First Solar (NASDAQ:FSLR) has a reason to rejoice with the German government announcing that it will phase out all its nuclear power plants by the year 2022. [1] The resulting deficit in power will be addressed by expanding the use of renewable sources.
First Solar has been the single largest provider of solar modules to Germany in the recent past and should be able to capitalize its strong presence in the German market to make the most of this opportunity. First Solar is one of the biggest players in the competitive solar components industry and is engaged in the manufacturing and sale of solar modules with an advanced thin film semiconductor technology. It competes with other solar industry players like SunPower (NASDAQ:SPWRA), Suntech Power (NYSE:STP), LDK Solar (NYSE:LDK) and Yingli Green Energy Holding Com (NYSE:YGE).
We have a price estimate of $144 for First Solar’s stock, which is around 15% above the current market price.
Germany’s nuclear power generation capacity is significant…
Germany has 17 operable nuclear reactors as of now with a combined net power generation capacity in excess of 20 gigawatt (GW). [2] These nuclear plants contributed to just about 11% of the country’s energy requirements in 2010. [3]
Germany took 8 nuclear reactors offline immediately after the Fukushima nuclear disaster, and the remaining will be phased out in the coming years with the last three to be taken offline by 2022. With renewable sources of energy expected to cover this deficit, solar energy would gain a considerable share.
Chart created using Trefis' app
… and First Solar should be able to move quickly to help close the gap
In its 2010 annual report, First Solar revealed that Germany was responsible for 46% of the company’s total sales for the year, with 678 megawatt (MW) of shipments to Germany.
Let us assume a scenario in which solar energy replaces a conservative 20% of the 20 GW capacity-crunch left by nuclear plants in Germany. This represents an additional 4 GW of solar capacity by 2022. If we assume that First Solar can grab 50% market share of this opportunity – or about 2 GW total spread out over the years 2012-2022 (200 MW annually), then this scenario represents a 5% premium to our $144 price estimate for First Solar and about 25% total potential upside.
Notes:
- Germany Will Close Nuclear Plants by 2022, The New York Times, May 30 2011
- Nuclear Power Plants in Germany, European Nuclear Society, Jan 2011
- Energy Consumption in Germany
Disclosure: No positions
