Solar Weekly Notes: First Solar’s Record PPA, Higher R&D Spending, Yingli’s Debt Woes

by Trefis Team
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The solar industry had a relatively news filled week, headlined by reports that First Solar (NASDAQ:FSLR) had signed a power purchase agreement (PPA) to sell electricity from one of its power plants at a record low rate of 3.87 cents per kWh. The Guggenheim Solar ETF, a popular exchange traded fund comprising of solar stocks, fell by about 8.5% through Thursday, likely due to global economic concerns and the selloff in the Chinese equity markets. Here’s a brief look at all the news that mattered in the solar industry.

See Our Complete Analysis For Solar Stocks Trina SolarYingli Green Energy |First SolarSunPower

First Solar Signs PPA With A Record Low Rates

NV Energy, a Nevada based utility owned by Berkshire Hathaway, struck a PPA to buy electricity at 3.87 cents per kWh from the 100 MW Playa Solar 2 project that is being developed by First Solar. The price on the 20-year, fixed-rate contract not only represents a new landmark for solar power in the United States, it could quite possibly be the lowest electricity rate in the country. The best price offered last year was 4.6 cents a kilowatt-hour, under a PPA signed by SunPower (NASDAQ:SPWR) in Nevada. [1] The sub-5 cent rates certainly indicate that the solar industry is maturing. Utility-scale solar power plants are becoming more economical to build and operate, driven by improving panel energy yields, the availability of cheaper financing and lower soft costs. However, it is important to note that the national average price for solar power is likely to be significantly higher. The above deals were signed in Nevada, where solar insolation is high, yielding better capacity factors and lower levelized costs of electricity.

  • Trefis has a $60 price estimate for First Solar, which is over 30% ahead of the current market price. We project the company’s CY2015 revenues at about $3.45 billion, with an adjusted EPS of about $2.66. This compares to a consensus EPS estimate of about $2.77 according to Reuters.

Solar R&D Spending Grows As Industry Outlook Improves 

Research and development expenditures among the top 12 photovoltaic module manufacturers increased by roughly 25% in 2014 to about $512.75 million, according to a report by PV Tech. [2]  The spending was driven by improving business conditions in the industry, as well as an increased desire to push solar cell conversion efficiencies. First Solar, the largest U.S. solar firm, continues to lead the industry in terms of spending, allocating about $143.9 million towards research. The investments do seem to be paying off, as the firm has been posting among the best efficiency gains in the industry. Average panel conversion efficiency stood at 14.7% during Q1 2015, representing a 1.2% year-over-year improvement and a 0.3% sequential improvement.

Are Yingli’s Debt Woes Taking A Toll On Its Operations? 

According to a report by PV Magazine, Yingli Green Energy (NYSE:YGE), China’s second largest solar company, apparently suspended production after talks with its creditors broke down. [3] However, Yingli refuted the report in a statement, indicating that it is continuing to serve its customers. Concerns over Yingli’s debt load ($2.3 billion as of March 2015) have been mounting, after it said in its 2014 annual report that it may not be able to meet its obligations, while indicating that there was “substantial doubt” about its ability to remain in business. Yingli is burning through its cash at a steady clip  – it remains one of the few loss making tier-1 Chinese solar firms, and its cash interest costs alone stand at close to 8% of revenues.

  • We recently cut our price estimate for Yingli Green Energy to around $1.20, owing to concerns over its high leverage, interest burden and lack of profitability. Our estimate remains ahead of the current market price. We note that our price estimate could change substantially based on future developments.
  • We are forecasting revenues of about $2.50 billion for 2015, with a loss per share of $0.59. This compares to a consensus loss of about $0.75 per share according to Reuters.

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Notes:
  1. Buffett Scores Cheapest Electricity Rate With Nevada Solar Farms, Bloomberg, July 2015 []
  2. Record solar R&D spending in 2014: First Solar leads the pack, PV Tech, July 2015 []
  3. Update: Reports of a halt in production at Yingli, PV Magazine, July 2015 []
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