First Solar and Renewables Industry Plead to Save DOE Loan Program

Includes: FSLR, SPWR
by: Trefis

First Solar (NASDAQ:FSLR) has joined forces with 33 other clean power companies including rivals like SunPower (SPWRA) and Nanosolar to appeal against the Republican proposal to axe the funding for the Department of Energy’s loan-guarantee program. [1] The proposal was included in a budget bill passed in early February and was a shock to many in the renewables community as it could potentially derail the high growth in solar and wind energy adoption.

First Solar is engaged in the manufacturing and sale of solar modules with an advanced thin film semiconductor technology and competes with other international solar industry players like Suntech Power (NYSE:STP) and Yingli Green Energy (NYSE:YGE). We have a price estimate of $155 for First Solar’s stock, which is just slightly above the stock’s current market price.

Understanding the Proposal and Its Impact on the Industry

The increasing focus of U.S. government to develop alternatives for clean sources of energy is clear from the fact that President Obama set a goal of 80% clean energy for the country by 2035. [2] This sort of announcement should only point to an increase in activity in the renewable energy sector for the future.

Over the last few years, the Department of Energy has worked on making large scale solar and wind energy projects feasible for companies by providing them with loan guarantees. Essentially, the loan guarantees allow companies to raise large debt for individual projects, something that was difficult after the economic downturn as private debt sources had little experience or limited appetite for financing such projects.

If the government decides to cut the funding to the DoE, this would directly affect the $41 billion in loan guarantees for renewable energy projects, a move that companies in the renewables sector say could “kill all clean energy projects.” [3]

(Chart created by using Trefis' app)

What This Means for First Solar

First Solar has benefited from the DoE’s loan guarantees in the past, and currently has a $967 million conditional loan guarantee for its 290-megawatt project in Arizona.

Our analysis shows that sales in the U.S. contribute to almost 20% of First Solar’s value, which can be severely affected if the loan guarantees stop. We believe that without loan guarantees the company’s ability to undertake large projects will be limited while the financing costs for projects that do take off would also be higher than they were in the past.

If the company’s sale of photovoltaic modules in the U.S. falls to about 1.1 billion at the end of our forecast period from our current estimate of 1.5 billion, this would represent a 10% downside to the company’s price estimate bringing it to around $140.


  1. Clean Power CEOs: Save the DOE Loan Guarantee Program!, Reuters, March 29 2011
  2. U.S. DOE Using its PV Incubator to Push for Solar Innovation, , March 23 2011
  3. Proposal Aims to Gut DOE Loan Program, The Wall Street Journal, March 30 2011

Disclosure: No position