Cencorp Corporation Stock Exchange Release 13 November 2013 at 12.00 Finnish time
THE CLEANTECH STRATEGY OF CENCORP
The purpose of this release is to clarify Cencorp Corporation’s (“Cencorp”) Cleantech business strategy to investors as well as to mass media. The release includes Cencorp’s view on the development of solar energy in the 21st century. Further, the release describes the reasons and logic why Cencorp decided to enter the cleantech business, photovoltaic and fuel cell related technologies, in particular. This release only refers to solar energy. In the release Cencorp explains the competitive advantages the company has in photovoltaic products and solutions in the market. The long-term objectives for the Managing Director shall not be considered as the company’s financial guidance, remain the same as earlier and are reviewed at the end of the release.
Cencorp participates the Sijoitus Invest 2013 event that will take place on 13 – 14 November 2013 at the Wanha Satama in Helsinki.
CENCORP’S VIEW ON THE DEVELOPMENT OF SOLAR POWER USAGE IN ENERGY PRODUCTION
Sunlight is nowadays mainly converted into electricity either by heat that can be converted into electricity or directly producing electricity. Electricity is produced directly using photovoltaic modules that are either covered with semi conductive films or with silicon as the semiconductor. Cencorp is specialized in the technology where silicon wafers placed on module surface are used as semiconductors. Usually there are 60 wafers in a module. 90 % of the energy produced by solar modules is produced with this technology. Solar energy is utilized also in another type of panels, so called thermal collectors that normally heat liquid circulating in the system. Cencorp does not manufacture thermal collectors.
As background information we would like to present some basic market information influencing in the fundamentals of Cencorp’s photovoltaic business:
• The production of solar electricity grew hundred-fold during the years 2001 – 2011. The growth was mainly driven by governmental subsidies provided to solar energy producers. Considering the price level at the time solar energy production had not been profitable without these subsidies.
• The first phase of the solar energy boom culminated in 2010 and 2011 when global production capacity of photovoltaic modules increased by capacity of tens of nuclear power plants, more than 30 GW. In the beginning of 2010 the total capacity of the global solar energy production was only 18 GW. China’s share in the production capacity increase was more than 21 GW. Numerous companies focusing on solar energy business were established in China and their operations were aggressively funded. It was estimated that, at its worst, the global module production capacity was 65 GW but the market size was less than 30 GW.
• In order to continue their manufacturing Chinese mass producers pushed down the prices of solar energy modules until, in the beginning of 2013, module prices including freight costs, delivered in Europe, were ca. 70 % lower than in 2010. (Source ITRP Roadmap, March 2013). Sometimes, the prices were even lower than production costs of the Chinese manufacturers.
• Due to the investments of hundreds of millions done mainly in cell technology but also in module technology the European and American manufacturers were heavily indebted. As the prices crashed, the manufacturers were driven into financial crises, bankruptcy and transactions. As the market disturbance continued the Chinese manufacturers got into trouble as well.
• The positive effect of the price decrease was that with the new price level users’ investment costs were decreased substantially. In many parts of the world, even without governmental subsidies, solar energy became competitive in terms of price compared to other forms of energy. Significant decrease in the prices generated increase in solar energy consumption.
• After 2011 more than 80 % of all solar energy systems were manufactured in China. In order to prevent Chinese dumping the USA introduced anti-dumping tariffs in October 2012. In July 2013 the EU and China agreed on minimum price level for the Chinese products as well as on the maximum volumes of imports to Europe
CENCORP’S VIEW ON CURRENT AND FUTURE DEVELOPMENT OF SOLAR ENERGY
Rapid growth of the market, closing low-profit production capacity outside of China and in China during 2012 and 2013 have ended the market disturbance that lasted couple of years. The second phase of the growth of solar energy use is about to begin. The predicted behavior of the market is reducing the competitiveness of the centralized Chinese mass production model. The Chinese government is not expected to subsidize new solar energy investments as aggressively as earlier. Further, the Chinese government has significantly increased its own investments in solar energy, which decreases overproduction. There is a lot of evidence that the local production of the modules is about to begin again outside China.
