First Solar Positioned To Capitalize On Exploding U.S. Residential Market

| About: First Solar, (FSLR)

Summary

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 segment.

First Solar responded to the decentralization of the solar PV industry through the acquisition of TetraSun.

First Solar is "still on plan" with its silicon solar product rollout.

The solar PV industry is now moving towards a decentralized model away from large utility scale solar farms to growth in the residential space. Solar systems are now being installed at the point of consumption rather than vast distances away from the general population which is the case for utility scale solar projects.

According to industry sources the US solar industry achieved a number of new milestones during Q1 2014. These achievements include the first quarter in which residential PV installations exceeded non-residential installations nationally. Further, More than one-third of residential PV installations came on-line without any state incentive for the first time ever in Q1 2014. Lastly, 76 percent of new electric generating capacity in the U.S. in Q1 2014 came from solar

While 2013 was another strong year for the U.S. Residential Solar PV market and 2014 is shaping up to become yet another record breaking year in terms of installed capacity. Growth in the space has been lead by lower system costs, primarily driven by lower PV module prices, and innovative financing models such as Third Party Ownership Leasing Programs (RTPO).

FirstSolar's Most Strategic Move

In 2013, First Solar (NASDAQ:FSLR) a global leader in the manufacturing of solar modules and project development primarily focused on its Cadmium Telluride (CdTe) thin-film technology made an extremely important strategic move through the acquisition of TetraSun. Through this acquisition First Solar will quickly develop an appetite for large project portfolios in the residential, commercial and industrial rooftop. TetraSun is a solar PV technology start-up that has developed break-through cell architecture capable of conversion efficiencies exceeding 21% for polycrystalline silicon PV modules. 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.

Polycrystalline vs Thin Film Solar PV Modules

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.

Third Party Ownership Leasing Programs (RTPO)

Residential Third Party Ownership programs have recently emerged in the solar PV industry and are growing in popularity because they allow homeowners to get into solar energy with "no money down." RTPO financing of solar energy takes place through two models: Power Purchase Agreements and solar leases. Based on available industry information, more than 50% of new residential solar capacity in states such as California, Colorado, and Massachusetts is being driven by a RTPO program. It is estimated that the market for RTPO will grow from $1.3 billion in 2012 to $5.7 billion in 2016.

As First Solar arms itself with TetraSun's new silicon based product offering the company is in a position to deliver bankable, low cost, high efficiency solar module to the RTPO industry. Considering the companies leadership position it is expected that they should be able to gain significant market traction once the solar modules become widely available. By making a bold move into the residential space First Solar will be able to stabilize revenue forecasts and avoid any "lumps" in their revenue model due to their utility scale business. If industry trends continue the residential market could make up a increasing portion of the company's overall revenue mix in the next years.

First Solar Will Soon Service the US Residential Market

With First Solar's annual production of crystalline modules expected to ramp up to 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. According to sources close to the company First Solar is "still on plan" with its silicon solar product rollout which is excellent news for shareholders.

The company stated in a press release,"This breakthrough technology will unlock the half of the PV market which favors high-efficiency solutions, which has been unserved by First Solar to date," and "This new capability to meet the needs of customers with distributed generation applications, coupled with our leading CadTel offering which remains the benchmark for utility-scale systems, gives us a unique end-to-end suite of solutions to serve the full spectrum of commercial applications."

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

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