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Summary

  • FSLR's recent financials are tops in the solar industry.
  • They have turned Cadmium Telluride into pure Gold.
  • But Cadmium is poisonous and Tellurium is more rare than Platinum.
  • The sheep (meek competition) will follow and consume all the grass (Tellurium).
  • The fox (smart investor) will follow one who eats more fortifying vegetation.

First Solar (NASDAQ:FSLR) has a viable process for producing low cost thin film solar cells and they are selling like hotcakes. Even in the lukewarm years 2011 and 2012, their head was above the water line. 2013 saw them overwhelming the competition, so what could be bad?

In his article "First Solar Vulnerable to a Tellurium Shortage?", Mark Anthony - among other things makes the following statement: "On Nov. 8, 2007, the CFO publicly commented - 'We [FSLR] have identified terawatts levels of tellurium availability.' He seemed to have no idea what he was talking about. One terrawatt is 1000 GW. Nowhere on earth does this amount of tellurium even exist underground, let alone available in a secret vault somewhere."

If you believe Mark's statement, then you can stop reading here!

If you want to really know the facts, then read on!

The incidence of Tellurium in the earth's crust is 1 part per billion. The earth's mass is approximately 6 x 1024 kilograms. And it takes 8 grams of Tellurium to build an 85 watt solar panel. Going through the numbers, the earth can produce 0.75 x 1027 panels, which could produce 63.75 x 1027 watts, which is larger than the amount of power referred to by the CFO - by a factor of 63.75 x 1015. So it seems that Mr. Anthony is actually the one who has no idea what he was talking about!

So Mr. Anthony's response to this BAD news might be - "I was talking about the earth's crust, not the planet as a whole."

My response is - Mass of the earth's crust is 1.9 x 1022 kilograms, so we can correct for this as follows:

We can produce only 2.375 x 1024 panels.

Which would produce 2 x1026 watts.

Which is larger than the stated power by a factor of only 2 x1014.

Actually, there is a lot more Tellurium in the earth's crust than we could use in the foreseeable future for solar panels. But there IS a supply issue because the refiners are not currently refining - and making available for sale - as much as the market would like to see. And that is precisely the reason why the price is so volatile and, at present, so high. It's like any other commodity - people produce what they can for a profit in the prevailing market. If more is needed and there are willing buyers at a sufficiently high price, more will be produced.

In his article "Sell First Solar - Tellurium Supply, Narrow R&D Outlook Tarnish Company Glow", Pricechart Guy discusses some of my bulleted issues, but fails to appreciate four real concerns.

1. Cadmium is poisonous and there are already regulations about injecting it into the environment.

2. Tellurium is a rare element (rarer than Platinum) and the volatility of its price has followed the demands of the solar market.

3. There are already alternatives to Cadmium Telluride that appear attractive from several perspectives for thin film photovoltaic cells.

4. The expanding solar market is creating an explosion in the area of research to improve efficiency and cost of all viable competitive technologies.

With respect to 1, above, the Mercury-Containing and Rechargeable Battery Act requires recycling of the heavy metals in batteries - including Cadmium, Lead, and Mercury (which is now outlawed in batteries altogether). But, we all know that consumers don't necessarily follow Federal legislation, and they have a way of dumping NiCad batteries in the trash along with expired compact fluorescents (containing mercury). Watch for more legislation on this subject.

With respect to 2, above, First Solar has a recycling program that should recover Tellurium from the solar panels at end of life -

*Cadmium and tellurium separation and refining are conducted by a third-party.

BUT it doesn't! Instead, their recycling recovers the glass and plastic and conventional metal, but not the Cadmium and the Tellurium. They rely on other companies to do the dirty work, and thus they are pushing legal compliance back to the user (and the recycler), and they are losing control over the scarce existing Tellurium resource. This resource has been projected to be critical by 2025, but companies jumping on the CdTe bandwagon, combined with a failure of the recycling effort will push that date much closer and force the generation of new supplies of refined Tellurium - at a high price.

One could argue that getting rid of the Cadmium issue is smart, but if you need Tellurium for your future success, losing control over the recycling does not seem like a smart move - however, if you are pretty sure that you won't be using it in the future then you can behave the way they seem to be behaving! We should talk about what First Solar has in its plan that avoids the Cadmium problem and the Tellurium problem via the following.

So it looks like they have prepared their next four bagger and they are going to bat this year.

Researchers have been looking at various alternatives in an attempt to better the cost structure associated with Solar Panels using CdTe. In the near term, there are various Silicon-based photovoltaic panels that are more efficient than CdTe panels, but silicon is inherently limited because of its transparency at visible wavelengths. Most of the photons go right through it without creating photoelectrons. But there are a lot of silicon panels that are more efficient than CdTe. There are economic advantages, above the cost of the panels themselves, that are on the side of more efficient panels. Not the least of these is the fact that a more efficient panel requires less area to generate a given amount of power. So if you want to generate Megawatts, you can save acres if you use the most efficient panels. Acres cost a lot more than sunlight, so large projects are going to move to the efficient panels.

Therefore technology is going to move in the direction of increased efficiency. There are two directions that will create the biggest gains in efficiency through more or less straightforward engineering, and a third direction that requires more research.

New Technology

a) Some materials have much higher capture capabilities for broad ranges of photon energy (equivalent wavelength) than silicon. Gallium Arsenide has the record for theoretical efficiency (which has been experimentally verified) for normal sunlight while silicon is much lower. Quoting from the article in Wikipedia, "GaAs-based devices hold the world record for the highest-efficiency single-junction solar cell at 28.8%. This high efficiency is attributed to the extreme high quality GaAs epitaxial growth, surface passivation by the AlGaAs, and the promotion of photon recycling by the thin film design." Furthermore, GaAs cells can be made in thin film form in an 8 mil active layer. Gallium is 17,000 times less rare than Tellurium, and Arsenic is 1,500 times less rare than Tellurium. Gallium Arsenide wafers of appropriate size and quality are available in quantity because they are used to produce light emitting diodes and specialty integrated circuits. Since the amount of material required is very small for thin film cells, there is no raw material supply issue. This drastically reduces the amount of material involved and reduces the recycling problem to reasonable proportions.

b) There are compound cells that have been demonstrated that use two or more kinds of materials to generate electrical energy from wavelength ranges that are matched to the materials. Efficiencies greater than 40% have been demonstrated. Higher efficiencies are also obtainable through cascading cells by arranging two or more cells so that the incoming light must traverse both. The photons that do not interact with the PV diodes in the first cell may then interact with those in the second. More power, same area, better efficiency!

c) There are many research projects underway to use wavelength changing methodologies, sometimes combined with thermal absorbers/radiators to create more efficient PV conversion. These are much further out in time than the methodologies cited in a) and b), above.

Summary

First Solar has done a very good job of demonstrating excellence in management and engineering to arrive at the top of the heap in solar.

There really isn't a Tellurium issue, even from the cost perspective because at current prices, the cost per watt to make a CdTe panel is only about $0.01 for the Tellurium!

Since they have done so well and they have a credible plan to build new high efficiency silicon-based panels, I don't see a reason to short them or dump them. In fact, I am personally going to buy First Solar shares within the next ten days.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Can First Solar Stay First Or Will It Be Last?