Huge investments in 2011 and 2012 were made inthe production of the standard modules of the time, which now slows down technical development for some time. Almost all the capacity built by Asian companies 2 – 4 years ago is already now technically old.. Current market environment provides a good chance to introduce new technologies. A next generation solar module was invented in Europe already few years ago. Cencorp has further developed the concept module, created production methods for it and built production capacity for the components needed. A march of the next generation modules is about to begin along with the next investment wave in solar electricity.
HISTORY OF THE CENCORP PHOTOVOLTAIC BUSINESS
In 2011 Cencorp started to develop a flexible and module-size Conductive Back Sheet (CBS) for a next generation photovoltaic module. The project was carried out together with a large American company. For the moment, Cencorp is further developing the CBS on its own and is the first company in the world capable of producing CBS in industrial scale. Conductive Back Sheets are produced at Cencorp’s factory in Beijing.
Since the summer 2012, when the American company exited from photovoltaic business, Cencorp has taken over customer interfaces as well. Among Cencorp’s potential customers are the biggest Chinese module manufacturers, several governments and their organizations investing in solar energy as well as certain global big customers. With long-term experience in international business and as a part of the global Savcor Group Cencorp is capable of utilizing its worldwide customer potential in an efficient way.
Cencorp evaluated both the future behavior of the market and the growth potential of the new module technologies during the next few years and noticed that its most potential customers, the Chinese module manufacturers had recently invested in old technology and may not invest again very soon Cencorp decided to invest in the module manufacturing technologies based on the conductive back sheet (CBS). In January 2013 Cencorp acquired, for a price of approximately one million Euros, the photovoltaic module business of Sunweb Solar Energy Holding B.V. (Sunweb), a Dutch company that used to produce photovoltaic modules. The acquisition included a small automated module production line, the technology and the patents of Sunweb. Before exiting from module manufacturing Sunweb had invested more than EUR 25 million in the technology Cencorp acquired.
With tens of years of experience in automation Cencorp had remarkable natural capabilities to continue in Finland the development ofthe technology it had acquired. This development has been accelerated remarkably by the acquisition of the Sunweb production line but also by the funding provided by Tekes (The Finnish Funding Agency for Technology and Innovation), among other things. Cencorp rebuild the production line bought from Sunweb and suitable for pilot production in Mikkeli by using all of its natural strengths relating to: its own innovative automation technology, laser technology and handling processes of the CBS. The first Finnish photovoltaic modules were made on the pilot production line in Mikkeli in May 2013.
Cencorp started to design and build its own fully automated production line for production of next generation modules. An automated photovoltaic module production line based on Cencorp’s own design will be finished in Mikkeli during the year 2014.
The major events in the short history of Cencorp Clean Energy have so far been:
June 2011: The first meeting with a large American company about developing Conductive Back Sheet for photovoltaic modules using the processes at Cencorp’s factory in Beijing.
November 2011: The first CBS component for a photovoltaic module was manufactured at Cencorp’s factory in Beijing.
December 2011: An agreement on producing CBS components for photovoltaic modules was signed with an American company.
January 2012: Cencorp’s Board of Directors commenced an internal study which resulted in Cencorp announcing later on that the company will transfer its focus in renewable energies; photovoltaic and fuel cell applications, in particular. In these applications the technologies Cencorp masters could generate remarkable competitive advantages in the market.
June 2012: Cencorp’s American partner announced that it will exit from the photovoltaic business. Cencorp commenced negotiations on technology transfer and immediately took over the customer relationships the partner had earlier managed.
November 2012: Cencorp signed a Memorandum of Understanding on CBS deliveries to one of the leading Chinese solar module manufacturers.
December 2012: Tekes (The Finnish Funding Agency for Technology and Innovation) granted a development loan of EUR 2.97 million to Cencorp to develop photovoltaic modules and related production technology and components.
January 2013: Cencorp signed an agreement with a Dutch company, Sunweb Energy Holding B.V. on acquiring an automated pilot production line for CBS based modules as well as on transferring Sunweb’s technology and related patents.
