Corporate strategy adjusted to changed market requirements particularly in the U.S. to secure sales and earnings.
With respect to the development of the world’s largest solar energy location with a capacity of up to 1,000 MW in the Californian city of Blythe, U.S., Solar Millennium AG (ISIN DE0007218406) decided to take a new path in the last week. Instead of the previously projected concentrated solar power (CSP) technology in the form of parabolic trough power plants, the first two 250 MW plants are now to be equipped with photovoltaics (PV). With this decision, the managements of Solar Millennium and Solar Trust of America are reacting to the changed market conditions in the U.S. featuring far more profitable prospects for the use of PV in solar power plants that do not require storage.
Dr. Christoph Wolff, the CEO of Solar Millennium AG, explains this as follows, “At the moment, the U.S. market is clearly focused on peak load supply. Due to the drastic drop in PV prices, we agreed with the Californian utility to convert the power purchase agreements to PV”. Wolff continues, “The simultaneous sudden price increases for raw materials and construction would have reduced our return on equity and risk provisioning for our construction share in the Blythe CSP project to marginal values. Against this backdrop, we made the entrepreneurial decision a few days ago to focus on PV in the U.S. In anticipation of this market development, our U.S. subsidiary built up the respective expertise early on. This enables us to meet the specific needs of the U.S. market.”
The decision to revert to the significantly less costly PV variant also means that Solar Millennium will finance the power plants on the free capital market and forego the loan guarantee by the U.S. Department of Energy for Blythe 1 and 2.
Wolff adds, “The decision to use photovoltaics in Blythe does not mean the Solar Millennium Group is turning away from its core technology of solar-thermal power plants. According to our understanding, the market differentiates between base load solar-thermal electricity generation or concentrated solar power on the one hand and photovoltaics for peak load demand on the other. Whereas the electricity from solar-thermal power plants was more economic only less than two years ago, this relation has changed completely due to the sharp drop in PV module prices, particularly from Asia. Due to its suitability for base load supply, many regions still attach great value to CSP in their energy mix, thus supporting the Solar Millennium Group’s growth opportunities.”
With this decision, the Company is continuing along the lines of the strategic realignment first described by Christoph Wolff at the last Shareholders’ Meeting. This also includes the extension of solar tower technology and possibly even Fresnel as well as the ability to implement also photovoltaics and particularly hybrid PV/CSP projects as developer and service company. By expanding its portfolio of smaller and medium-sized PV/CSP projects and offering construction and operation services, Solar Millennium seeks to achieve more continuity in its business model.
As expected, the result of Solar Millennium is negative in the first half of the fiscal year, because the financial closes for Blythe and Ibersol were not scheduled to take place before the second half of the fiscal year. Given the shift of the Blythe financial close into the next fiscal year, the result for the full fiscal year of 2010/2011 is now also expected to be negative.
Solar Millennium AG closed the first half-year period from 1 November 2010 to 30 April 2011 with total operating performance in accordance with IFRS of € 34.6 million, compared to € 43.0 million in the previous year, and EBIT of € -32.6 million, down from € -25.1 million in the previous year. The most noticeable sales contribution to total operating performance was generated by the steady progress in the construction of Andasol 3 in Spain, which went according to plan. Another positive effect on total operating performance resulted from the higher changes in inventories item of € 21.3 million (previous year: € 10.5 million). This item reflects the further advancement of projects worldwide and the two core markets of Spain and the U.S. in particular.
Business activities in Spain are focusing on the two Ibersol and Arenales projects that each feature storage and a capacity of 50 MW. While the Company is still working hard on the financial close of the Ibersol project at the moment, the financing of Arenales was concluded only recently. Following the entry of the Deutsche Bank subsidiary RREEF Infrastructure in the Arenales project and the conclusion of bank financing at the beginning of August, the first ground-breaking measures in the scope of an early-work agreement have already commenced. Solar Millennium was able to involve OHL Industrial as a strong partner and general contractor.
Against the backdrop of the changed situation in the U.S. in particular, the Executive Board adheres to its decision not to issue a guidance for the current fiscal year at the moment. As soon as the contracts for financing and building the solar power plants have been actually concluded, the Executive Board intends to issue target figures for a two-year period.
The developments in the last weeks and changes in the management have increased the pressure to take action considerably. This is the reason why the announced strategy program is being implemented earlier than previously planned.
The Executive Board expects that the liquidity situation will remain stable with the entry of additional investors in the Ibersol and Arenales solar power plant projects as well as the issue of the eighth bond and the Ibersol fund, and that it will be secured with the financial close for the Blythe location. The Executive Board anticipates that the conclusion of an agreement with a financing partner will strengthen the structure of the capital basis.
In the course of its medium-term planning, the Executive Board expects a considerable increase in total operating performance and earnings caused by the implementation of the pending projects and the effect from the strategic realignment.
Solar Trust of America is an integrated solar energy company with several utility-scale solar energy projects under development throughout the American Southwest, including the 1,000 MW Blythe Solar Power Project, the largest solar project in the world. The company has 1,250 MW of additional solar power projects in advanced stages of development in California and Nevada. As a fully integrated company, Solar Trust of America works across the entire solar value chain, including project design, financing, procurement, construction, operation, and management.
Solar-thermal power plants generate electricity by converting solar radiation into heat energy. In a parabolic trough power plant, trough-shaped mirrors concentrate the incidental radiation onto a pipe in the focal line of the collector. Its absorption heats a fluid heat medium in the pipe, generating steam in the power block through a heat exchanger. As in conventional power plants, the steam powers a turbine to generate electricity. By integrating thermal storage, electricity can be supplied on demand, even after sunset.