First Solar Projects Bullish U.S., Asian Demand -- But It Should Think Again

(MoneyWatch)  First Solar (FSLR), a global leader in thin-film solar power modules, thinks that North American installations and additional opportunities in Asia will offset falling solar business in Europe. But uncertain financing and regulatory issues suggest that it may have overestimated actual demand by quite a bit.

As reported, Germany and Italy, first and third-largest solar markets in Europe, are cutting feed-in tariffs (FiT), the price utilities pay solar power generators, according to iSupply Corp. In 2009, the cadmium-telluride (CdTe) thin-film module manufacturer generated almost 65 percent and six percent of its $2.06 billion in sales from German and Italian photovoltaic (PV) projects, respectively.

Chief executive Rob Gillette confidently predicted on the fourth-quarter 2009 earnings call that demand for larger-scale utility projects, particularly in North America, India, and China, will provide sustainable, long-term growth for the company's products.

Lack of financing is often cited by consultants to the solar industry as the biggest barrier to growth in the United States. With continued discord at the federal level, regional solar projects principally remain dependent on a combination of state funding, tax credits and private financing -- which is difficult to come by in today's economic environment: In California, Governor Arnold Schwarzenegger signed Executive Order S-14-08 in November 2008 requiring that California utilities reach a 33 percent renewables goal by 2020.

With promised funding having evaporated, utilities are scrambling to meet the renewables mandate. A 550-megawatt power purchase program between First Solar and Southern California Edison (SCE) will likely be delayed beyond its 2015 completion date due to funding uncertainties and potential permitting and regulatory obstacles resultant from the required impact assessment of the project's topographic footprint by the Bureau of Land Management.

Management anticipates its pipeline of approximately 150 megawatts of projects in Ontario, Canada -- to be developed between 2010 and 2014 -- will help drive business "North of the Border." Not so fast -- existing power purchase contracts were obtained under Ontario's former Renewable-Energy Standard Offer Program (RESOP). A new FiT program has replaced RESOP, complete with foreign content restrictions (First Solar included): After January 1, 2011, at least 60 percent of project costs must come from Ontario goods and labor. Ergo, PV solar power systems incorporating First Solar modules would not satisfy the domestic content requirement under the new feed-in tariff program currently in effect.

First Solar is working on a business model with China for a planned 2-gigawatt plant, enough to power about 3 million Chinese households, at Ordos City, in Inner Mongolia. Preliminary memorandums signed by First Solar and the Chinese government call for the company to consider building one or more solar panel factories too.

It is estimated Feed-in-Tariffs in the range of 16 cents to 20 cents are the current subsidy prices the state-owned power companies would need to pay the solar energy companies to make this project competitive against traditional fuels in China, such as coal (which accounts for almost 66 percent of China's electric power). Unfortunately, adoption of the necessary national FiT program -- first forecasted by year-end 2009 -- will likely be delayed for at least another nine months, according to First Solar (more likely, in my opinion, up to 18 months out). Ergo, the deal is not expected to move forward until it can justify positive economics.

India's Central Electricity Regulatory Commission (CERC) in New Delhi announced new regulations, including a proposed system of feed-in tariffs for renewable energy, including both wind and solar energy, last September. Similar to politics in China -- where jockeying between central and local administrators for control over FiT scheduling -- growth in in solar remains more promise than a reality until the economic returns of actual FiT subsidies can be analyzed.

On January 14, First Solar acquired sole ownership of advanced utility-scale solar farms from its former partner Edison Mission Group. Facing an array of regulatory and bureaucratic challenges in new markets, First Solar will likely push similar OptiSolar-like acquisitions over organic initiatives to subsidize its own growing output of solar panels, projected at an annual rate of 1.8 gigwatts in 2012.

Related Post:

• First Solar's Uncertain Future Beyond Europe