Good afternoon, everyone, and welcome to First Solar's 2nd Quarter 2018 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at firstsolar.com. At this time, all participants are in a listen only mode. As a reminder, today's call is being recorded. I would now like to turn the call over to Steve Haymore from First Solar Investor Relations.
Mr. Haymore, you may begin.
Thank you, Ebony. Good afternoon, everyone, and thank you for joining us. Today, the company issued a press release announcing its 2nd quarter financial results. A copy of the press release and associated presentation are available on First Solar's website at investor. Firstsolar.com.
With me today are Mark Widmar, Chief Executive Officer and Alex Bradley, Chief Financial Officer. Mark will begin by providing a business and technology update. Alex will then discuss our financial results for the quarter and provide updated guidance for 2018. Following their remarks, we'll then have time for questions. Please note this call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations.
We encourage you to review the Safe Harbor statements contained in today's press release and presentation for a more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer. Mark?
Thanks, Steve. Good afternoon, and thank you for joining us today. I would like to start by significant developments in the global market, primarily stemming from policy decisions in China. The near term impact has been an almost immediate collapse in pricing across has taken to better align near term supply with demand. There is still an oversupply across the value chain, which is driving declining module ASPs in both China and certain international markets.
While it's still too early to fully assess the long term effect these decisions will have on the industry as a whole, The end result most likely will be more competitive PB power prices, which will lead to demand elasticity, both in China specifically and the global market in general. Additionally, we will likely see industry consolidation as uncompetitive technologies and financially unstable companies struggle to compete. While we will continue to carefully monitor these recent developments, we remain focused on leveraging our competitive advantages and executing our differentiation strategy. 1st and foremost, our CADtail technology and specifically our Series 6 product is a competitive advantage. And an industry that suffers from a lack of differentiation Series 6 has the potential to achieve a distinctive combination of low cost and high efficiency.
While there is still a great deal of work ahead to realize its full potential, our unique technology is a key competitive advantage. In addition, as we look over the horizon of an oversupply market, our nearly 11 gigawatt pipeline of future contracted shipments is a position of strength. While I will talk more about this in a moment, nearly 80% of our available supply from now until the end of 2020 is booked. This is a substantial pipeline of contracted Finally, another competitive advantage unmatched in the industry is our balance sheet, which enables us to invest in our business and be opportunistic at a time when greater stress is likely to be placed on competitors who are already highly levered. Our net cash at the end of Q2 was a record $2,700,000,000, even after significant year to date investments in Series 6 capacity and project development activities.
While this is an industry that Furthermore, as a company, we have never been better positioned to deal with the current near term challenges given our Series 6 product, contracted bookings and balance sheet strength. Before providing an update on our progress related to Series 6, there are some important points to keep in mind pertaining to our financial results for Q2. First is that when we began our transition to Series 6 a year and a half ago, we anticipated that 2018 and in particularly the first half would be the trough in our earnings power with Series 6 production largely slated for the second half of the year. We knew we would be as a low point of our module availability in a period with elevated levels of ramp and start up costs. Additionally, the second quarter was significantly impacted by the timing of closing of certain project assets.
As we've seen in the past, there's a great deal of uncertainty associated with project sale timing and the effects on a single quarter can be pronounced. Given this quarterly variability, we provide financial guidance on an annual basis as we believe this is the most meaningful way to evaluate our performance. Lastly, certain initial Series 6 production issues that we have experienced during Q2 impacted our results. Lower than targeted throughput and yields resulted in fewer modules available at project sites and a higher module cost per watt. While we see these ramps related impacts primarily as near term issues, rather than as long term structural challenges, they nonetheless caused a delay in some project revenue recognition and results resulted in a decrease in our full year margin outlook.
Alex will provide discussion around the financial results in more detail later and provide an update to guidance. Now turning to slide 4. I'll provide some more contents related to our Series 6 ramp and the manufacturing issues mentioned. Overall, we are very pleased with the progress we have made thus far remain confident in the long term capability of the Series 6 product from a cost and an efficiency perspective. To give you a sense of the progress we are making, At the time of our last update in April, we had only recently started production and initial commercial shipments from our Ohio factory.
Since that time, we have commenced production at our 2nd Series 6 factory in Malaysia with our 3rd Series 6 factory in Vietnam, not far behind. In Vietnam, we are completing factory acceptance test of the equipment and we expect the 1st module production in late Q3 with commercial shipments to follow in early Q4. Construction of our 2nd Series 6 factory in Vietnam is also progressing according to schedule, with tool installations beginning later this quarter, followed by 1st production in 2019. The U. S, we are progressing with our 2nd Series 6 factory that we announced on our previous earnings call.
