Ralf Hofmann, KACO new energy GmbH
Release Date: 2009-12-15
What makes KACO different, what is unique about your business philosophy?This business was started almost exactly 10 years ago. At the turn of 1998/1999 KACO new energy was created through a management buyout that we completed with a handful of colleagues. The vision from the outset was to work in the renewable energy sector, and after the amazing growth that we have seen over the past 10 years the company’s goal is still realising 100% renewable energy solutions that meet the energy needs of this planet in the fastest possible time. There is a discussion at the moment in Germany on the extent to which we should put the breaks on renewable energy production so as not to overload the grid. Since it is very difficult to regulate a GW coal fired power plant feeding into the grid and considerably easier to regulate wind and solar energy, there is a tendency to switch off the renewable energy. It is fundamental to understand that our planet cannot wait. It is said that a temperature rise of 2°C by the end of the century is sort of manageable. At the same time we discuss on a European level how to limit the temperature rise to 2°C by the middle of century, but that is not in line with what scientists say is even halfway manageable. According to this scenario we are facing an increase of up to 7°C by the end of the century. Then, as Prof. Schellnhuber of the of the Potsdam Institute for Climate Impact Research said, we won’t have to discuss if we overstrain the possibilities of our economies if we put money into renewable energies, because when 1 billion climate refugees will be plundering the earth we are no longer talking about regular economics. So yes, KACO is different because we are driven by the conviction that we need 100% renewable energy solutions as soon as possible. Possible does not mean politics, it means technology. For us technology is a means to an end, for getting out of coal and nuclear power as quickly as possible.
While the solar industry has been hit by the financial crisis, KACO new energy has continued on its growth trajectory. How is it possible that KACO has managed to go against the trends of the industry and grow in this challenging environment?
First of all, over the past few years a silicon cell and module shortage was followed by a huge increase in production, where the manufacturers overdid it a little bit, and finally the shutdown of the Spanish market. This resulted in overproduction on the module side but not on the inverter side. We are following the growth in the module branch and still not have overproduction. Au contraire, there are not enough inverters available to the demand for solar modules. Secondly, why are we still managing to sell when nobody else is? We still work in a sort of closed market. It is definitely easier to sell no-name modules than it is to sell no-name inverters and this is where our history and good image are definitely an advantage. If you buy a KACO inverter you know exactly what you get, whereas if you buy from a name you have never heard that only emerged last year, you have no idea of the quality and reliability which is key with inverters.
There is a big misunderstanding in the complete market. When the result of a photovoltaic system is lower then expected then people often think that the inverter is responsible. However, our experience is that the problem of lower than expected energy production is usually caused by the module rather than the inverter, and the market does not want to see this. End users are afraid of having problems with the inverter when they don’t have access to the manufacturer. There are two sides of this coin, if the end user is not happy, the inverter bears the brunt of the blame, but at the same time it helps us because if customers are afraid of choosing the wrong inverter then they are more likely to choose a reliable manufacturer like KACO. It obviously helps if you’ve been in the business for a long time, and German electrical engineering does have a rather good reputation in the world. A recent survey among farmers with large solar installations indicated that amongst the competition KACO had by far the lowest failure rates. We are not just debating over a fraction of a percent difference in efficiency rates, we offer very reliable connections to the grid, which is what counts since only the kWh that you put into the grid is real, everything else is just talk.
Many of the investors in solar power are newcomers to the industry, what is the main message that you try to get across about the role that the inverter plays within the whole set up of the system? And what is the first question they generally ask you?
One of the first questions is about reliability, which is crucial for the yield. Inverter manufacturers tend to describe the inverter device as the brain and heart of the whole installation: the heart because it pumps the electricity into the grid, and the brain because it operates the working conditions of the modules. Being an inverter, you must be quick to realise the irradiation situation, bring the modules into perfect working conditions, keep them connected to the grid no matter what the grid does … so the inverter has to have a certain amount of intelligence. Intelligence is the main attribute of a good inverter, so we will see the industry develop towards even more intelligent inverters.
A solar module consists of maybe five different raw materials whereas in a small inverter there are a thousand single components which need to be organised, so the risk of making a mistake in the manufacturing is much higher. Therefore, a customer in China has to be wary using an inverter manufacturer who is a start-up, because for large and small companies alike the learning curve is always the same, you face the same problems and make the same mistakes. The good thing for Chinese customers looking for inverters is that KACO has already made these mistakes a long time ago, and learnt from them. One could even say that our German customers have already paid for our mistakes as we progressed through the learning curve!
KACO new energy opened its first office in China earlier this year, how did you initially enter this market?
We have a very reliable Chinese engineer, Dr. Fu who has worked for KACO for many years. When he suggested that he would like to go back to China this provided us with the initiative to enter the Chinese market. In our first year of selling in China, we sold around 500 kW, which for us is quite a lot. At the time, we were also having serious problems getting components for our production in Germany and our suppliers told us that in fact many of the components we were looking for were sourced from China. Since Dr. Fu had direct access to the manufacturers in China, we were able to get hold of the necessary components almost overnight while German manufacturers were asking for a higher price while offering delivery times of 6 to 10 weeks. The situation worked very well from both the point of view of KACO and that of the Chinese companies. Now we have our offices there and are fortunate enough to have Dr. Fu who helps us to understand the Chinese market and business culture.
You entered the Chinese market at a very good time, just as the Chinese government decided to support the development of the solar industry. What is the strategy that KACO is following for its development in China?
