First Solar Forecasting Sunny Weather in 2009

(MoneyWatch) 

• The Company: First Solar, a manufacturer of solar electric power modules using a proprietary thin-film semiconductor technology.
• The Filing: FORM 10-Q filed with the SEC on October 30, 2008.
• The Finding: First Solar is striving to open new markets that do not depend on traditional photo-voltaic (PV) subsidiaries, such as feed-in-tariffs, and can offer significant long-term growth, such as the California Renewable Portfolio Standards market for utility scale generation. Despite good intentions, approximately 70 percent of 2008 module volumes and an estimated 60 percent of 2009 module volumes will be deployed in Germany.

The Upshot: Irrespective of its desire to reduce its dependency on subsidy programs, the sun is not expected to set on feed-in-tariff programs in Europe. In fact, with stable incentive regimes in place, PV development activity is expected to ramp-up beyond the borders of Spain and Germany. Chairman and Chief Executive Michael Ahearn told analysts on the company's third-quarter 2008 earnings call that in the last three weeks management had met or spoken with officials across the continent, and talks with political and regulatory authorities confirmed that there were no plans to cut programs in any of these markets and that material, near-term subsidy reductions across these markets were unlikely.

Given its established geographic footprint on the continent, First Solar is ideally positioned for first-mover advantages in emerging PV markets with major feed-in tariff programs, including Italy, France, Czech Republic, and Greece.

The one shadow crossing the company's European landscape is turmoil in the credit markets -- customers' abilities to secure adequate capital to finance solar PV projects. Based on its customers' 2009 projected market and application mix, Ahearn was confident that up to 85 percent of Germany volumes in 2009 could be fully financed through the German Reconstruction Bank (KFW) on attractive loan terms.

As previously referenced, up to 40 percent of 2009 project volumes may be deployed in other European markets. Ahearn candidly admitted solar projects lending outside of Germany had essentially stopped for the time being. Nonetheless, he believed that most of First Solar's European (independent power producers) outside of Germany had sufficient balance sheet strength to bridge any near term projects delays and to comply with their obligations under the company's take-or-pay contracts.

First Solar expects to have an annual global manufacturing capacity of approximately 1.1-gigawatts by the end of fiscal 2009 (based on run rates for the third quarter of 2008).

The Question: Will First Solar be able to re-allocate contracted volumes to customers unable to secure adequate financing -- identified to be about 15 percent to 20 percent of planned sales in to Europe in 2009?