Why Is First Solar So Far Ahead of the Competition?

My Top Solar Pick…

In my regular Investment U Friday installment, I’ll give you my top 5 solar picks, and why I think they could be your best investments for 2009.

But for now, let’s talk about the top gun in solar: First Solar (Nasdaq: FSLR). What gives it top billing? It’s the industry cost leader by a wide margin… the only manufacturer able to produce panels at under $1.00 per watt.

It’s one of the reasons First Solar shares were one of the darlings of Wall Street, soaring 942% between January 2007 and May 2008. But the stock got hammered down 50% in the last six months as lock-jawed credit markets sent investors running for the exits.

Many of First Solar’s competitors took even bigger hits, with some down over 60% in the same time frame.

How can First Solar be so far ahead of its competitors? Simple. Its economies of scale that translate into one thing: lower prices and better market share. But that’s not all.

Its cadmium telluride thin-film technology is the industry’s current price/performance leader, and it will ultimately send competitors that are making the less efficient polysilicon-based panels packing.

It also recently announced the acquisition of OptiSolar and its utility solar project pipeline. The acquisition includes the following projects:

• A 550 Megawatt (MW) project under development with Pacific Gas and Electric.
• A pipeline of 1,300 MW of additional projects being negotiated with Western region utilities.
• Land use rights of approximately 136,000 acres (about 210 square miles) ultimately allowing the construction of roughly 19 Gigawatts (GW) of solar generating capacity.

These agreements will result in the company significantly expanding its presence in the utility-scale commercial power market.

Back in 2007, in anticipation of expanding its presence in the utility solar power sector, the company acquired Turner Renewable Energy. Turner’s considerable expertise in engineering, procurement and construction of utility-scale solar installations is just what First Solar needs to move ahead with these immense projects.

Its annual manufacturing capacity will hit 1,100 MW in 2009. This is something along the lines of a reasonably sized nuclear power plant.

Industry experts predict a doubling of installed solar capacity in the U.S in 2009, and again in 2010.

It gets even better: growth will likely continue to ramp in a big way here in the U.S. and by 2016, our total installed base could equal that of the rest of the world. And even if that happens, total worldwide energy gleaned from solar will still be less than 3%.

That translates into lots of room for growth, and First Solar is poised to capitalize on it.

Comments

[Amouna:]

Being a medium term bull on China. I see Good chinese PV companies as becoming an increasing threat to FSLR and SPWR in the very near future, especially after the solar stimulus unveiled by the MOF last week. Here is how it plays:

1) Jiangsu province, the "California of China", sets in place a very generous feed in tariff for the local players. This will translate in a pipeline of projects for STP, JASO, TSL and YGE that will make FSLR's look small in a matter of months. When the chinese government backs something, they do it big. You only have to look at the Olympics to have a taste of what I am talking about.

2) When the Jiangsu province model is replicated in other Chinese provinces, the solar mania catches fire in China.

See, I am not arguing the superiority of the technical leadership of the american vs the chinese companies, because the two are operating in two different segments of the PV industry. The radical difference will come from the size of the markets, which by the way I disagree with the fact that the US will have a bigger PV market than China (they have a much bigger energy market and it is logical their needs will be bigger).

Last point, When I see the current performance of the present administration in the US, one thing is for sure: Obama's efforts will FIRST focus on bailing out Wall street institutions for YEARS, before we see any real focus on National energy strategy.

Apr 02 06:29 AM

[Beam me up ...:]

Thin film solar still has the relative problem of requiring about twice the physical space per watt as mono/poly silicon based panels. Yet still, for roofspaces at least, the amount of labor and mounting fixtures remains the same. This means, that installed, the dollar per panel watt being $ 1.00, doesn't carry over to 'total' cost of systems. What'll help is using acres and square miles of land filled with these panels by utilities who now have access to the ITC. This will require more transmission investment which should feed into higher regulated prices for electricity. And, instead of having tons of high tension lines and utility poles covering the countryside, we'll now also have huge, fenced off pieces of land with their newly constructed transformers and new transmission lines.
Rigid silicon panel prices will drop significantly with increased supply over the next decade and can more efficiently produce watts than thin film, by using and monetizing rooftops. It won't be the quick fix for utilities and state regulatory departments with their RPS targets but it is the right way to go. Thin film has many other better applications than competing heads-up with more powerful rigid silicon based panels.

