First Solar (NASDAQ:FSLR) made most of its money in recent years primarily through its business in Germany and the United States. But we believe that the company – one of the biggest players in the competitive solar components industry – owes most of its value to the immense revenue potential that exists in developing countries. Our analysis of the company led us to conclude that sales of photovoltaic (PV) modules outside Germany and the U.S. contribute to more than 60% of the $144 price estimate we have for the company’s stock. First Solar is engaged in the manufacturing and sale of solar modules with an advanced thin film semiconductor technology, and competes with other solar industry players like SunPower (NASDAQ:SPWRA), Suntech Power (NYSE:STP) and Yingli Green Energy Holding Com (NYSE:YGE).
First Solar’s international PV business is small as of now..
According to the company’s annual report, PV shipments in 2010 to locations outside Germany and the U.S. were 508.1 megawatts (MW), representing just above $750 million in revenues for the company. This is dwarfed by the $1 billion generated by business in Germany alone.
… but the business is poised to grow substantially…
Growth in demand for energy among developing countries is significantly higher than that in developed economies, with China and India leading in terms of energy demand. The governments of both countries have been focusing on increasing energy capacity, with renewable sources figuring high on their preference list.
China aims to install 2 gigawatts (GW) of solar energy by 2011 and 20 GW by 2020. As part of this effort the government has taken several measures to incentivize developers and consumers to adopt solar technology. These incentives include the solar PV building program, Golden Sunshine program and PV utility project tenders. A Feed-in-Tariff (FiT) policy is also expected to be announced soon.
In India, the government has set aside land in areas where solar radiation is easily available to foster solar energy growth, and has announced a 30% subsidy to all homeowners who install solar panels on their rooftops. The country aims at installing 20 GW of solar capacity by 2022.
… and First Solar is on its way to where the action is
Recently, First Solar signed an agreement with China Power New Energy Development to collaborate on solar projects primarily in China. 
We estimate annual shipment figure will cross 3 GW of components for First Solar’s international business by 2015, a six-fold jump from the value in 2010.Notes:
- First Solar & China Power International New Energy Announce International Cooperation Framework Agreement, First Solar Press Releases, May 10 2011 [↩]