Last week First Solar, one of the world’s leading solar power companies, announced that it was buying start-up OptiSolar’s portfolio of impending projects for $400 million. OptiSolar had appeared out of nowhere last year to ink massive contracts with utilities, including a record $550 million deal with PG&E, and seemed poised to become a major player in the industry. I and others wrote admiringly about their differentiated, fully integrated business model – whereas most solar power companies simply make solar modules that they sell to contractors and developers, OptiSolar planned to control their full value chain – they would actually build and operate power plants using their panels. 
Then came the credit crunch, and funding for OptiSolar’s ambitious plans disappeared. First Solar, which has minted cash over the last few years as its highly disruptive thin-film solar panel approach matured, is using its war chest to step into the void.
Some observers are voicing concerns about the price and timing of the deal. Why not be conservative with cash while economic storms are still raging? Other analysts would rather see First Solar spend its money on diversifying its technology mix by picking up early stage competitors with distinct and promising technologies, such as CIGS cells.
These are legitimate warnings – it’s certainly hard to fault analysts for urging caution and diversified portfolios in times like these. But I really like the deal, because it sets the stage for First Solar to marry its disruptive technology with a powerful, differentiated business model.
Taking on OptiSolar’s power plant projects (and, significantly, its plant development team) sets First Solar up to move to an integrated model that will allow it to extend its already industry leading price advantage. Solar as an industry is still immature; system prices are too high and the value chain has not fully cohered. As a result, project costs are pretty variable, and the modules themselves can be just a fraction of the total price tag. By forward integrating, module makers can assert control over a greater share of the process, trimming costs and ensuring quality for their end users. This is consistent with one of the core disruptive innovation theories (integration vs. modularity), and looks like another smart strategic step for First Solar away from the rest of the solar pack.
First Solar took baby steps towards such a model last month when it announced that it was providing financing for some of its customers’ major development projects to help keep them on track. This latest, far more ambitious move does not necessarily commit the company to full-on integration – First Solar said it would likely sell the power plants rather than maintain and operate them at first – but it paves the way for flexible, emergent experimentation.
The move also locks in demand over the next few years, which will continue to enable the company to scale towards ever lower prices despite the credit markets. As competitors struggle to stay afloat, First Solar will be charging ahead in its quest to compete directly with fossil fuel energy on a cost basis without government subsidies. Once stimulus funds start flowing into the renewable energy sector and utilities get serious about solar, a forward-integrated First Solar will be ready and waiting to provide cutting edge, low cost, turnkey power plant solutions.
One of the trickiest bits of the disruptive innovation puzzle comes once a company launches or acquires a disruptive business: How to integrate the new venture into the parent company while protecting what made it work in the first place. We refer to it as “avoiding institutional antibodies” — making sure that entrenched rules or nit-picking comments (“…But we don’t do it that way!”) don’t prematurely kill innovation efforts.
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