'TetraSun': First Solar's Most Strategic Move

| About: First Solar, (FSLR)


First Solar's acquisition of TetraSun.

Crystalline vs. Thin-Film Solar PV Modules and TetraSun's break-through cell architecture.

First Solar's entrance into the residential, commercial and industrial rooftop markets.

First Solar (NASDAQ:FSLR) has seen its stock rise from the ashes of the solar PV module bust. First Solar now trades in the $70/share range, significantly up from the low teens of 2012, but still a far cry from its all-time high, which placed the stock over $300/share. In April 2013, First Solar acquired TetraSun, a solar PV technology start-up that had developed a break-through cell architecture capable of conversion efficiencies exceeding 21%. To understand how this is a strategic move for First Solar, one would need to better understand the dynamics and fundamentals of thin-film modules, such as those offered by First Solar. Compared to polycrystalline silicon modules, thin-film modules consistently produce higher output ratios (kWh/Kwp), meaning that thin-film panels produce more energy for every kW peak installed. What this means for the project owner is that thin-film modules have a shorter energy payback time than that of crystalline modules. The downside is that thin-film modules historically have lower efficiencies, and have not been able to meet low-cost crystalline prices. Furthermore, due to its lower efficiencies, thin-film modules require an increased amount of space compared to crystalline modules; this does not work well in the residential, commercial, and industrial rooftop markets, hence, thin-film modules are generally installed in very large utility-scale projects that do not have space constraints.

Until the acquisition of TetraSun (Seeking Alpha: First Solar Outlook: Sunny and 75), First Solar had primarily been constrained to large utility-scale projects, which was in line with the growth areas in the industry. The solar PV industry is now moving towards a decentralized model, which is seeing solar installed at the point of consumption, leading to growth in the residential, commercial, and industrial rooftop markets. According to TetraSun's website, the company has demonstrated greater than 20% efficiency in mono-crystalline solar cells by using its first-generation low-cost cell architecture. Today, it is manufacturing solar cells with efficiencies in excess of 21%, targeting 24%. Prior to First Solar's acquisition of TetraSun, it was a fourteen-employee start-up with $12million from investors. It is now expected to ramp up annual production of crystalline modules at 100MW, which will integrate these advanced high-efficiency cells in the second half of 2014. This increase will allow First Solar to break into markets where it is not presently active. First Solar will be able to target the emerging residential, commercial, and industrial rooftop markets through lower installation costs, faster installation time, and greater system revenues through higher efficiencies targeting space-constrained installations.

Aside from the TetraSun announcement, First Solar is still moving to increase capacity for its Cadmium Telluride (CdTe) thin-film technology. Its CdTe nameplate manufacturing capacity, which currently stands at 1.8GW, will gradually increase in 2015 by 200MW, followed by 400MW in 2016, and 700MW in 2017. Based on new capacity forecasts, the company could have a manufacturing capacity of 3.5GW for its CdTe product by 2018.

Long-term First Solar shareholders who fully understand the dynamics and importance of TetraSun will surely benefit in the coming years. First Solar will be able to apply its financing models, brands, and system development know-how to projects far beyond utility-scale. It will still move forward with the traditional thin-film business, but it will no longer be constrained to the applications and markets that it can tackle and be able to provide a higher-efficiency, bankable product that is in line with current silicon module prices. TetraSun is the game changer for First Solar. It will be interesting to see the distribution model that First Solar applies to the modules. Traditionally, First Solar has developed its own projects, or worked with a limited number of global channel partners, but this could change on the heels of TetraSun's ramp-up. Could we see First Solar put the TetraSun modules into traditional solar distribution, or will it unleash its own Residential Third-Party Ownership (RTPO) programs, which have recently emerged to capture over 50% of new residential solar installations in specific markets? It may be too early to speculate, but First Solar may see significant value in the acquisition of channels into the US residential and commercial markets. Under this scenario, Real Goods Solar, Inc. (NASDAQ:RGSE), which has installed 19,000 solar power systems representing 170MW of solar PV, could become a target.

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.