February 2013: Cencorp was granted a funding of EUR 600,000 from Suur-Savon Energiasäätiö to further develop its photovoltaic business.
May 2013: Finland’s first CBS based photovoltaic module was made at Cencorp’s factory in Mikkeli only little bit more than six months after installation of Cencorp’s pilot production line using the company’s own new technology was started.
May 2013: Keskinäinen Eläkevakuutusyhtiö Etera and Ingman Finance Oy subscribed Cencorp’s EUR 2.1 million convertible loan.
August 2013: Cencorp signed its first distribution agreement with a Dutch company, ProxEnergy B.V. At the same time ProxEnergy placed an order for modules to be delivered to Cape Verde. The order value was ca. EUR150,000.
Year 2014: Cencorp is negotiating with several significant customers on sale of photovoltaic module production lines. Cencorp believes it can secure its first production line orders already in 2014. Typical price of a production line is about EUR 5 – 10 million depending on the degree of automation.
CENCORP’S VIEW ON MARKET DEVELOPMENT OF CONDUCTIVE BACK SHEET (CBS) BASED PHOTOVOLTAIC MODULES IN THE NEAR FUTURE
The global photovoltaic module market is expected to continue growing significantly, exceeding annual growth of 50 GW already in 2015. In 2012 annual growth was 30.5 GW. The global installed photovoltaic capacity is estimated to grow to 460 GW by the year 2020. (Source ITRPV 2013)
The market share of the solar cells connected to the connectors from the back side instead of being connected with any wires on top of the cell is believed to grow from the starting point up to 25% by 2020 (ITRPV Roadmap march 2013). According to the same source most of these back contact cells are believed to be connected to CBS. Assembly of CBS based photovoltaic modules requires such accuracy that it cannot be achieved manually. Automated assembly is the only technically and economically viable option.
According to the moderate estimations 400 – 1000 CBS modules will be manufactured and installed around the world by 2020. (Source same as above.) Considering current price level of production lines automation investments of EUR 1.2 billion are needed to produce this amount of modules. Cencorp’s production technology that bases on the company’s own design meets perfectly this investment demand. Competition, when it one day starts, in this new market segment will become very interesting.
According to the conservative estimations the growth in the CBS demand will require annual production capacity of more than 100 million CBS components already in the next few years.
At its factory in Beijing Cencorp has enough capacity to manufacture more than three million CBS components in a year. As far as Cencorp knows the Beijing factory is for the moment the only manufacturing plant in the world capable for the of mass production of the CBS. The CBS production equipment at the Beijing factory is mainly based on Cencorp’s own design and mainly build by the company, too. This is why Cencorp is capable to quickly increase its capacity according to market demand. If required, it can establish CBS production close to a customer wherever needed.
CENCORP’S MAIN MOTIVES TO ENTER THE PHOTOVOLTAIC BUSINESS
1. Complicated automation required in assembly of CBS based modules. Cencorp has more than 30 years of experience in operations that are needed for this kind of assembly work.
2. Based on Cencorp’s experience the accuracy needed to produce a hole through the flexible layers of the module for the electric contact necessarily requires a highly advanced laser application. Cencorp has exactly such knowhow and experience in laser applications that is required in the CBS based module production.
3. Production of CBS components requires ability to combine several processes into one production line. Cencorp has manufactured antennas for mobile phones and RFID antennas in its Beijing factory since 2001 and has gained exactly the knowhow needed.
4. Handling of CBS components in module production process requires special competence for automation, machine vision as well as accurate measurements, skills that Cencorp has always used in other, demanding assembly solutions.
CENCORP’S CLEAN ENERGY PRODUCTS AND THEIR SALES STRATEGIES
1. Production automation solutions
Cencorp develops fully automated production line for the next generation modules consists of production cells performing various process stages of the module production. The product range will include fully automated production lines and modular parts that can be integrated into a turn-key module manufacturing plant. Design and building of the concept is based on Cencorp’s more than 30 years’ experience in automation and on the company’s ability to utilize laser technology as well as understanding how flexible layers in a module can be handled.