Apr 02 08:46 AM

[billp37:]

" What'll help is using acres and square miles of land filled with these panels by utilities who now have access to the ITC."

This may happen soon with First Solar in northern New Mexico.

www.prosefights.org/pn...

PNM may be considering building a solar trough facility in southern New Mexico.

www.prosefights.org/pn...

Apr 02 09:32 AM

[tessant:]

great article. thanks for letting me feature on solarfeeds. keep up the good work!

Apr 02 09:40 AM

[dan-d:]

First Solar, imo. got the jump on silicon competition by having deep pocket investors and achieving, as mentioned, economy of scale the quickest. However, the recent drop in the price of silicon by 75% and increasing scale by silicon panel producers will soon wipe out the early advantages First Solar has enjoyed. These factors along with the fact that thin film panels are half as efficient as silicon panels,the fact telluride is extrordinarily limited in supply and expensive, a component of First Solar panels, cadmiun is a highly carginogenic material, and it takes about twice the sq. footage of area to get comparable wattage as silicon are several of factors which will weight heavily on First Solar profitability going forward. Recent downgrades in pps are due to these concerns. First Solar is now a great short play, just as silicon panel manufacturers have been for the past year.

Apr 02 10:24 AM

[searcher:]

Installation, maintenance and recycling expenses are not in favor of the thin film product. Also, as mentioned, economy of scale plateaus much earlier at a lower level with this technology.

Apr 02 11:03 AM

[tc1:]

To Aquaculture: I'm not sure why you wrote the following among your many points-- some of which points i do agree with (and which is why i sold out my shares of FSLR the other day at a nice little profit to have funds for another, likely more lucrative investment). Namely:

>"FSLR has to reclaim/recycle panels at end of life, beware of these hidden costs on balance sheet. [...]
>"FSLR lost rooftop market, is now concentrating on utilities."

Regarding your first point, Marla Dickerson's article for the Los Angeles Times in Jan. 2009 made it clear that FSLR was actually an esteemed pioneer in the solar field for taking responsibility for the full life-cycle of its panels, whereas virtually NONE of the other manufacturers had (yet) done so with their panels, which also contain toxic parts.

As for your second point, here in California, the quickly-growing private solar-leasing company SolarCity primarily uses FSLR's panels for residential rooftop installations. Furthermore, FLSR has won the first two bids partnering with Southern Cal Edison in a massive solar installation project using commercial rooftops (e.g., a big company leases out to SCE the use of its rooftop for solar energy, and SCE contracts out the work to FLSR to bring in their panels).

I do think FSLR is a longterm buy, but think that the short-term sees more downside than upside due to the alarmist fears about FSLR recently expressed in Barron's, etc.

Thank you, Aquaculture, for your points of concern (at least, the points that seem valid), and thank you David Fessler, for your very positive, optimistic take on FSLR.

Apr 02 11:13 AM

[Windsun33:]

Besides what Aqua said, the often touted price of $1 per watt is NOT the end user cost, which is nearly double that.

A month ago I bought some CSIQ - wish I had bought more, up 100% or so since then. I would never buy FSLR, too much hype.

On Apr 02 06:10 AM aquaculture wrote:

> First solar has become a lot riskier to invest in.
>

Apr 02 12:31 PM

[aquaculture:]

tc1
I live in Europe so I should have written: the "European residential rooftop market".
Roofs are just too small here for the lower efficiency and since there generally are feed-inn-tariffs here.
The U.S represents 10% of the total pv market.
But I was not aware Solarcity uses First solar panels.
So thanks for the correction!

Yes there will be massive commercial installations for utilities.
And First solar could very well appreciate in value from here, and also for some time to come.
That said, looking at the enormous rampup in silicon from China, all i'm actualy saying is that the risk in First solars business model has increased significantly from the time where it was valued at >100 x PE. First solar only delivers about 6% of worldwide panels but still has a market cap larger than all other solars combined. I do not think that is justified at this time.

As to the true story of the -mandatory!-reclamatio... program and it's true cost for the company, that is a very long and complicated story.
I might do an article on First solar shortly. But I have some data not yet in.
Simply speaking: if you dump silicon on a landfill it simply becomes sand eventually.

But if you dump Cadmium telluride, what will happen then?
You dont want to know!
So this is not an option for FSLR. This is a disadvantage for FSLR. This means FSLR has to transport these heavy glass panels fiorm ALL over the world. They have to build the recycling (leeching) factories.etc.

Ps I am not short First solar myself yet, but I will be at some point if current trend keeps going.

