decrease in price in 10 months 105% annual decrease in silicon price June 2008:                $4/kg December 2008:         $2/kg April 2009:                $0.50/kg

Cost reduction for competing Cdte technology (Exhibit 10) 10% annual decrease in total price March 2007:                $1.29/watt March 2009:                $0.93/watt March 2012 target:        $0.65/watt

 

Experience Curve advantage of First Solar: First Solar Volume of Production in MW: 2009:                        1136MW 2010:                        1186MW Nanosolar Volume of Production in MW: 2009:                        <100MW (estimated from the case)

 

First Solar “Umbrella Profit” growth: (3.5X increase in 1 year) 2008:                        $46.6 million 2009:                        $164.6 million