As mentioned earlier, according to Cencorp vision production of photovoltaic modules will, at least partially, move from the centralized production model of all Chinese manufacturing to a more distributed models where modules are produced closer to the end-users of solar energy. Cencorp’s production line is compact. Due to its modular concept it can be priced reasonably and it has high degree of automation. Cencorp’s production line concept fulfils exactly the requirements of the expected development of the business models in the near future.
Sales strategy:
Target market for Cencorp’s production technology comprises governmental solar projects, module subcontractors and OEM manufacturers. Cencorp is preparing to sell its technology by itself but plans to always involve a local partner who knows local conditions and identifies local investors. Potential local investor should always be well connected with potential module markets which often are regulated e.g. by local authorities.
Cencorp’s strategy emphasizes a close relationship with its customers who have chosen Cencorp’s technology. Further, Cencorp is aiming to enter into partnerships with its customers. In the partnership contracts Cencorp commits itself for a fee to train the partner’s personnel, to continuously update its manufacturing partners’ production methods, to give technical support and to arrange global procurement for certain components.. Cencorp is prepared to take care of the module manufacturing for certain period of time or permanently, whatever is preferred by a partner. To secure the demand for its own CBS components Cencorp may accept a minority stake in a solar plant investment subject to the specific acceptance of its important stakeholders.
Thanks to the technical support Cencorp provides to its manufacturing partner there is no need to have previous experience in photovoltaic module production or in automation. With Cencorp’s components, manufacturing instructions, certifications and automation solutions a local module production can be established fast and easily anywhere in the world. Cencorp sees that this kind of business model, similar to franchising, supports very well fast establishment of new production capacity in third world countries, in particular.
2. Cencorp photovoltaic module
• Based on Cencorp’s own tests the “cell to module loss” of its PV-modules is one of the lowest in the world. When using cells of similar capacity, Cencorp’s module has more output current than a traditional module. Cencorp will soon launch several new module models that differ from each other mainly in terms of cell structure. Further, Cencorp’s module is visually more attractive than traditional modules as there are no wires on the visible surface of the cells. Cencorp is planning to put more attention to module design, too. More and more often modules are designed to be integrated in a building or other structure. If an integrated module looks good and is available in various shapes and sizes a remarkable competitive edge will be created.
Cencorp’s first modules were made in May 2013. Since then Cencorp has delivered modules for several pilot installations and signed its first distribution agreement. For the moment Cencorp’s photovoltaic module production technology is based on Cencorp’s own technology and technology acquired from Sunweb Solar. Since then Cencorp has further developed the module technology and is soon ready to launch its own products in the market. In addition, Cencorp increases its production capacity as the company’s own design based production line will be finished next year in Mikkeli.
Sales strategy:
Cencorp’s business strategy does not include becoming a large manufacturer of photovoltaic modules. Cencorp’s own production, the capacity of which will be increased close to 500,000 modules in 2014, is targeted to serve mainly customers who require customized modules and to create backup capacity for the manufacturing partners using the Cencorp technology. Naturally, Cencorp will offer and deliver modules for traditional and completely new sales channels.
3. Conductive Back Sheet(CBS)
Conductive Back Sheet functions as a back layer of a module with an integrated copper circuit on it. Cells are directly connected to CBS that transmits electricity from cells to an external current interface.
Conductive Back Sheet is the most important component, excluding silicon cells, in a next generation module. Cencorp has developed a functional and cost efficient CBS by itself. Cencorp’s technology, originally developed for mobile phone antenna and RFID antenna production, is at this stage the only technology in the world that can be used in a cost efficient production of CBSs in industrial scale.
Sales strategy:
Cencorp is selling price competitive Conductive Back Sheets to all manufacturers of CBS based modules. In the future priority is given to the manufacturing partners. This guarantees an opportunity for the partners to agree in advance on delivery quantities and prices. Potentially big demand and short supply don’t raise connector prices for Cencorp’s manufacturing partners as happened to silicon prices in 2007 and 2008 when the solar energy market started to grow.
Development of CBS sales have remarkable additional opportunities if major module manufacturers start using Cencorp’s CBS when switching to the new module generation and if Cencorp succeeds in selling its module production lines as expected.
