zawy

Trina Solar: First Solar Won’t Be Low-Cost Leader for Long

Road runner, yes, I left out the installation costs, but FSLR is so far ahead in $/W costs, that even with that disadvantage, they are able to stay ahead and will continue to do so for the currency, profit margin, and silicon glut reasons I mentioned. Silicon will stay ahead in efficiency, but it is not clear that silicon will have greater gains in terms of percent of current efficiency. Therefore it is not clear that silicon margins have more to look forward to in the future if we exclude installation costs. FSLR increased efficiency 5% this last quarter. You are clever to point out that as $/W decreases, installation costs become more important, but this assumes installation costs will not decrease as fast as efficiency. FSLR is currently targeting the largest installations which is to their disadvantage when it comes to installation costs. For a residential installation, the cost of contractors just showing up with equipment will be the same no matter how big the job. So installation in smaller jobs may be only be about 25% more for FSLR if they have to install 50% more square feet. The >20% efficiencies you cite are very expensive and the bulk of sales in silicon are <17%. The P/E valuation of FSLR is almost as good as the best silicon solars like CSIQ and TSL. In the last 1 to 2 years, the best Chinese solar P/Es have worsened going from about 5 to 20, while FSLR has improved from 150 to 20, eventhough silicon is cheaper. As silicon costs increase and RMB/dollar changes, I would not be surprised if FSLR P/E at the current market cap is 5 in 2 years and the best silicon solars are 50 to 100, with the rest not even making a profit. In comparison to the current trends, efficiency and installation are red herrings. The killer to FSLR's party is going to be tellurium, no later than end of 2012 if they continue to increase production 150% like they've been doing. But they should at the very least triple current production again and hold there for 10 years keeping the current profit margin as their capital expenses greatly decrease. My bet is that the drop in P/E will continue and it will look like a great buy in 1 to 2 years and then I'll sell before the negative tellurium announcements start trickling in. If rate of production increase slows, it will be a hold for 5 years. They may wisely slow installation of new lines in order to delay a runup in tellurium price from their own demand. heir tellurium costs could go from $0.03/W (?) to $0.30/W.

Trina Solar: First Solar Won’t Be Low-Cost Leader for Long

FSLR production has been increasing 150% yoy for the past 7 years and their P/E is 19. There's nothing "high-flying" about that. FSLR will also continue to decrease it manufacturing costs $/Wp at a similar pace, so it's questionable if TSL can catch up even if the silicon glut continues. TSL's $0.73/Wp not counting the silicon costs (the inaudible part in the transcript) is only a little lower than FSLR's $0.83/Wp total cost. As the dollar decreases in value to FSLR's advantage and the RMB increases to a fair value to Chinese solars' disadvantage, FSLR should stave off any Chinese solar threat for years to come. This assumes they can acquire the tellurium, which should be possible through 2012 as long as China drives higher copper production. Don't forget FSLR has nearly twice the profit margin as any Chinese solar even in the silicon glut so that FSLR can greatly lower costs in the event any unforeseen threat arises.

Further Musings on Solar Stocks

You wrote "FSLR has to build two panels in order to generate the same amount of electricity that a single poly-based panel will make." Do you have a link that shows poly modules will be 24% efficient in a few years? Do you have a good link that discusses the future of polysilicon prices?

When Will Solar Achieve Grid Parity? We're Already There!

Jack, stop fudging everything! 24*0.71/6= 2.666 so solar is "almost 3" and not "a little over 2" times more expensive per W installed than for coal. The real competitor that investors should be interested in is nuclear which is 24*.9/6= 3.6 times more nuclear energy per W installed over solar W installed.

Solar Power Will Be Transformational in the Next Decade

Jack, you changed the input data to "prove" your point. We were talking about 13 cents/kWh and you're using a gracious "effective-efficiency-... of 30 years instead of the standard 25 years. A 3rd source of fudging is that you didn't do APR correctly. Even with your gracious 30-year effective-efficiency-l... monthly payments would be $60, so the rate is 16.4 cents/kwh instead of 15.

If you'll look at my comments, you'll see that i similarly found that $5.4/W is break even for 7% loan and if electricity costs rise 3% a year and if we can get a interest deduction, so we're not really in disagreement. I just want the math and assumptions to be correct and precise. Being off just 1 cent/kWh over 30 years is $3,900 on a 6 kW system (about $2000 in today's dollars when adjusted for inflation).

When Will Solar Achieve Grid Parity? We're Already There!

