First Solar: Year In Review

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FSLR: First Solar logo
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First Solar

First Solar (NASDAQ:FSLR), one of the world’s largest vertically integrated solar companies, had an interesting year. While the company’s financial performance was decidedly mixed, with revenues and gross margins for the first 9 months coming in lower year-over-year due to lower revenue recognition on solar projects, the company performed reasonably well on the business development, manufacturing and technology front. In this note, we take a look at some of the key developments in First Solar’s business during 2014.

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Trefis has a $64 price estimate for First Solar, which represents a 45% premium to the current market price.

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Bolstering Presence In Emerging Solar Markets

First Solar has seen much of its growth in recent years come from large-scale solar projects such as the Desert Sunlight and the AVSR project located in the United States. However, contracting activity in the U.S. 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. The company recently announced that it would be developing its first independent project in India with a total capacity of 45 MW. In Chile, the company commenced work on its 141 MW Luz del Norte power plant after securing a financing package for the project. The company also signed an agreement to provide engineering, procurement and construction services for the 52.5 megawatt Shams Ma’an photovoltaic (PV) power plant in the Kingdom of Jordan. While projects in these markets are unlikely to be as lucrative as First Solar’s U.S. mega-projects, they should provide opportunities for sustainable growth since these markets are often characterized by relatively high electricity prices and good solar radiation levels, which make solar economically viable. As of Q3 2014, the company’s potential booking opportunities stood at 13.7 GW. About 56% of the company’s potential pipeline now comes from overseas, and close to a third of the opportunities come from markets such as Latin America, the Middle East and India.

Expanding Manufacturing Capacity

Global solar installations are expected to have grown by over 20% to around 48 GW in 2014, and the figure is estimated to rise to about 58 GW next year, according to Bloomberg New Energy Finance. [1] Additionally, the demand for solar panels in the United States could be strong over the next two years, as installers take advantage of the U.S. solar investment tax credit (ITC) which is expected to be reduced by the end of 2016. The ITC is expected to drop from 30% to 10% for commercial projects and to zero for directly-owned residential projects. First Solar is looking to capitalize on this demand by expanding its panel manufacturing capacity by around 46% by 2015. The company intends to do this by improving the throughput of its existing facilities, restarting some idle manufacturing lines at its Malaysian facility and by also adding incremental capacity at its Ohio plant. The company currently has about 1.8 GW of panel capacity.

Panel Efficiency Improvements

While First Solar’s panels trail silicon-based panels in terms of conversion efficiency, the company’s efficiency gains have been outpacing the broader industry this year. For the third quarter, average panel efficiency stood at around 14.2%, marking a 0.9% improvement year-over-year. Higher efficiencies benefit the company in two ways. Firstly, it would make 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, since higher efficiency panels are likely to require a smaller amount of consumables and raw materials to produce each watt of capacity. Per the company’s road map, panel efficiencies are expected to improve to above 19% by the year 2017. The company expects the efficiency of its modules to equal those of polycrystalline modules by the end of 2015. Given that 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.

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Notes:
  1. BNEF: global solar to grow to close to 60 GW in 2015, PV Magazine, November 2014 []