Why First Solar Is Investing In Utility-Scale Solar Farms

Last Updated Apr 29, 2010 3:06 PM EDT

This has been a good week for First Solar. Despite a growing chorus of naysayers, the leading solar panel maker posted a first-quarter profit of $2 per share, blowing past a Thomson Reuters analyst survey that projected just $1.63 per share.

News of the big profit obscured a rather important move by the company: the $285 million acquisition of NextLight Renewable Power, a San Francisco, Calif.-based solar project developer. The news was first reported in the Arizona Republic, which keeps a closer eye on the industry than most papers.

NextLight is a fairly large player in its industry, which acquires land to build huge renewable energy projects. While First Solar didn't gain any new technology with the buy, it did pick up the contracts for 570 megawatts of power, and preliminary agreements to build out 530 megawatts more.

For reference, that equals almost an entire year's worth of First Solar's production, at current rates. More importantly, the deal pushes First Solar even further into utility-scale development. When most of us think of solar, we imagine small, tidy rows of panels on a suburban rooftop. First Solar has a much bigger vision: Think miles-long fields of black panels stretching across otherwise-empty desert landscapes.

As our in-house forensic analyst David Phillips pointed out in February, First Solar is turning to utility solar in part because it is outgrowing Europe. Despite being an American company, First Solar has found European countries, particularly Germany, a more lucrative home for its products.

Looking to utility-scale solar could be interpreted as an act of desperation by First Solar; the company's thin-film solar panels are less efficient than the competition from a company like SunPower, so as the solar market gets more efficient, it's becoming harder for First Solar to reap profits by the truckload. Some investors are certainly taking the new focus as a cue to bet against First Solar.

But that may be a mistake. First Solar's management team is shrewd and calculating. It's unlikely that the company would assume responsibility for gigawatts worth of utility project development unless it thinks it can continue to grow profits doing so.

And as the New York Times' Dealbook points out, First Solar has just bought its way into a close relationship with Pacific Gas & Electric, which has an obligation to buy increasing amounts of renewable energy for the next decade or more. If First Solar has indeed chosen the right market to move into, it's quickly gaining a not-inconsiderable lead.