We held the groundbreaking event for the new factory in early June and the 1.2 Gigawatt nameplate factory is anticipated to commence production in late 2019. Overall, there has been significant progress made in the past 3 months and the organization is intently focused on building out our Series 6 capacity. As it pertains to the manufacturing ramp of our Ohio and Malaysia factories, we have made substantial progress over the past 90 days. Production at the Ohio factory is now running at approximately 60% of nameplate capacity and our Malaysia factory has ramped very rapidly over 40% of nameplate. However, even with this progress, the plan to Q2 production was below our expectations.
Our biggest challenge remains the throughput on the back end of the line, busting through final pack out. The layout at the back end of the line was built according to tool set availability specification, which resulted in few required buffers. As we started to ramp the back end of the line, a toolset availability, not yet at a mature state, we realized there were multiple single points of failure in the line that could shut down production. Effectively, the line was not adequately buffered given the current performance of the toolset. We are in the process of installing inventory accumulator properly buffered the back end of the line.
Once completed in our Ohio factory, we will use our copy smart approach to roll out to Malaysia in Vietnam. Over time, as the toolset availability improves, while the inventory accumulators will remain in place, the need for inventory buffers will decline. The impact of reevaluating the back end, identifying the required buffers and installing the inventory accumulators across our manufacturing facilities In addition to adversely impacting Q2 has resulted in a reduction of approximately 200 megawatts to the full year Series 6 production plan. It is important to note that despite the 2018 volume reduction, with the actions we are taking, we anticipate to exit the year at the originally anticipated throughput Keep in mind that the issues we're working through do not impact our long term outlook for Series 6. Relative to our long term expectation I wanted to make a comment on Through our initial production, we have validated the cycle time and performance of each tool and the capabilities meet or exceed our planned requirements.
This validation helps to critically inform our views currently averaging 4.15 watts per module as compared to a production entitlement that yielded most modules near 400 watts at the end of our last call. Our top bins are currently at 4.20 watts per module and are approaching 425 watts. With a robust pipeline of advancement to to come, we have line of sight to continue improvements in the fleet average efficiency. Overall, our efficiency and watts per module are on track relative expectations for the year. Series 6 product readiness has taken a significant step forward since last quarter with the completion of both UL and locations.
We indicated previously that our achieving these certifications was primarily a matter of time and completing both certification is an important milestone. We have not yet scored this metric green as a matter of due course given the relatively recent introduction of the Series 6 product. As we gain more experience throughout this year, we expect to advance this metric to grade. Continuing on slide 5, Ohio our bookings activity for the past quarter, Since our last call, bookings will have continued to be solid as we have contracted nearly 900 megawatts of new business. This brings our year to date net bookings to 4.1 gigawatts and our total future expected shipments to 10.9 gigawatts.
To put our future expected shipments into context, almost the entire 10.9 gigawatts is expected to ship between now and the end of 2020. Given this same time period, our anticipated supply of both Series 4 and Series 6 modules is 13.8 gigawatts which implies approximately 2.9 gigawatts of remaining bookings to fully contract through the end of 2020. Factoring in the over 7.15 megawatts of contracts signed, but not yet counted as bookings. The remaining bookings number to the end of 2020 drops to less than 2.2 gigawatts. While we still have considerable work ahead to fully contract The remaining 2.9 gigawatts of supply, we currently have 5.1 gigawatts of mid to ledge late stage opportunities with shipment requirements before the pricing and the pricing advantage of Series 6 versus Series 4.
For example, the average ASP of Series 6 modules booked this year is essentially consistent with the 2017 Series 6 bookings average module ASP. Note, this is especially noteworthy given the current year bookings are for shipments through the end of 2020. Furthermore, when compared to 2018, series 6 and Series 4 bookings, Series 6 average ASP is 6% higher than Series 4. Also continue to make progress in building our systems pipeline as we highlighted by 2 new PPAs we booked in the U. S.
One PPA for 75 Megawatt AC was awarded by Utility in California and has an expected completion date in 2021. A second PPA for 73 Megawatts AC was obtained through a recent pipeline acquisition and will be our 1st project in South Carolina. The PPA is with South Carolina Electric And Gas, and the project hasn't expected completion date of 2020. We are excited by this entry into a new part of the Southeast United States in a region that has an excellent solar resource. While this was the only project acquired with assigned PPA, the pipeline acquired also includes a number of mid to late stage opportunity development projects, which in aggregate total approximately 600 megawatts.
As I mentioned earlier, our balance sheet strength allows us to be opportunistic and we will continue to evaluate other project or pipeline acquisition opportunities so long as they meet our return thresholds. While not yet Canada has bookings, we have also signed an approximately 60 megawatt AC PPA with the utility in Western United States. For a project that will provide power to a corporate customer. We'll provide more details in the future, but this project is a prime example of our capabilities to address the renewable energy goals of corporations in partnership with utilities by leveraging efficient and reliable large scale off-site generation. Previously, we're able to bring the same capabilities to bear when we partnered with NV Energy to power data centers for switch with clean affordable electricity.
