How First Solar Benefits From The Solar Chile Acquisition

First Solar (NASDAQ: FSLR), the world’s largest thin-film solar panel manufacturer, has acquired Solar Chile, a solar project developer based in Santiago, Chile for an undisclosed amount. ^[1] We believe that the acquisition is an encouraging move by First Solar since it allows the firm to scale-up its presence in the energy hungry Chilean market, and gives the firm another avenue to sell its panels.

Solar Chile’s projects are predominantly located in regions I, II, III, and XV in northern Chile, including the Atacama Desert region, which has the highest solar irradiance in the world.  The firm designs, builds and operates solar power plants, and has a portfolio of around 1.5 GW of early-to mid-stage utility-scale photovoltaic (PV) power projects in Northern Chile.

Solar Power Holds Strong Potential In Chile

Chile is one of Latin America’s fastest growing and wealthiest economies with a GDP growth rate of about 6.5% in 2010. Electricity demand in the region has been growing due to the rising economic empowerment of the middle class and the booming mining industry. However, the country faces an acute shortage of energy and imports, nearly 75% of its energy needs. ^[2]  The country’s imports of natural gas from its energy rich neighbors like Argentina have also dried up as these countries have diverted supplies to feed their domestic demand. A combination of these factors have contributed to high electricity prices in the region.

Solar power could be a good way for Chile to meet a part of its energy shortfall since the country’s high electricity prices and the relatively strong solar resources could enable solar generated electricity to compete with traditional sources of energy, without the need for government subsidies and incentives. Besides, solar projects provide a means of quickly expanding generation capacity compared to thermal and hydro power plants, which take a lot more time to design and build. Thirdly, solar power would help improve the country’s energy independence.

How First Solar Benefits From The Deal

Quick Access To A Market With Strong Potential: We believe that the deal will allow First Solar to quickly ramp up its presence in the Chilean market, without having to spend too much time and effort understanding the regulatory and commercial aspects of doing business in Chile. According to a recent report, the country has 3.1 GW of approved solar projects in the pipeline and is likely to be one of the fastest growing markets for PV products in Latin America.  ((Chilean environmental authority approves 3.1GW of PV projects, PV Insights))

Increased Module Sales: The deal would also give the firm an avenue to sell its modules to the solar power projects that are being developed by Solar Chile and improve capacity utilization at its plant. Given that that Chilean PV market is geared towards ground based installations rather than rooftop installations like Europe, it would be a good fit for First Solar’s thin Cd-Te film panels.

Better Pricing Power: Given the relatively high prices of electricity and strong demand for power, the firm could also have a better control over its pricing in the region. First Solar has been the go-to company for large scale PV developments in the United States off late, and enjoys a strong brand recognition in the utility space. This brand image could help the firm in its Chilean quest as well.

Potential Risks In Chile

Competition From Chinese Firms: Chinese solar manufacturers have also set their sights on the Chilean market with firms like Trina Solar (NYSE: TSL), opening business development offices in the region. Recently, a group of Chinese firms announced plans of investing in a 20 MW solar power plant in the country. Since Chinese firms are known to be highly competitive in terms of pricing, and have also been building their project development capabilities off late, this could pose a threat to First Solar in the Chilean market.

Exposure To The Mining Industry: Most of Solar Chile’s projects are located in Northern Chile and primarily cater to the mining industry. ^[3] Northern Chile holds some of the country’s largest Copper mines, with most of the production catering to export markets. Given that the copper mining industry is largely cyclical, it could impact demand for solar projects and power during a global economic downturn.

Read our take on First Solar’s utility business

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1. First Solar Press Release [↩]
2. Energy In Chile: An Unexpected Setback, The Economist [↩]
3. Solar Chile Website [↩]