Finally a visual reminder:
1366tech.com/v1/conten...

Apr 02 12:57 PM

[rooferguy:]

A German company called Phoenix did a study comparing installation costs for thin film versus crystalline modules. Thin film cost $0.75/watt more to install. So when the Chinese modules come out at $1.50/watt in a year, First Solar will need to be priced at $0.75/watt to compete.

There is absolutely no way that cadmium modules will be successful on space-constrained residential and commercial rooftops. Crystalline will have both the energy output and lower installation cost advantages. Not to mention no issues with local fire and environmental regulations that apply to toxic cadmium materials (firefighters will run away and evacuate a neighborhood if there is burning/vaporizing cadmium on a building).

Apr 02 01:30 PM

[Olaf de Swart:]

Well First solar said a while ago that they are selling their modules at 2.5 dollar/watt. At that time crystalline solar modules were sold at 4.0-4.2 dollar/watt. At this moment the price of crystalline solar cells dropped to 2.70 dollar/watt. This means to remain competitive First solar has to sell for 2.0 dollar/watt. However from two companies i know that they produce for less than 1 dollar/watt (canadian solar and yingli solar) without taking into account polysilicon costs. This means with a polisilicon cost of 50 dollar/kg and 6 gram/watt the crystalline solar modules cost about 1.30 dollar/watt. Canadian solar uses UMG silicon and that price will reduce even more resulting in solar modules below 1.10 dollar/watt. (Decreasing wafer thickness/ costs etc will lead to solar module prices significantly below 1.0 dollar/watt)

Apr 02 02:54 PM

[frflyer:]

Amouna

"When I see the current performance of the present administration in the US, one thing is for sure: Obama's efforts will FIRST focus on bailing out Wall street institutions for YEARS, before we see any real focus on National energy strategy"

How could you possibly arrive at that conclusion? Obama has done more in two months than Bush did in 8 years, IMO. And he took office with more on his plate than any President in recent memory. Critics on the right attack him for appearing on a TV show for less than an hour, while GWB spent a third of his term on vacation.

Energy is a top priority of the administration and Obama has appointed a dream team for energy and the environment. Not perfect, but a really really good team. A team that actually respects science and reason, unlike the last crew, who waged war against them.

One Republican makes a good argument for a carbon tax coupled with a tax cut on wages. There would be no net tax increase according to him. Congressman Bob Inglis, R-SC, addressing the Nationwide Town Hall on Energy

watthead.blogspot.com/...

It's good to see some constructive thinking from someone on that side of the aisle. He also argues for Republicans to acknowledge how strong the science is.
And it's good to see a Republican advocating tax cuts for someone other than the rich.

Apr 02 03:19 PM

[frflyer:]

I forgot to add this part.

Not all Republicans are as constructive as Bob Inglis.

Rep. John Behner and Sen. Mitch McConnell's Big Green Lie.

www.desmogblog.com/rep...

They used an MIT study for their claim of $3,100/year cost per family from cap and trade. A spokesman for the MIT study says these two are totally miscalculating and misinterpreting the study, and that their number is 40 times too high and wouldn't happen until 2015 .

Apr 02 03:28 PM

[Road Runner:]

When the solar market gets back moving strong again, probably in 2010, there will be plenty of room for both thin-film and silicon based solar.

Apr 02 07:06 PM

[TheDetective:]

I'M SHORTING FIRST SOLAR JUST ABOUT NOW!

Apr 02 11:06 PM

[rooferguy:]

I'm just quoting a published study, not a vendor claim. You can contact Manfred Bachler, the CTO of Phoenix Solar AG, for the results of their BOS cost research. They've probably done more thin film installations on more sites (ground, roof, BIPV) than anyone.

And keep in mind, the way the EU market developed was based on high incentives for centralized solar generation. When the U.S. market kicks into gear, residential and commercial rooftops will be the biggest markets. Why? Because the delivered cost of energy is highest for these customers. At $4/watt installed cost (really $2.80 with the ITC), the levelized cost of electricity is down around 6 or 7 cents. When you compare that to the 15 to 40+ cents currently charged by utilities in many states you'll realize that incentives won't even be needed to make a compelling case for distributed generation solar. If you ask companies who actually do these installations you'll find out that current thin film products just don't work well for these space-constrained applications.