In addition to the signed PPA,
we
customers. All three of these opportunities highlight this important growth opportunity as many companies increasingly commit to 100% clean energy. Outside the U. S, we also continue to see growth in our systems portfolio this past quarter with approximately 30 megawatts AC of additional systems bookings in Australia. In addition to new development project bookings, we also recently converted an additional 65 Megawatts DC of previously contracted module volume to an EPC sale.
When we add EPC scope to previously book module sales, we do not count these agreements as new booking However, they do provide incremental future revenue and margin. This is the 4th project that we will construct for Tampa Electric with an depletion date of this project in 2019. Year to date, our total net system bookings are now 1.3 gigawatts, which is comprised of over 750 megawatts of development project bookings and more than 500 megawatts of EPC contracts, which we converted from module sales. In addition to the system project discussed, the remaining bookings for the quarter were module sales primarily to customers in the U. S.
Other module agreements were also signed with customers in India, the Middle East and Europe. Continuing on to slide 6, I'll next discuss our mid to late stage bookings opportunities, which on a net basis is unchanged at 8.3 gigawatts DC. When factoring in the bookings for the quarter, a number of which were included as opportunities in the prior quarter, our mid to late stage pipeline actually grew. On a geographical basis, North America increased with a roughly corresponding decrease in opportunities in Asia Pacific. North America increased primarily as a result of acquiring the project development portfolio in the Southeast U.
S. Mentioned previously. Keep in mind with in addition to more to the more advanced project opportunities, which are included in the 8.3 gigawatts, there is a robust portfolio of early stage projects not reflected here. Similar to last quarter, the total potential opportunities include deals that are signed not yet counted as bookings until financing or other CPs are closed. As mentioned, there are over 7.50 megawatts of such projects including the PPA with the Western Utility already discussed.
With respect to the expected shipments, timing of the mid to late stage opportunities, We have 5.1 gigawatts of opportunities in 2019 2020 against the remaining supply in this time period of 2.9 gigawatts. Early stage projects not included in this number provide additional opportunities to sell the remaining buying. Next, I'll provide an update and progress we are making on our systems project pipeline. As we discussed at our Analyst Day last December, The system business remains a core part of our strategy and on average we are targeting around 1 gigawatt per year of development business in the next few As it pertains to the development, we remain focused on key markets such as the United States, Japan, Australia, where we can pursue a differentiated strategy that can lead to capturing value and compelling returns. Select EPC opportunities in the U.
S. Will also remain a priority as these agreements even enable greater customer engagement and we believe enhance our value proposition for utilities wanting to own their own generation. As highlighted on slide 7, we are making good progress towards achieving our annual development target. Note that the timing of revenue recognition on system project will vary from the shipment timing shown on the slide However, it is a good indication of the current status. As illustrated, we have nearly reached the 1 gigawatt target in 2019 with contracted development projects and we have the potential to exceed that market, we're able to close the mid to late stage opportunity shown.
Booked EPC projects plus potentially EPC conversion opportunities take that total even higher. In 2020, we are more than halfway to our target. With the potential to significantly exceed that mark. Keep in mind that there are always contracting risks associated with mid to late stage projects and we know we do not expect it will ultimately book all of this mid to late stage opportunity shown. However, this does highlight our progress on building our systems over the next few years.
I'll now turn the call over to Alex, who will provide more detail on our second quarter financial results and discuss updated guidance.
Thanks, Mark. Before discussing the quarter in detail, there's some key points to note as it relates to the first half of the year. From the outset of the Series 6 transition, we anticipated that this timeframe will be the lowest point of our earnings power. Due to lower module production levels and elevated startup expenses and ramp costs. In Q2, these expected elements combined with a quarter of unusually low sales, This was due to both the aforementioned Series 6 throughput and yield issues, which impacted module costs and availability for projects already solved, as well as to a delay in closing certain new project sales.
Despite these challenges, we've been able to maintain our revenue and earnings per share guidance for the year implementing plans that fully address these early stage manufacturing ramp challenges. It's also worth noting that in our February earnings call, we guided to an of approximately 25% of our full year earnings being recognized in the first half of the year. With year to date EPS, of $0.32, we are tracking slightly behind our expected earnings distribution across the year but remain on track to achieve our full year earnings per share guidance. Turn to Slide 9, I'll start by discussing selected income statement items for the quarter. Q2 net sales were 309,000,000 a decrease of $258,000,000 compared to the previous quarter.
Systems revenue as a percentage of total quarterly net sales decreased slightly to 66% in Q2 versus 72% in Q1. As indicates lower net sales in Q2 resulted from certain project sales pushing out of the quarter. Lower revenue recognition on projects already sold and a decrease in 3rd party module sales due to shipment timing. As it pertains to the timing of system sales, we indicated on the Q1 call there was potential for a significant impact to Q2 earnings if the closing of certain project sales moved out of the quarter. While we saw delays in the sale of 2 projects, In both cases, this is only a timing impact and in neither case, do anticipate any impact to overall project economics as a result of this change in timing.
