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First Solar's net sales for 2020 dropped to $2.7 billion from $3.1 billion in 2019, as the pandemic hurt systems sales. Solar modules sales actually rose, but the rise wasn't enough to cancel out the drop in systems revenues. In the absence of litigation expenses, operating income came in at $317 million, a turnaround from the $162 million loss in 2019. Further a $108 million tax benefit, saw net income come in at a record $398 million, a huge contrast to the $115 million loss in 2019.
Below are key drivers of First Solar's value that present opportunities for upside or downside to the current Trefis price estimate for First Solar:
First Solar is engaged in the manufacture and sale of solar modules based on Cadmium-telluride thin-film semiconductor technology. In addition, the firm also designs, constructs and sells photovoltaic (PV) solar power systems. The company operates in two main business segments: the components segment and the systems segment. The components segment is responsible for the design, manufacture, and sale of solar modules to solar project developers and system integrators. The systems segment provides PV solar power system for commercial systems, which includes project development, engineering, procurement and construction (EPC), operating and maintenance (O&M) services.
The PV Solar Systems division is the primary source of value for the company for the following reasons:
First Solar's systems business is presently largely centered around the U.S. market. However, the company has a lot of opportunities overseas, particularly in markets like Latin America where electricity rates are high and consumption growth is much stronger than in the United States. Other growth markets include the Middle East, India, Asia Pacific and China. The company has indicated that over half of its new systems booking opportunities (in terms of system capacity) come from overseas.
First Solar's panel efficiency gains have been outpacing the broader industry over the past few years. The Cd-Te thin film technology that the company deploys has a higher theoretical upper limit for efficiency compared to silicon-based panels, and we see this as providing a competitive advantage over the long term. Per the company’s roadmap, its Cd-Te panel efficiency which stood at 16.5% as of Q3'15, is expected to improve to above 19% by 2017. Higher efficiency panels help to prune down manufacturing costs, as they require a smaller amount of consumables and raw materials to produce each watt of capacity.
First Solar will roll out it's next-generation Series 6 modules in mid-2018. The panels are viewed as one of First Solar’s most important product launches in years, as they allow it to compete more directly with silicon-based panels in terms of both conversion efficiency as well as total rated power. While First Solar's current generation modules have a power output of about 122 W, competing silicon panels have a peak power of 300 Watts and upwards. With the new Series 6, the company expects to achieve a power rating of upward of 420 W per panel.
Governments all across the world have taken measures to encourage the use of solar technology as a way to help them remove their dependence on fossil fuels. For instance, in the United States, at the Federal level, the government offers incentives including an investment tax credit (ITC) of around 30% on the initial cost of a solar system. The credit, which was slated to decline in from 2017, was extended by U.S. Congress in December 2015. Under the new legislation, the 30% credit will be extended for another three years, dropping incrementally to 22% by 2021, while remaining at 10% permanently beginning in 2022. There are also legislations at the state level, such as the renewable portfolio standards, that require utility companies to generate a certain portion of their electricity from renewable sources. Countries such as China and Japan also offer incentives in the form of feed-in-tariffs that allow photovoltaic plants to sell electricity at above market rates.
The global economic crisis had a profound impact on the solar industry. The rise in energy prices prior to the economic downturn led many solar manufacturers to increase capacity. This helped certain manufacturers as they benefited from economies of scale which in turn helped reduce prices. However, due to the credit contraction that occurred during the financial crisis, the installation of solar power systems declined significantly. The economic crisis impacted demand for everything ranging from polysilicon to rooftop panels. As a result, many smaller players with weak balance sheets have been struggling which has led to consolidation in the industry.
China became the worlds largest solar market in 2013, overtaking Germany as the worlds largest solar market. China accounted for about 50% of solar demand in 2017. Other emerging markets such as India, Latin America, and the Middle East are also becoming important markets for solar power, given a combination of high electricity prices and strong electricity demand growth.