First Solar: Strong Earnings, Bleak Outlook

As I posted Tuesday, I was watching First Solar's (FSLR) earnings closely when they reported after Wednesday's bell.

Earnings for the quarter ended were strong, but FSLR's future outlook was even bleaker than I had imagined. Unfortunately I was not short the stock, but anyone that was short or held puts fared very well - shares fell $30, nearly 22%.

FSLR's executives had many troubling things to say - the economy is tough, the solar business is tough, and they expect it to get tougher in the near-term. According to the company, up to 15% of 2009 shipments could be at risk of "customer default." To make up for waning corporate credit, FSLR is even financing or taking stakes in projects (rather than simply selling panels) which complicates their business model and casts even greater doubt on their future prospects.

So being right really didn't positively effect me, but I enjoy seeing rationality return to one of the only market segments where euphoric expectations still reigned king.

Comments

[ppeer:]

solar investors should pay more attention to the numbers and how aggressive the forecasts (already) are. If it's still not possible to come up with a descent price target within a robust dcf framework, than you should be careful and become a bit less interested in all the (long) stories surrounding these stocks.

best regards

Feb 26 06:19 AM

[CLH:]

Sun power, wind and bio are all headed down. All the govt. money and mythical beliefs will not help with oil and gas a drug on the market.

Feb 26 06:39 AM

[Amouna:]

When JASO was seeing "Solar Panic" back in November 08, everyone thought they were going down due to trouble of their own only, but management was only being messenger of a much tougher reality out there. Then LDK followed suit and now FSLR. Welcome to the new reality of the solar business in 2009!

However, 2010 forward, provided credit flows are restored, I am very bullish on FSLR and I am convinced they are the creme de la creme

Feb 26 06:52 AM

[D. McHattie:]

I still hold a small position in FSLR. Regret not having a stop in place for yesterday's decline.

Still, I'm not selling.

I could be wrong, as I have been just recently, but I took Obama's words seriously on Tuesday night when he said that he meant to make renewable energy profitable and he meant to wean us off foreign oil.

The stimulus bill contains large amounts of money for renewables which will address the headwinds that FSLR's CEO mentioned, specifically tight credit conditions for their clients. I have previously mentioned a Fannie Mae-like GSE to guarantee loans secured by solar panels.

Won't happen overnight, no. At best, I'm way early on this and am paying the price in the short term. But I'm not giving up just yet.

Feb 26 08:11 AM

[jack kreg:]

"Bleak Outlook", for solar. Thank God!!

Solar is now 1% and after the Manhatten project that will burden our kids with massive increases in debt, Solar will get up to 4% after 30 more years of tax payer investment.
Solar does not solve the 3-6pm need for power generation, as said by PG&E president last week in SF, CA.

Feb 26 11:21 AM

[William Cowie:]

"Solar does not solve the 3-6pm need for power generation, as said by PG&E president last week in SF, CA."

Interesting quote: can you elaborate how solar doesn't help at 3 p.m.? If it doesn't work best then, when does it work?

Feb 26 11:50 PM

[prokaryote:]

Here's a breakdown in price per KWhr of FSLR panels based on their reported latest quarterly values.

$0.098 (US) per KWhr.

Cost per KWhr at $0.98 cost per Watt ~ $0.098 per KWHr installed. See below.
Calculate KWhrs: Stated Efficiency = 10.8% (panels guaranteed to produce 80% of this value after 25 years of use, linear degradation with respect to time, see latest quarterly statement).

Tested impinging irradiance energy = 1000Watts/Meter good yearly average value at solar noon across the latitudes spanning continental US. (USGS has irradiance values for different locals, NREL uses this value).

Panel size = 2' X 4' minus edge effects = 23" x 46" = 0.683 Meters square. peak useable energy ~ 73 Watts per panel.

Assume solar energy is positive sinusoidal (clipped at 0). Average day length = 12 hours. 12 hours * RMS factor * Watts per panel * ave degradation factor = .525 KWhr per day (12hours * 0.667RMS * 73Watts * 0.9aveDegradation).

Assume 80% of solar energy available (due to cloudy days, diffuse light etc.). By the way, CdTe panels are much better at capturing diffuse light than Si panels. Because of this they don't need tracking devices. Panel guaranteed to produce 3835 KWhrs over 25 years (guaranteed panel lifetime (will produce 80% of initial power rating after 25 years)) given the assumptions. (25years * 365.25days * 0.8EnergyAvai l* 0.525KWh/day)

Assume current cost of installation per Watt is ~2.5 times cost per Watt(includes cost of scaffolding, inverters, labor, connection to grid at source, does not include cost of land, cost of transmission (it's usually a separate item in your electric bill)). As a note, the cost per Watt includes the cost to collect, recycle and reuse the panels (CdTe is recovered and reused, glass recovered and reused, copper recovered and reused).

So at $0.98 per Watt to make, we have $3.43 to make and install per Watt.

Operating margin (See FSLR quarterly report ~50%) and assume the same for installers --> total cost = $5.15 per Watt --> 9.8 cents per KWhr; (($5.15 * 73Watt)/3835KWhr). Maintenance cost is minimal (no moving parts, don't have to wash the panels, etc.). A highly inflated cost would be 10% of cost per Watt --> $5.66 --> 10.8 cents per KWhr.

As a note regarding Te availability check out FSLR SEC statements and see where they've been investing some of their money...

With respect to CdTe toxicity, check out the studies about amount of Cd released when panels exposed to 1100C fires...

If you check out their website and you believe the numbers, if they get to $1 Watt (sold so includes margin) to make and $2 Watt installed (sold so includes margin) then the cost per KWhr drops to 6.3 cents per KWhr by 2012. Time will tell.

Mar 01 08:53 PM