With regards to revenue recognition on projects already sold, various issues with the California flats project were the main reason for lower than expected revenue in Q2. Firstly, Series 6 module availability constraints due to both throughput constraints and delays in the release of module shipments pending final product certifications limited the amount of work that could be completed on the project. Secondly, there was a small decrease in the project size due to lower than planned module bin classes. While we'll still be installing the same number of modules as initially planned, the lower wattage per module results in a lower total DC capacity. Thirdly, the cost plan for the project was increased due to both higher module costs and acceleration costs resulting from the timing of module shipments.
The combination of these factors serve to decrease total expected project revenue and increase total expected costs. Which reduced both the project percentage of completion from work performed in Q2 as well as leading to a Q2 adjustment of the project to date revenue recognized. 2nd quarter gross margin was negative 3%. The module segment was impacted negatively by low sales volume and ramp related costs, Bear in mind that the module segment sales is composed entirely of Series 4 volume as early Series 6 volume is entirely allocated to our systems However, the module segment COGS is comprised of both Series 4 COGS and Series 6 ramp related costs as these are allocated to the module segment. In Q2, the module segment was burdened by over $20,000,000 of ramp costs as well as several 1,000,000 of scrap charges related to initial Series 6 production.
Note that for the full year, we still expect ramp costs to be approximately $60,000,000. And during the period where we're ramping our new technology, we exceed continued noise between our 2 reporting segments. The system segment gross margin was affected by the change in estimates for California Flat's revenue and cost plan mentioned earlier, as well as the higher mix of revenue from EPC projects versus development assets. Q2 operating expenses were 96,000,000 decrease of $3,000,000 compared to last quarter. Plant startup expenses decreased by $13,000,000 as a result of lower Series 6 pre production activities in Ohio, partially offset by increases from the Malaysian and Vietnam factories.
The decrease in startup expense is partially offset by higher SG and A. Our Q2 operating loss was $104,000,000 compared to an operating profit of $74,000,000 in the first quarter. The Q2 loss was primarily a result of the unusually low sales, impacts the gross margin for over $20,000,000 of ramp costs, more than $24,000,000 of plant startup expense. So an income tax benefit of $6,000,000 in Q2 as compared to a tax expense of $12,000,000 in Q1. As it relates to U.
S. Tax reform enacted last December, we did not record any adjustments in Q2 related to our original estimates. However, as a reminder, we continue evaluate our provisional estimates until we file our 2017 federal tax return later this year. Sale of our ownership interest in 8.3 closed in the second quarter and we recorded a gain on the sale that resulted in Q2 equity and earnings, net of tax, of $40,000,000. The combination of the aforementioned items resulted in a net loss for the second quarter of $0.46 per share.
Compared to earnings per share of $0.78 in Q1. Moving to slide 10. I'll next discuss select balance sheet items and summary cash flow Our cash and marketable securities balance ended the quarter at $3,100,000,000, an increase of $256,000,000 from the prior quarter. Had a record net cash position of $2,700,000,000 at the end of Q2, a sequential increase of $238,000,000 The higher cash balance was primarily due to proceeds from the sale of our interest in 8.3, partially offset by capital expenditures to support our ongoing Series 6 capacity expansion. Taining for the sale of $8,300,000,000.
We received net proceeds of $240,000,000 after the payment of fees and other amounts. In addition, we collected the remaining outstanding balance of $48,000,000 associated with a promissory note that was issued when interest in the debt state line project was sold to 8.3 2nd quarter net working capital, which includes the change in non current project assets and excludes cash and marketable securities, decreased by approximately $230,000,000. The change was primarily due to the collection of accounts receivables and an increase in deferred revenue from module prepayments. Partially offset by an increase in inventories. Total debt at the end of the second quarter was million a net increase of $18,000,000 from the prior quarter.
The increase was primarily associated with issuing project level debt in Australia. And as a reminder, essentially all of our outstanding debt is project related and will come off our balance sheet when the projects are sold. Cash flows from operations were $129,000,000 due to the collection of accounts receivable and the receipt of module sale prepayments. Cash flow for the sale of our interest in $8,300,000,000 and the repayment of the state line promissory note were classified as investing cash flows. Capital expenditures were $195,000,000 in the 2nd quarter compared to $178,000,000 in the prior quarter.
The cumulative spend on capacity is now approximately $800,000,000 out of the total expected spend of around $81,800,000,000 to 6.6 gigawatts of capacity. Lastly, depreciation and amortization expense was $30,000,000 in Q2 versus $24,000,000 last quarter. Continuing on to slide 11, our next discuss our updated 2018 guidance. Before discussing the specific updates, there are some key points and assumptions for highlights. Firstly, we have narrowed our sales guidance range to reflect the impact of some systems revenue recognition moving into 2019.