4. Other special components
Should Cencorp’s business plan start to realize in 2014 as planned, Cencorp will introduce other special components for the photovoltaic modules such as integrated electricity storage solutions or intelligent electronics minimizing shielding losses. Cencorp is developing these products together with several partners. The first sales channels for these products will be Cencorp’s manufacturing partners and their customers.
5. Solar energy sales
In special cases when Cencorp provides its customer with a large scale photovoltaic system to decrease the customer’s electricity costs, Cencorp may hold the ownership of the equipment and modules and sell electricity to the customer. This kind of arrangement requires an investor. Cencorp will not have photovoltaic systems or modules it has sold in its balance sheet. New sales concepts are entering the solar energy market. Some Chinese module manufacturers are known to hold ownership of their modules and to sell electricity produced with the modules. It is also general knowledge that there are investors who are more and more interested in owning modules. After all, modules are important components in energy production where cash flow is known to be steady and potential lease agreements can be made for a proper time period.
LONG-TERM OBJECTIVES FOR MANAGING DIRECTOR
The long-term objectives set for the Managing Director involve also risks and the long-term objectives should not be considered as the company’s financial guidance. Even though the objectives are based on market knowledge and technical surveys, the risks are significant and it is not certain if the Managing Director reaches all or part of the targets set for him.
On 21 August 2012 Cencorp’s Board of Directors published its long-term financial and other objectives for Managing Director as follows:
- Thorough but fast transition from a company manufacturing only production automation systems and special components into a company that develops and provides Cleantech applications using laser and automation technology, a company with a strong market position as a provider, of locally, produced, high-quality photovoltaic modules and a company operating in various geographical markets.
- Cencorp’s goal is to increase its shareholder value with growth and profitability. Cencorp aims for growth in Cleantech business where the company has good possibilities to achieve a strong global position and faster growth.
- Laser and Automation Applications segment has its main focus on the Life Cycle Management of systems and on equipment with growth expectations for service business.
- In the long run Cencorp is aiming for remarkable growth in its net sales with net sales target of more than EUR 200 million for 2016, with growth coming mainly from Cleantech operations, especially from solar photovoltaic and fuel cell applications, provided the company has sufficient capital.
Cencorp’s Cleantech strategy, if realized, will remarkably change the company’s cost structure and the targets set for the near future. As Cencorp is now in a strong transition phase, following the new strategy, Cencorp cannot assess how the change in company’s business focus will impact to the company and Cencorp has decided not to give any financial guidance for the time being, as stated in the release of 21 August 2012. As the transition phase is still continuing Cencorp does not give any financial guidance either during 2013.
Cencorp has announced that its objective is to transform from a company manufacturing only production automation systems and special components into a company that develops and provides cleantech applications using laser and automation technology as well as into a company that has a strong market position as a provider of, in various geographical areas, locally produced high-quality photovoltaic modules. Achievement of the objectives as well as realization of the transformation involves risks. Even though Cencorp's strategy and objectives are based on market knowledge and technical surveys, the risks are significant and it is not certain if the company reaches all or part of the targets set for it.
Cencorp's future outlook will be highly dependent on the company's ability to reach the targeted market position in the global photovoltaic module market as well as on the company's long-term financing.
In Mikkeli, 13 November 2013
Cencorp Corporation
Board of Directors
For more information, please contact: Iikka Savisalo, President and CEO, tel. +358 40 521 6082, iikka.savisalo@cencorp.com
Distribution: NASDAQ OMX, Helsinki Main media www.cencorp.com
Cencorp Corporation is a leading provider of industrial automation solutions. The equipment included in the product portfolio designed for depaneling, odd-form assembly, testing and laser materials processing substantially improves the efficiency of customers' production. The product range also includes EMI shielding solutions, RFID antennas, other flexible circuits including for example conductive back sheets used in photovoltaic modules and mobile phone antennas. Cencorp's customers are manufacturers of automotive electronics, mobile phone antennas and photovoltaic modules as well as manufacturers operating in telecommunications and in industrial automation. Cencorp's head office is located in Mikkeli, Finland. The company is part of the Finnish Savcor Group.
