First Solar Q3 Preview: Emerging Markets, Panel Efficiency Improvements In Focus

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FSLR: First Solar logo
FSLR
First Solar

First Solar (NASDAQ:FSLR), one of the world’s largest solar panel manufacturers and project developers, is expected to release its Q3 2014 earnings on November 6. The company’s results are usually subject to significant volatility, since its core business of project development sees irregular revenue recognition. While we expect the company’s quarterly earnings to improve on a sequential basis, aided by better revenue recognition on its 550 megawatt (MW) Desert Sunlight Project which faced some delays during Q2, we will be watching the company’s progress in bolstering its projects business in emerging markets and its progress in improving the efficiency of its solar panels.

Trefis has a $68 price estimate for First Solar, which is about 20% ahead of the current market price.

See our complete analysis of First Solar here

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Progress Of Project Development Business In Emerging Solar Markets

First Solar has seen much of its growth in recent years come from large-scale solar projects in the United States. However, contracting activity in this market is poised to slow down as several utility companies already have projects lined up to meet their renewable energy portfolio standards (RPS) requirements. Now, First Solar has been increasingly looking towards emerging solar markets to drive growth. These markets are often characterized by relatively high electricity prices and low solar penetration. Additionally, unlike developed markets such as Europe, which have seen boom and bust cycles owing to changing government incentives, these markets are not highly subsidized. First Solar has indicated that over a third of its 12.7 GW DC potential booking opportunities come from regions including Latin America, the Middle East and India. [1] First Solar recently announced that it would be developing its first independent project in India with a total capacity of 45 MW. In Chile, the company is expected to have commenced work on its 141 MW Luz del Norte power plant after securing a financing package for the project. We will be watching the company’s progress in building up its pipeline and executing on its projects in emerging markets.

Panel Efficiency Gains In Focus

Although First Solar’s panels trail silicon-based panels in terms of conversion efficiency, the company has set itself a clear roadmap for efficiency gains and seems to be making good progress on delivering on these targets. During the previous quarter, the company’s average module efficiency rose by 0.5% sequentially to around 14%, which marks one of its biggest quarterly efficiency gains. Higher efficiencies benefit the company in two ways. Firstly, it would make its panels more competitive in the rooftop market, where higher energy density panels are valued due to space constraints. Secondly, it could help to prune down manufacturing costs and improve margins, since higher efficiency panels are likely to require a smaller amount of consumables and raw materials to produce each watt of generation capacity. Per the company’s roadmap, panel efficiencies are expected to improve to above 19% by the year 2017. Since Cd-Te thin film panels have a higher theoretical upper limit for efficiency compared to silicon-based panels, First Solar could eventually have among the highest efficiencies in the industry. We will be watching the company’s progress in improving panel efficiencies and cutting down on panel manufacturing costs.

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Notes:
  1. First Solar Q2 2014 Earnings Presentation []