As mentioned previously, this timing of new project sales has no expected on the overall economics of these projects. We're lowering our expected gross margin range to reflect 2018 cost impacts including Series 6 cost for what increases mostly associated with aluminum costs to the module frame as well as increased BOS costs And we see offsetting non operating impacts result in maintaining full year EPS guidance. Secondly, it's important to reiterate certain risks we highlighted in our last earnings call with regards to our Ishikawa project in Japan. Our full year guidance continues to assume the project is sold in 2018. As mentioned on our previous earnings call, the project experienced weather related construction delays earlier this year from which it is not fully recovered.
We continue to work through a mitigation plan and to see progress in construction, but there remains substantial risk as to whether the sale will be completed this year. Given the size of this project and the expectation of sale and therefore initial revenue recognition will occur near to or apt COD of the project. We believe it is prudent to highlight the risk. If the project sale does move into 2019, continue to expect there would not be any change in the anticipated project economics. However, this change in timing to a 2019 sale would likely result in 2018 revenue and earnings near the low end of our guidance ranges.
And thirdly, as it relates to the distribution of earnings between the 3rd and 4th quarters, expect Q4 to be the strongest quarter of the year from a revenue and earnings standpoint. We expect the remaining earnings for the year to be split approximately 1 third, 2 thirds across Q3 and Q4. So having discussed some of the key assumptions underlying our guidance, I'll now cover the specific updates to the ranges. Starting with net sales, we're now in the range to revise forecast of $2,500,000,000 to $2,600,000,000 in order to reflect the revised timing of revenue recognition on certain systems project. Note, this is not an overall reduction to expected systems revenue, but rather a shift in timing between 2018 2019.
Our expected gross margin has been lowered by 100 basis points to a revised range of 20.5% to 21.5%. Reduction accounts for the increase in module cost per watt and changes to the California flats revenue and cost plan discussed. The operating expense forecast, which includes plant startup, has been lowered by $10,000,000 to a revised range of $390,000,000 to $400,000,000. Plus start up expenses unchanged at $120,000,000 and the reduction is a reflection of our ongoing management of core operating expenses. Our outlook for operating income has been raised down by $15,000,000 at the midpoint to a new range of $120,000,000 to $160,000,000 as a result of the lower revenue and gross margin, partially offset by reduction in operating expenses.
Below operating income, we've increased our forecast to net interest income as well as increasing our forecast fully attack expense to approximately 35,000,000 a result of jurisdictional mix of income. Our guidance also assumes minimal additional equity and earnings for the balance of the year. Putting these revisions together, our earnings per share guidance remains unchanged at $1.50 to $1.19. The operated cash flow range has been increased by $100,000,000 as a result of the revised timing of project development spending and expected improvements in module accounts receivable collection. As a reminder, both the structure of project sales and the timing of the sale can have a meaningful impact on our operating cash flow guidance.
As we discussed last quarter, if we sell a project later in 2018 than anticipated and the project continues to draw down debt financing in intervening periods, Operating cash flow proceeds will be in the second half of this year, we could have some revisions to our operating cash flow expectations even when the economic substance of transactions are unchanged. Capital expenditures have been reduced by $50,000,000 to a rise range of $800,000,000 to $900,000,000, primarily due to timing of Series 6 spend and reductions in non Series 6 CapEx. As a result of the higher operating cash flow and lower capital expenditures, we're raising our net cash guidance by 200,000,000 to a range of $2,200,000,000 to $2,400,000,000. And our shipment guidance range has been lowered by 100 megawatts to a rise range of two 0.8 to 2.9 gigawatts. To reflect the 200 Megawatt Reduction Series 6 shipments, partially offset by an increase in Series 4.
And finally, turning to slide 12, I'll summarize the key messages from our call today. Firstly, while there have been immediate impact to module pricing in international markets from the recent policy decisions in China, we remain focused on executing our strategy. Our differentiated technology and Series 6 products, our strong contracted bookings and our unique financial strength, allows us to thrive even in market conditions that may prove challenging for investors. Secondly, whilst our second quarter results were impacted by Series 6 ramp related issues of module availability, factory throughput and higher cost per watt. We've maintained our earnings guidance for 2018, do not foresee these issues having longer term impacts to Series 6 cost efficiency or capacity.
With module wattage that is currently at 420 watts on our op bins, improving throughput levels and a third factory that is expected to start production later this quarter, we're encouraged by the positive Series 6 momentum. And lastly, we continue to make solid progress in booking new business as evidenced by the approximately 900 megawatts of new volume contracted since our prior earnings call, and total future contracted shipments of 10.9 gigawatts. In particular, with recent PPA awards, we continue to make good headway in building a systems earlier that we expect to average approximately 1 gigawatt per year over the next few years. And with that, we conclude our prepared remarks and open the call for questions.
And we will take our first question from Paul Coster with JP Morgan. Please go ahead.