Jack, I got lucky and found a reference. It says coal operates at 71% of capacity and nuclear operates at 90%. 71% of 24 = 17 hours, almost 3 times more than solar cells in a 6 kWh/d/m^2 area.

www.geo-energy.org/pub...

Solar Power Will Be Transformational in the Next Decade

Your article doesn't take into account the upfront costs when calculating payback. You assume banks will give out 0% loans on the initial $30K investment, or that rich people who can afford the upfront costs are satisfied with 0% return on the investment. If electrical grid energy costs increase 3% per year and you or your bank are satisfied with 7% return on the $30K investment, you have to use a 7%-3%=4% depreciation factor. In this scenario, the $4.5/Wp installed costs you propose in a typical 6 kWh/day/m^2 location (this includes clouds!) at today's 13 cents/kWh, it will barely break even over the 25 year "efficiency-effective" lifespan of the solar cells. If it's in a new house where you can depreciate the home interest expense and are in a tax bracket of 25%, then the depreciation factor is 7*0.75-3=2.6% then payback can occur at $5.4/W installed which i believe is very doable.

There is no simple energy storage solution. The raw materials in EEStor supercapacitors cost $10/kWh, about 50 times less than current generation lithium-ion. See BCON for 10-hour energy storage with 25-year lifespan that could cost less than $1/kWh. Even at $1/kWh, storing half the energy of Jacks $30K, 7kW system in 6kWh locations will cost 7x6/2= $21K. Flywheels with carbon nanotube technology ($4/pound in 5 years) could solve the energy storage problem. They use vacuum and magnetic floating to keep 80% of the energy for 12 hours. Currently used in energy storage for cranes, trains (start/stop regeneration), and telephone systems.

When Will Solar Achieve Grid Parity? We're Already There!

It has been clearly demonstrated and backed by FSLR comments that solar is not competitive with coal or nuclear until installation costs have reached $1.5/Wp. The biggest error in your article is that you seem to equate a solar Wp with watts. Over the 25 years or so for a solar system, there is only 6 kWh/day for each 1kWp installed in sunny locations whereas a coal or nuclear plant is producing 24kWh/day for each 1 kW installed. So first you need to multiply your solar costs by 4 to be comparable. Then consider nuclear plants last 40 years and cost about $3/W installed, which is 2 times cheaper than $1.5/Wp of a solar installation since
1W = 4 x 1Wp
In other words, you have to install 4 Wp of solar to get the same output of 1 W installed of coal or nuclear. Then consider nuclear lasts 60% longer. These advantages are offset by the fuel, disposal, regulatory, and maintenance costs of nuclear. In short, it has been well-documented that $1.5/Wp installed solar is equal to 5 cents/kWh in sunny locations and assuming 25 year lifespan and 5% loan on the capital costs. 5 cents/kWh is the same costs utilities get from coal and nuclear, using the same 5% loan scenario.

Coal puts out far more radiation than nuclear. Nuclear plants can be built in 4 years, at least outside of the U.S.

First Solar Now in Its Third Leg Up

Judging from the last immediate 25% increase after last earnings report when there was a 50% surprise, the near-100% surprise this quarter should see 25% again. There's been another 25% since the initial surprise-increase meaning a mere 50% surprise may already be factored in.

The first equation used not adjusting for exchange rate as a way of being conservative. They expect new facility build costs to be maybe $30M higher this year which can decrease profit 7% ish. The second equation adjust for the better exchange rate.

First Solar Now in Its Third Leg Up

How is it in the least bit sane for the HIGHEST estimate for the current quarter to be 20% lower than the last quarter in a high-growth company, and when the exchange rate has improved the outlook by 1.47ish/1.39 = 5%? If production increased the expected 20%, it all adds up to 0.77*1.05*1.2 = 0.97, a whopping 54% above the HIGHEST estimate.

First Solar Now in Its Third Leg Up

How much share dilution potential is there? Especially if they need to double number of plants by end of 2010 to keep up production growth. Has there been any word on new plants after the Malyasian plants are complete in 2009?

First Solar Now in Its Third Leg Up

It appears from the 10-K that they were capable of producing 77 MW in 4Q 2007 but net from sales was $111 M which means 111/77 = $1.43 net /Wp instead of $1.3ish/Wp due to favorable exchange rate. Exchange rate was 1.3 then 1.39 in 4Q, and now is 1.57.

