“Identifying good partners means screening the market”

pv magazine: LTI ReEnergy’s slogan “German Heart – Local Content” is more than just a motto; it actually describes the company’s business approach. So can you explain in a little more detail the LTI ReEnergy’s business model?
Chris Voet: If you think of a car, you cannot just sell the engine; you have to sell the whole car. Nobody is only interested in the engine. That is what we are doing – producing the engine, the black box for the inverter called PVOne, developed and manufactured here in Unna, Germany for the entire global market. We supply the black box from Unna to our partners across the whole world. The PVOne can be integrated into a system that can be built here at LTI ReEnergy’s headquarter in Unna or at a related company, which already is experienced in building cabinets and other related components. For that reason, we have localization partners who are able to produce to a complete inverter solution based on and according to our standards. They will source different parts from us or they can do the sourcing from a Bill of Materials (BoM) list supplied by LTI ReEnergy. We approve the components that they source locally. This could be in markets in India, China, Brazil or wherever our localization partners are. Based on this advantage, we prevent transport and logistics costs because these partners are near to where the inverters are being installed. The PVOne, the German Heart, will be always being produced and sourced from Germany.

Could you describe the three key benefits of this, rather unique, internationally scalable value chain model?
Avoiding tax issues is number one because most of our supply is local. Secondly, we can avert currency exchange fluctuations so we do not have to hedge everything because components are locally bought, locally produced and locally sourced. Thirdly, of course, we prevent transport costs because we do not have to ship big containers, transformers or many other heavy components.
Because of these benefits, there is no need to apply any margin on such components; we are able to be as honest as possible in earning money on the components we produce. Last but not least, many upcoming countries just highly like and support larger fractions of local content. All in all, these advantages lead to a significant cost reduction for our partner.

Do you have available any figures on the size of the cost reductions you are able to offer customers in certain markets, such as India and Brazil?
In Brazil, which has high import taxes, customers receive substantial price reductions (often in double digit percentage reductions) following our “German Heart – Local Content” model. There are taxes on the products coming from Germany as well so the level of localization is based on the amount of the installed components that are locally sourced. The more local components are used, the higher the cost reduction is. For Brazil, we need the Finame codes that verify a component as locally produced. These codes are recognized by financial institutions such as local banks. A project needs a minimum of 60% concerning the local share of the value of the total solution and a minimum of 60% of the weight of the solution, to come from Brazil.

India’s solar growth is famously contingent in no small part on local content playing a large role. What benefits – in terms of cost and penetration – has this approach brought in India?
Complete turnkey solutions like central inverters in an ISO- container can be sometimes difficult to be supplied into the Indian market asit is a rather low cost market. Even with German quality it is impossible to sell at Indian prices if you ship the complete product, which will of course be subject to high import taxes as well. So people in India expect a locally manufactured product but with the same technology from Germany. We are experienced in working with partners who can produce inverters but also have a pipeline of projects they can complete themselves. Thanks to this combination of production and sales partners, means we are able to rely on our partner’s experience in the market – experience of sourcing, and knowledge of the target price required in order to be successful.
Bill of materials costs in India can be reduced by as much as 40% by partnering with local suppliers – can you provide a clearer breakdown of how these cost reductions are reached?
Obviously, labor costs are lower in India than in Germany. There are a lot of orders with big suppliers and good relationships. We can buy, for example, relevant components from leading western suppliers, buy here in Germany or we can buy in India for a lower price thanks to the sourcing we have access to. Our partners may buy the same products at a lower price than we can buy, so we benefit through the contacts they have. Or it is the other way around so that our partners can participate in sourcing from us as part of a large industry group. The bottom line is: it is not a fixed system or fixed price. We try every day to reduce costs further, or to avoid costs that are unnecessary. It’s an ongoing competition and the Indian market gives us a good platform to exercise cost reduction for the rest of the world.
How critical is it to identify the right partners: those that can maintain LTi ReEnergy’s quality?
It’s a bit of a secretive non-secret how we do it! How to identify good partners is simply a case of screening the market. You are not working only with partners that have the possibility to produce but also a pipeline that offers added value. So, it’s a win-win situation for both of us. The relationships are based on constant discussions about reducing prices and improving service. The feedback from partners is critical: They might tell us that the price of material has increased locally, so we are on the same wavelength and can adjust accordingly. In the end, they produce the product but we buy it back from them. We keep warranties for our own products, which delivers more confidence to our customers – based on stringent quality control.
How does LTi ReEnergy then ensure that local quality standards are upheld? What levels of checks, due diligence and training/guidance do you offer?
This is a large part of what we do. The localization process will take around three to six months. But prior to that there is a complete program of training people coming to Unna, who build products together with us – cabinets and containers for example – for other markets. So this on-the-job training is actual production, overseen on-site. This is a complete, defined program for after setting up the production.
Does LTi ReEnergy also coordinate post-installation O&M, as well as other aspects of after-sales service?
Of course, this is all part of the program. We offer a huge portfolio of support solutions starting from a helpdesk, technical support to different spare part packages and variants of engineering and application services.
How do markets differ in terms of their priorities?
We are always looking for “the missing piece of the puzzle.” We do not enter a new market blindly, without a plan. It is a step-by-step approach: Identify a market, look at potential partners, and then see what is missing in the supply chain. Once that is identified, LTi ReEnergy will support the market by supplying that missing piece, and that is our way in. It is not simply selling a product into a new market, but helping that market to find a solution. These relationships where there is mutual reliance are absolutely key when going to new markets globally.