Good afternoon. Thanks for taking our questions. This is Mark Strouse on for Paul. So I could start with So you disclosed you booked a little less than one gig, since the last earnings call, but are you able to say kind of what the bookings have been since the Chinese policy announcement change. And maybe if you can't give details on that, just kind of anything high level you can say regarding customers potentially holding off on projects just kind of waiting to see what the floor and pricing ultimately will be?
If you look at what we highlighted in on the earnings presentation deck, just from the end of the quarter since June, right? So we're 26 days into, we booked 400 megawatts of volume. So the 9200 was booked in the month of July. The 500 before that, a high percentage that also was booked in the month of June. So there was only about a between our last earnings call and when the policy decision was made, which effectively was May 31st.
So we have been continuing to see good momentum actually was dealing with our Head of Sales Chief Commercial Officer today and he's got customers in and and giving us a list of opportunities which they need modules for. And we're actively engaging in that conversation for 100 megawatts with this particular customer. So I haven't seen, at least at this point in time, yet a meaningful slowdown. You can also see it in our mid to late stage opportunities that we've highlighted still have over 8 gigawatts of opportunity sitting there. So that hasn't come down.
And we're seeing a lot of opportunity on the PPA side. So we're bidding actively, we're seeing a number of PPA particularly here in the U. S, relatively successful on what we've seen so far. I mean, obviously, very competitive environment for PPAs on the development side and you're not going to have a very high hit rate, but relatively pleased with that activity and we are putting some points on the board as we highlighted on the call of 7.50 megawatts or so so far on development side and we've got a number that we've been, shortlisted on and we're active negotiations with customers to finalize some PPAs that will hopefully be able to report on the next earnings call. So generally it's still been pretty good.
Now that's the U. S. Market. As you get outside the U. S.
Market, I would say there's probably more of a pause of wait and see maybe a little bit. Clearly, when the after the announcement was made, we saw ASPs drop very quickly. Started seeing them stabilize a little bit, but clearly there are some customers now that
probably will wait and sort of
see what plays out over the couple of quarters and kind of see where PPA prices go. The nice thing about us, we don't necessarily have to engage if we have an opportunity with the module and environment that we very well positioned because energy advantage with our temperature and spectral response advantages. We'll engage opportunistically and selectively and we'll make sure we get the right ASPs, but we're in a good position right now relative to the uncertainty of the market.
Our next question will come from Philip Shenzhen with Roth Capital Partners.
Hey, Mark, and Alex, thanks for the questions. In your prepared remarks, you guys had talked about some issues for throughput and yield. I wanted to see if you could provide a little bit more color on each. So as it relates to the throughput, you talked about Ohio I think being at 60% and Malaysia being at 40%. And I know you plan to be at a 100% by year end, or at least that's what it sounded like based on what you had been saying But could Ohio or Malaysia be at 100% earlier?
So could we see that perhaps in Q3 And it sounds like it's a framing back end issue there.
As it relates to sales,
sorry, Mark. You had mentioned that the fleet average is 4.15 watts now. Do you expect the fleet average
what do you expect it
to be in Q3 and in Q4? And how do you expect your efficiencies to progress? Because we had been in some of our checks seeing that you're actually perhaps improving faster than expected, but wanted to get a feel for, if there's a rated step function change that we could see ahead? Or should we expect a more kind of continuous kind of gradual improvement here?
Yeah, all right. I'll take the throughput question first. And again, the issue that we're having is really around the back end and it's rates to the availability of the 2 toolset, right? So when you look at the toolset and if you say what are the most critical components to ensure full entitlement of the nameplate capacity that we need to achieve. There's really 3 components.
And when I look at it from the standpoint of order of importance, the first 2 and most important is really going to be cycle time on the tool and performance on the tool. Those are critical. So if we aren't getting cycle time and if we aren't getting the performance out of the tool, there isn't a lot that we can do to try to help enable that, right, other than redesign the tools or other issues that we have to think about to sort of address both of those. Cycle time and performance around the toolset from the front end all the way through the back end is at or better than our expectation. So that's extremely important.
The 3rd component that we look to for the toolset is the overall availability. And the overall availability at At mature state, well specified capability around the tool, we believe the overall availability will still enable us to get to where we need to, but we're not at a mature state yet with the toolset. And the way we manage through that is we'll have to we'll putting buffers into the back end of the manufacturing process. So think about it as we have a single point of failure on the production line today. If that tool goes down, everything upstream is shutting down and we're starving the downstream processing.
Right? So that tool is critical because it's a single point of failure. We have to have the availability and we've identified where those points are and what we're going to do is we'll buffer it with inventory if a particular tool goes down, we aren't starving the balance of the production that we can continue to run the production as an example, right? Now when I look at the tool capability, if I look at Perrysburg as an example, we've had a number of times where we are running at effectively or 90 to close to 100% of nameplate capacity at that particular time. And we measured in our increments.