On Apr 02 02:10 PM Steve Pluvia wrote:

> $.75 ~MORE~ per watt to install thin film? BAAAAAAAAAHAHAHA! Ridiculous.
>
>
> FSLR's TOTAL install costs are less than $.75/watt [labor, wiring
> racks etc excluding inverter], as demonstrated in their Boulder City
> install completed Dec '08, where total installed system costs [labor,
> rack, wiring, panels, inverter] were $3.19/watt. Try doing some
> real research.
>
> greenstockscentral.com...
>
>
> As to the repeated scribbling here that FSLR panels won't work on
> residential EU rooftops, ummmm no kidding? 98% of the PV market
> is commercial roof and free-field -- NOT tiny, irrelevant EU rooftops.
> No PV producer has targeted that market and none will -- as anyone
> with 5 mins of PV knowledge would know. FSLR could sell to U.S.
> markets alone for 5yrs, and never meet market demand, and never need
> to sell a single panel to the EU as the new U.S. incentives have
> reduced solar to grid parity in most U.S. markets with more than
> 6hrs of average daily solar...
>
> On Apr 02 01:30 PM rooferguy wrote:

Apr 03 12:54 PM

[frflyer:]

I'm not so sure about silicon solar going away. As long as silicon solar can compete with fossil fuels it should do okay. First Solar and the CIGs companies can't fill the entire world's solar demand and there are questions about supplies of tellurium. (I'm not claiming I know the answer to that question)
Also, there are differences in costs between existing power sources now. That hasn't eliminated any of them.

I'm also not sure all purchasers of solar will make their decision based only on cost per watt. If you want your house to be energy independent, you might want as much wattage per square meter of rooftop space as possible, provided the difference in price isn't huge.

There is also the issue of government intervention, like renewable energy standards, that are not totally market driven, and could boost any solar that can bring prices down to grid parity.

Further technological advances might eventully make this whole conversation moot. We'll see.

Apr 03 01:38 PM

[skv009:]

Hi Steve,

Can you send me the link where you got that figures from?
Because, I tried to follow the greenstockcentral link but couldn't find that.?


On Apr 02 02:10 PM Steve Pluvia wrote:

> $.75 ~MORE~ per watt to install thin film? BAAAAAAAAAHAHAHA! Ridiculous.
>
>
> FSLR's TOTAL install costs are less than $.75/watt [labor, wiring
> racks etc excluding inverter], as demonstrated in their Boulder City
> install completed Dec '08, where total installed system costs [labor,
> rack, wiring, panels, inverter] were $3.19/watt. Try doing some
> real research.
>
> greenstockscentral.com...
>
>
> As to the repeated scribbling here that FSLR panels won't work on
> residential EU rooftops, ummmm no kidding? 98% of the PV market
> is commercial roof and free-field -- NOT tiny, irrelevant EU rooftops.
> No PV producer has targeted that market and none will -- as anyone
> with 5 mins of PV knowledge would know. FSLR could sell to U.S.
> markets alone for 5yrs, and never meet market demand, and never need
> to sell a single panel to the EU as the new U.S. incentives have
> reduced solar to grid parity in most U.S. markets with more than
> 6hrs of average daily solar...
>
> On Apr 02 01:30 PM rooferguy wrote:

Apr 08 08:17 PM

[skv009:]

Do you have a copy of that research/published study?


On Apr 03 12:54 PM rooferguy wrote:

> I'm just quoting a published study, not a vendor claim. You can
> contact Manfred Bachler, the CTO of Phoenix Solar AG, for the results
> of their BOS cost research. They've probably done more thin film
> installations on more sites (ground, roof, BIPV) than anyone.
>
> And keep in mind, the way the EU market developed was based on high
> incentives for centralized solar generation. When the U.S. market
> kicks into gear, residential and commercial rooftops will be the
> biggest markets. Why? Because the delivered cost of energy is highest
> for these customers. At $4/watt installed cost (really $2.80 with
> the ITC), the levelized cost of electricity is down around 6 or 7
> cents. When you compare that to the 15 to 40+ cents currently charged
> by utilities in many states you'll realize that incentives won't
> even be needed to make a compelling case for distributed generation
> solar. If you ask companies who actually do these installations
> you'll find out that current thin film products just don't work well
> for these space-constrained applications.

Apr 08 08:19 PM

[chleoku:]

Adding on, clean tech sector will enter some serious growth in this 3-5 year, as we can see, from the global context, obama's policy, and consolidation of hte industry:

www.wealthalchemist.co.../

Apr 13 08:04 PM