I can't tell you quarter to quarter because of when lines come on and the financial calculations include all kinds of quarterly variations. The biggest in this case is exchange rate and tax. To turn the question around, if they made 0.77 EPS in 4Q 2007, why in the world should 2008 not be at least = 4*0.77=3.08? Was there an accident in 4Q 2007 that will not continue to occur?

Please note that the guidance in the summer of 2007 predicted for 4Q 2007 the following:

77MW*1.3profit/watt / 80M shares = 1.25 EPS before taxes etc. 0.77 EPS actual was not a surprise at all. The estimates seems to be based on disbelief instead of reality, or the estimators are trying to force surprises for personal gain.

4Q 2007 seems to be stabilizing towards an accurate picture of expenses giving 31.5% net/gross sales (after taxes and everything), which is 56.8% overall net/(gross sales-cost of sales). They claim to be able to maintain sales profit/W, but I'll assume the $1.44 profit/W was an exchange rate and production anomaly and use a more conservative $1.2/W.

EPS=64MWp 4Q 2007 * $1.2 profit/Wp * 0.568 income/profit * 1.195^N / 81 M shares

Where 64MW 4Q 2007 comes from curve fitting 2007, 2008, and 2009 production: 201MW, 396MW, and 836MW. 77MW was the actual for 4 Q 2007. N is number of quarters past 4Q 2007. 1.195 is the quarterly 19.5% growth from the curve-fitted 104% yoy growth: (1+1.04)^1/4 = 1.195. 104% yoy growth is a slowing of the previous 5-yr 167% yoy growth trend.

The equation gives:

EPS 4Q 2007: 0.54
(lower than the actual 0.77 because of curve-fitting approx of production and because actual profit/W was 20% higher due to exchange rate)

1Q 2008: 0.64
2Q 2008: 0.77
3Q 2008: 0.92
4Q 2008:1.1
2008: 3.4
1Q 2009: 1.31
2Q 2009: 1.57
3Q 2009: 1.87
4Q 2009: 2.24
2009: 7.0

Assumes no more share dilution and conservative 1.3 $/Euro exhange rate instead of 4Q 1.39. At 1.39 exchange rate, increase numbers by 20%

They have to announce this summer new production lines for a doubling of capacity by end of 2010 in order to have two years to complete plants to keep up the trend. Not keeping up the addition of new lines will be a crushing blow.

Now backing up a little, there is another conservative number that takes the new exchange rate into account. Using the net/gross sales of 31.5% and assuming gross AND ALL COSTS (conservative) go up directly with euro:

EPS = 64 MW 4Q * $2.4 gross/Wp * 1.57/1.3 exchange improvement * 0.315 net/gross * 1.195^N * 0.984^N

0.984 is quarterly decrease in gross at contracts' -6.5% APR.

EPS is 4.4 for 2008 and 8.4 for 2009.

EPS for each quarter after 4Q 2007:
0.85
1.00
1.17
1.38
1.62
1.91
2.24
2.64

First Solar Now in Its Third Leg Up

So at these prices, the yahoo forward PEs should be 87 for 2008 and 40 for 2009, worst case scenario. The problem is if they can keep up the trend for 2010. I haven't read anything about new plants in the works after Malaysia.

First Solar Now in Its Third Leg Up

Due to how various things are calculated, there may be substantial variations each quarter. But the long-term (3 yr+) of yearly profits should be very reliable. As a minimum, 2008 will see 380 MW sold for $2.3/W at 30% net income which gives 380M*2.3*0.30/80M shares = $3.3 EPS. This is much higher than the $2.5 EPS yahoo estimate and exactly inline with the 167% yoy 5-year trend in growth: EPS 2007 was $1.25 x (1+1.67)=3.3. The estimate appears definitely low. Even $4 EPS is reasonable as long as the exchange rate remains favorable, but the math and business model stability proves 3.3 +/- 0.2. 2009 will see 830 MW at $2.15/Wp giving 7.2 EPS in 2009, way above the $5 EPS estimate. Error is no more than 0.5 with exchange rate stability.

First Solar Now in Its Third Leg Up

Give me some numbers. What's the maximum amount of Te you expect FSLR to be able to obtain for each of the next 5 years? Or what is the demand from LCD for each of the next 5 years.

I guess the LCD market is the biggest threat to FSLR. I don't think they require more than 0.1 gram per large screen TV, which means FSLR doesn't have a chance in getting their hands on Te if LCD trend continues (50% of world Te production this year and increasing 30%/yr ?).