So we will look at our increments of production and we'll say what is the output that we achieved during that particular hour. We can have multiple hours, 2, 3, even 4 hours where we're running effectively at nameplate capacity, but then something goes down. And soon as that single point of failure occurs, we'll see the production go from almost 1% of capacity down to 20% of capacity. Right? And so that's what we're working through and we've redesigned and we've put some buffers in the back end of the line that will help address that and will enable us when we do have an event occur as we continue to ramp up the toolset availability to its full entitlement that we won't have the adverse impact that we're starting with that we're seeing right now as it relates to throughput.
And we're working through that right now. We won't have all of the buffers and the inventory in place until probably end of Q3 more or less the beginning of Q4. So there's we will continue to see a little bit of headwind and that's why we've reflected that in the reduction to the production plan. And then once we do Perrysburg, we'll replicate all that as we roll out into KLM and Vietnam. So that's the story around throughput.
And we will get to where we need to be at the end of the year. It's just a matter of addressing the issues that I highlighted. As it relates to efficiency, we're starting to touch a 425 Watt bin, which is really important. And we will continue to see from the average right now of $4.15, we'll see that step up and then to $4.20 and then ultimately up to 4.25 to get closer to the average. I will say one thing though that the impact of the throughput.
We have not prioritized. We do, we refer to them as ETA, so engineering tests that we do. We have prioritize throughput to ETAs. And ETAs will also be helpful as we optimize and drive efficiency up. So we haven't got the full foot on the gas pedal yet on all the activities that we need to do to drive the efficiency side of the equation because again, we're prioritizing the throughput over running some ETAs that will help us on the efficiency side.
But again, steady progression. Real happy with 415 progressing towards 4.20 as we get into the next quarter. I love the fact we're starting to touch 425, but I think that's how we ought to think about as we move through the balance of the year.
Our next question will come from Brian Lee with Goldman Sachs. Please go ahead.
Hey guys, thanks for taking the questions. Maybe the first one is just on the manufacturing, given the pricing collapse you referred two mark and the fact that Series 6 is pricing higher than Series 4. Just wondering if it makes sense or if you're contemplating any shifts specifically to Malaysia 1, the one facility you haven't committed to a timeframe for shifting from Series 4 to Series 6. Does that potentially get accelerated and come offline sooner given the clinical dynamic we have here? And then just a follow-up would be around just cost competitiveness here again on that same talk topic, we're seeing global module ASPs trending toward the mid-twenty dollars per watt range.
I think there's a general assumption in the marketplace that your targeted cost per watt for Series 6 will be in the low $0.20 per watt when fully ramped in mid to late 2019, correct me if I'm wrong on the timing, but What are you kind of thinking in terms of what your cost advantage versus peers looks like, given real time pricing, has that potentially shrunk versus your original base case assumptions?
Other to talk to on the prioritization, how we think about Series 4 production and KLM12. We are looking we are continuing to reassess and evaluate not for the horizon through 2020. What we're looking and spending time on is how do we best position the most competitive posture that we can have as we enter into 2021. And so where I'm thinking what we're thinking through is what are all the critical dependencies knowing the uncertainty that 2021 could have? And as we continue to book our book our volumes through 2020.
We're looking across that horizon up beyond 2020 2021 in particular. And ideally, we're going to want as much Series 6 production as possible. Scale is going to be important. We got to get to the efficiency and the cost entitlements where we need to be. And Series 6 is going to be a critical enabler So as we think through those particularly to KLM12 relative to opportunity to drive more Series 6 volume into 2021.
So still to be determined, we haven't made any conclusion We're happy with what we have booked for that business right now, but for that volume. So we'll continue to evaluate that. Again, more from how do we best position ourselves for success long term. Into 2021 and beyond. As it relates to cost competitiveness, what we assumed when we did our analysis and again, I also want to make sure that when you think about that $0.25 number that you referenced, you got to add $0.02 or so compared to that to our $0.20 or what people think the numbers are in the low $0.20, right?
So let's or you take $0.02 off my number. I don't care how you look at right? If it's 25 for them, we're at 18 or if you're targeting us at 20 and their 25 becomes 27. So make sure that's into your map. And a lot of times people don't always include the logistics costs and the warranty costs.
That number is relatively in line, maybe a penny or 2 lower than what we had assumed when we did our business case around Series 6 and where we thought we could get in the competitive position that would create for us. And the other side of that equation, you got to keep in there, keep in mind is the energy upside. So we'll capture and we'll cost advantage and we'll have the energy upside and we'll capture the value on that side of the ledger as well. So, yes, the markets And we're positioning ourselves for long term success and we're very happy with what Series 6 will enable for us.
Our next question will come from David Catter with Baird. Please go ahead.
Hi, this is Ben for David. How are you guys?
Hey, Ben.
Hey, I just want to make sure I heard something correctly. So you said that you signed the new bookings which were small. Maybe you can talk about why there's, I guess, is there so far out? In the future, but they were at the same ASP as, before Series 6. Is that what you said?