We will have to find a way to work with the utilities there, in the same way as we did in the US. Ultimately the answer is fairly simple, very big projects are beginning in China and they are looking for inverters, we have the technology and offices in China so with the help of our Chinese office it should be relatively easy to join this market. Our ambition is to take a large share of the photovoltaic market as it develops in China. The country certainly has enough solar modules manufacturers, supplying high quality modules, but there is definitely a lack of high-efficiency, high-power inverters in the market, which creates a niche for us.
Since Chinese government tends to think on a large scale there will be big projects coming up and we can offer what we believe to be the best central inverter in the world. It’s as simple as that: the XP series is very much ahead of the game – the inverters have very intelligent systems, are extremely user-friendly, keep the customer updated on a second-by-second basis, we have a highly reliable backup system in which no important part can fail without a second part taking over, the inverter sends an alarm message to your cell phone, and all this with a 98% efficiency rate. With these inverters we are pretty well set!
In just a few years, KACO transformed from a German player into an international company. What needs to happen before we can say that KACO new energy is truly a global player in the industry?
We are already one! There are obviously several steps in the development of a company and there needs to be a process of change within any company. At the moment we are at the beginning of a new step, which will take the company into a very interesting next phase. Last year we entered the Korean market and during the first year we took 50% of this 200MW market. In the coming year I am sure KACO will capture at least 60% of this market. Our dear competitors have a problem since we entered the Korean market and I see similar possibilities for KACO in China. On the one hand we have to change the company continuously, but on the other hand we have not made many mistakes in the past.
Are you planning to manufacture inverters in China since you are already sourcing components from the country and are entering the market?
That will depend on how the market develops. At the moment there is no need, but in the future when this market explodes we might decide to start manufacturing in China depending on the size of the market and the percentage of total sales it makes up. Next year we hope to sell a minimum of 1GW worldwide. Today, our orders for 2009 already total 750MW and will nearly reach 1GW at the end of the year, so this 1GW for 2010 is not a very high target. If we were to sell 900MW in Europe, 50MW in the US and 50MW in China, then it would make little sense to start manufacturing there. However if this turns around and we manage to sell 400MW in China, then we would have to react quickly, since it would be impossible to ship such a big volume from Germany to China. It is a question of our market share, and the size of the market itself, so we will see before we invest.
It will be interesting to see who is going to win the race between China and the USA, whose solar industries are both in the starting position. The US may be in a marginally better starting position but has no working financial schemes, because most programmes are based on direct government funding which means that projects only go ahead if the government makes money available. This is completely different from the German situation where everyone has a small amount added onto their electricity bill which goes towards a feed-in tariff pot, and this system has worked. The success of China will very much depend on what programme the country decides to use. I look forward to being surprised by China’s development. Ultimately, the old economic truth holds: that production goes where the market is. I think that at the moment the US will be slightly ahead. So China will have to act fast, and when the Chinese solar industry takes off we will have to hurry! The strongly centralised system of government will certainly help to push initiatives through the country.
While KACO is growing larger its CEO is also getting older. How difficult is it to realise when you have to replace yourself, and what is it that you want to have achieved before that moment?
That is a very important issue. It is difficult to recognise that you are getting older and that someone should replace you one day. In government this is easy since it is usually a democracy and there is therefore an election. I’m always joking that a problem with this company is that it is not very democratic! Therefore it is very important to define the correct time is for me to leave this seat. My other problem is that in my vision for the future, I see so many things that I would like to have achieved that I would need about 200 years. I have to prioritise, which is a process that has not been finished. For the moment there are a lot of targets particularly on the technology side of things, but nothing that I should be announcing right now.
Does SMA act as the benchmark for your company; is it your mission to perform better than SMA?
That’s a very good question. You cannot hide from the fact that SMA is the benchmark, but that does not mean to say that we follow them. It is actually not bad to be in the second position. If you are in the number one spot, you are hunted by the second, third and fourth ranked companies, whereas in second place you can be much more comfortable. We set our own targets and we like to hunt.
We also have a very different approach from that of SMA, which has been running for 15 years longer than KACO.
Where SMA would pander to the demands of the utility companies in the interest of the end consumers, at KACO we are much more willing to get into the ring with the owners of the grid in order to champion the interests of the environment. We obviously don’t want to put the end consumer into trouble with the utilities providers or the grid owners. However we are certainly willing to fight for what is right, what is the law, without simply giving in at the first hurdle.
Another interesting difference is that SMA is a listed company so has to constantly bear in mind its shareholders. In fact, the logic behind the green industries does not really fit with the logic that runs financial markets. Since we work in a field where we want to conserve something, we are aware there is just one planet, so it’s not possible to get a new planet on your credit card, and you can’t work with 50% less atmosphere. Mathematically this may be possible and financial economics work with strict mathematics, but they don’t consider the laws of physics which apply to real life. The science behind the environment therefore does not really work on the same terms as financial economics; not everything works as well in reality as it does on paper. A couple of our industry partners made the decision to get listed, which is nice if you have a lot of money coming in, and can act quickly. We have a saying in German which is very fitting in the scenario: “If you want to dine with the devil, you will need a long spoon.” KACO is a family owned company, so our targets are not simply financially oriented, our motivation is elsewhere.
What is the contribution that you as a company would like to make over the coming years to the development of the solar industry in China?
“We help you to get off coal.”
| Company: | KACO new energy GmbH |
| Position: | CEO |
| Country: | Germany |