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First Solar’s 2011 Plan: Moving Beyond Germany

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Here are three strategies by First Solar to deal with anticipated declines in some key markets in 2011: keeping its solar panel prices low to encourage its customers to find new markets, using its project development business to offset any drop in solar panel sales, and building new factories like mad.

The Tempe, Ariz., company discussed these moves with financial analysts after announcing its third-quarter earnings on Thursday. The company did well, by the way: it boosted its sales and profit and we’ll get to those numbers later. But what investors wanted to know was how one of the world’s largest solar panel makers would deal with the definite and potential slide in government incentives that have made Europe the largest solar market.

For one thing, First Solar has not jacked up the prices of its panels like some of its Chinese competitors in order to take advantage of the booming market in Germany (danke schön!). Many project developers are eager to install solar projects before the year end, when the country’s feed-in tariffs are set to fall. Other European countries also are looking to trim their incentives as well. Feed-in tariffs are government-set prices for solar electricity, and they are higher than rates for electricity from conventional sources. By design, the FITs are supposed to fall over time to nudge solar electricity prices toward the same levels as conventional power.

“We don’t pay attention to near-term or week-to-week pricing. We don’t necessarily price for the short term,” said Rob Gillette, First Solar CEO, during the conference call. “Our focus is to drive down the (levelized cost of energy) so that we can compete with the traditional sources.”

Major crystalline silicon solar panel makers have been delivering products at around $2.10-$2.20 per watt, Jenny Chase, manager of Solar Insight Services at Bloomberg New Energy Finance, told me earlier this month. That’s up from $1.70-$1.90 per watt in the first quarter of this year, a result of a strong euro and German market. Most of the major Chinese manufacturers make crystalline silicon solar panels. First Solar makes panels with cadmium-telluride instead.

First Solar already has sold most of its anticipated production volumes for next year. Without providing many details, company executives said they are working with customers to diversify the reach of First Solar products in other parts of Europe and beyond, and they said their recent announcement of supplying 380 megawatts to seven key customers was part of that plan.  The company expects to ship 25-30 percent of its panels to Germany in 2011, down from nearly 50 percent in 2010.

Gillette said the company expects to see its customers install its solar panels in India next year. First Solar previously announced plans to build power projects in China and maybe build a factory there as well, and the company is plugging way at making those plans a reality. The company has started to explore potential sales in Middle East and Africa, Gillette said.

North America will be a bigger market in 2011 for the company mainly because of First Solar’s hefty investments in building a project development business on its home turf. The company bought NextLight Renewable Power for about $297 million this summer, the fourth acquisition of project development firms since 2007. With NextLight, First Solar became a proud owner of 2.2 gigawatts projects that already had found utility buyers in North America.

First Solar has used the project development business to carve out a big slice of the domestic market, which can be tough to crack because there are so many public and private utilities and they answer to federal, state and sometimes local governments. With its fat project pipelines, First Solar has created a good sales channel for its solar panels.

The company completed a 60-megawatt Sarnia project in Canada during the third quarter. But it’s facing potential delay for the 230-megawatt, AV Solar Ranch Project in Southern California. The project cleared a big hurdle when Los Angeles County approved its environmental assessment. But an appeal of that decision has been filed, and a hearing is set for Nov. 23. First Solar is currently lining up $1 billion-plus financing for the 290-megawatt, Agua Caliente project in Arizona and expects to complete that by the first quarter of next year, said chief financial officer Jens Meyerhoff. Construction work has started for Agua Caliente.

“The pipeline enables us to weather any transition and changes in demand, and we think we are in good shape,” Gillette said.

The company aims to expand production capacity from 1.4 gigawatts in 2010 to 2.7 gigawatts in 2012. Earlier this month, it announced plans to build one factory in Vietnam and one in the United States, where it already has a plant in Ohio.  First Solar also is building new production lines in Germany, Malaysia and France.

The company’s manufacturing cost did go up to $0.77 per watt during the third quarter, up $0.01 from the second quarter this year. The increase came from investments to improve the factory equipment and overall production efficiencies, company executives said.

First Solar posted a third-quarter net income of $176.87 million, or $2.04 per share, up from $153.34 million or $1.79 per share in the same year-ago quarter. The most recent quarterly net income took into consideration a one-time tax payment of $14.7 million, or $0.17 per share.

The company reported sales of $797.9 million for the third quarter, up 66 percent from $480.9 million in the same quarter in 2009. The increase came from a boost in its project development business and solar panel production, and was offset by a drop in its solar panels’ average selling price and lower euro exchange rates.

The company now expects to see $2.58 billion to $2.61 billion in sales for 2010, up from its previous forecast of $2.5 billion to $2.6 billion. Earnings should reach $7.50 to $7.65 per share for the year instead of $7 to $7.40 per share.

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Photo courtesy of First Solar

One Response to “First Solar’s 2011 Plan: Moving Beyond Germany”

  1. Excellent commentary, amd very well written. Hopefully management is over fixing the equipment and that margins regroup! I’m a big believer in this company. Stock is actually trading cheaply at today’s prices. It may not last much longer…