Ben, it's really hard to hear what we said. The comments I made in my prepared remarks where the bookings that we're seeing right now on year to date on Series 6 is about 6% higher than what we have booked on Series 4. So think about it adding $0.02 or so, right? If you think about where the ASPs are, The ASPs on Series 6 is about $0.02 or so higher than Series 4. And remember, Series 6 is about 40% lower cost.
So when you combine the 2 and you look at the margin entitlement, the fact we're capturing the upside on ASP, which we knew we would with the large form factors and quality of the product and still enable that lower cost entitlement. I think we're very happy with what we're seeing so far. The other thing I said is that the ASPs that we're recognizing in 2018 are essentially consistent with what we recognized in 2017, but the volume that we're booking this year is carrying us further out. We're booking 18 volumes that are carrying us into 20 we didn't book as much volume in 2017 for 20 shipments. And so as you would normally expect, as you'll further out in that horizon, ASPs would trend down a little bit, but I'm very happy that we've got a relatively consistent ASP in 2018, some of what we have in 2017 and we carry that profile of shipments all the way through 2020.
Our next question will come from Jeff Osborne with Cowen and Company.
Good afternoon guys. I have two questions. One is wondering if you can just address the impact of the IRS extension for both your pipeline and your and then any comments on either debokings or contract renegotiations that your customers have with you?
Yes. So I guess on the ITC extension, look, we think it's probably a positive in the long run for the system business. I think in the longer term, it may delay some of the utility ownership of solvers. You're going to see a continued competitiveness of PPAs with ITC versus utility owned generation and rate basing. And therefore, you're going to have a delay of the transition, which may actually delay could be a longer more optimal capital structure moving away from tax equity, which is, less efficient and more expensive owed to a more traditional infrastructure financing option.
But I think in the short term, yes, we see it as a positive.
As it relates to the customer and the contracts, nothing new there in terms of what we said before. Their obligations between both parties, their security associated with it. There's termination penalties associated with it. I think we looked at it again. I think over 90 plus percent, 95%, maybe higher than that of our contracted pipeline of module sales, which I think is around 8 gigawatts all has security associated with it.
Again, I think the spirit of which we negotiated these contracts with our customers was again somewhat risk sharing and an understanding of fair economics that would enable their projects to be successful. And that's the way we're moving forward. Our customers are honoring those obligations as well.
And our final question will come from Colin Rusch with Oppenheimer. Please go ahead.
Thanks so much for sneaking me in. Can you talk a little bit about the competitive dynamics in the development business, particularly as it relates to integration of energy storage? What you're seeing in terms of pricing from your competitors and how difficult it is to close projects at this point?
Yes. So development development is obviously, it can be. It depends on where you are. It depends on how the RFP is structured. It depends on what bid have to be posted in order to bid what dollars are at risk.
Tenor of the PPA of 15 year versus 20 or 25. I mean, every opportunity on the development side is can differ relative to its attractiveness and relative to its competitiveness relative to, how aggressive things can be. And we've got to be very selective in that regard because you can get into certain opportunities where you get developers, especially if there's if it's a free option and you've got developers that are just going to make crazy assumptions around the install cost or they're going assume some huge hockey stick on a merchant curve and a merchant curve may have an assumption of a carbon tax embedded in it or may have assumption of storage already incorporated, even though the asset doesn't have the capability to create firm power. I mean, there's some all kinds of and flavors that can happen that are out there that can really drive some really aggressive assumptions with developers only worried about is capturing that PPA flipping it somebody else and then let them worry about it over the longer and they make their money and they move on, right? So it can be very competitive and we've got to be very selective with where we play and how we play and site selection and interconnection positions are can be critical at times.
And then so we have been selective. And that's also why I said in my comments that I don't want a very high win rate on development. If we're winning a very high percentage of development, we'll probably take it on a lot of risk and we don't want to do that, right? As it relates to storage, again, it's given what's going on and where you hear like similar to the deal that we did with APS, other deals that are happening with Excel and Colorado and some of the views of PV plus storage and the capability of time shift and creating firm power. It's becoming more and more mainstream in most of the utility RFPs that we're doing.
Whether it's PPA or whether it's rate base or whatever else it may be, it's becoming more and more commonplace and we would expect that to happen. And that's a good thing because now it's just further expands the market opportunity for stores. Now we still believe that there can be an interim step that with creating flexible storage using design reserves, capabilities that we have that you can actually have a much higher penetration of PB before you get into serious issues and need for storage. But we're giving the utilities a choice. We can demonstrate flexibility and we've done worked recently with a consultant with 1 of the large utilities and we've demonstrated in them the full capabilities of flexible PV and Holli can obviously drive down operating costs.
And I think that was insightful study that was done. We're hopeful we can actually make that a public announcement here near term. And I think other utilities will open up their perspectives around PV and whether it goes straight they go straight to storage or go more to a flex storage platform with design reserve, the options would be there.
And ladies and gentlemen, this does conclude today's conference. Thank you all for your participation. You may