First Solar's Electric Utility Plans Could Be a Victim of Arizona's Immigration Law

Last Updated May 26, 2010 11:31 AM EDT

Tempe-based First Solar (FSLR) could soon find itself in a trade war -- not with other photovoltaic (PV) solar panel makers, but one resulting from activists protesting Arizona's new immigration law.

A coalition of civil rights, labor, and pro-immigration "Open Door" advocates are lobbying politicians at all levels of government across the country to boycott Arizona-based businesses because of the southwestern state's tough new law that they believe will open the door to increased racial profiling and discrimination of Hispanics. The law requires police in Arizona to detain or arrest an individual stopped -- in the enforcement of any other law or ordinance -- where "reasonable suspicion" exists that the person is an illegal immigrant.

On May 12, city officials in Los Angeles voted to suspend official travel to Arizona and end future dealings with Arizona-based companies in protest of that state's immigration policy. The City of Angels joins a growing number of California cities, such as Oakland and San Francisco, that have passed resolutions or urged boycotts in protest of SB-1070. The danger to First Solar is that boycott appeals could quickly morph into binding ordinances. Near-term, the ultimate constitutionality of interfering with other states' sovereignty appears moot, as the potential damage to financial performance and health would've already occurred by the time any appeal had run its course.

As supporters of the law -- within the bicameral state legislature -- dig in deep for an extended siege of the Capitol Complex in Phoenix, activists lobbying for repeal (I expect) will predictably expand the scope of their economic boycott. First Solar is one of the most vulnerable businesses on the front lines. For example, inked deals with Southern California Edison (SCE) and Pacific Gas & Electric (PGE) to construct utility-scale solar farms could collapse due to intentional tampering at any number of nodes along the decision approval tree, especially ones requiring regulatory approval:

  • Permit applications must be approved by the Bureau of Land Management, which falls under the auspices of the Department of the Interior. Arizona's own Democratic Congressman Raúl M. Grijalva and Democrats from California -- including Congresswoman Grace Napolitano (not to be confused with the former Arizona governor, "intellectual heavyweight," and Homeland Security Director Janet Napolitano), Congresswoman Lois Capps, and Congressman George Miller -- are members of Interior subcommittees (such as the House Natural Resources Committee on Water & Power), which hold authority to delay regulatory reviews of First Solar's intended solar farm projects. Each of the aforementioned representatives has a documented political bias toward policies that either encourage illegal migration to the U.S. or blatantly favor unrestricted border access from Mexico.
  • San Bernardino Democratic Congressman Joe Baca, whose California district falls in the shadow of the transmission corridor needed for eventual distribution of power from purchase agreements tangent to projects currently under review, has urged people to boycott the state of Arizona -- opining the Arizona law "creates anger, hate and racial profiling," according to the San Bernardino County Sun.
First Solar already faces more empty promises from joint ventures in China, likely demand fall-offs in key European markets from subsidy cuts, and ongoing supply imbalances from increasingly competitive PRC-based solar component makers flooding global markets. Looking to insulate its own growing capacity from such headwinds, management at First Solar has been actively pursuing downstream acquisitions: at May 1, First Solar had purchased project developers of large-scale U.S. utility projects holding contracted PV solar projects of some 2.2 GM in captive capacity at various stages of build-out. Most pusillanimous politicians learned long ago to adroitly dance around illegal alien landmines -- oh, I'm sorry, "undocumented immigrants." Having negotiated with the best diplomats of political correctness in Europe and Asia, First Solar is as skilled as the next globally plugged-in business; nonetheless, it hadn't planned on capacity being constrained from political instability -- of all places -- here in the U.S. Renewable portfolio standards or solar tax credits aren't likely to be its biggest concerns, as most of its purchased assets involve investments in California and other southwestern states bordering Mexico.

First Solar thought its recently announced $285 million purchase of systems developer NextLight Renewable Power would present first-mover advantages in the nascent U.S. utility-scale PV market from pipeline ready projects and a knowledgeable management team with access to -- and relationships with -- decision-makers at state/federal levels of the regulatory bureaucracies.

Unfortunately for First Solar, being in the "wrong state at the wrong time" could prove an obstacle more difficult to overcome than repatriating 12 million illegals or relocating two dozen rare tortoises standing in the way of three solar farms to be built in the Mojave Desert. For the record, no one in management at First Solar or San Francisco-based NextLight would return any of my repeated calls seeking comment.

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  • David Phillips

    David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.