FSLR Hops into Chinese Project - Analyst Blog

First Solar Inc. (FSLR) entered into an agreement with China Guangdong Nuclear Solar Energy Development Company Ltd for developing the Ordos Solar Project in Inner Mongolia. Under the terms of the agreement, the two companies will work together on the 30 MW AC first-phase demonstration project.

China Guangdong will be the owning and managing the project for the most part, performing the engineering, procurement and construction functions. First Solar will supply its advanced thin-film solar photovoltaic modules for the project and will support China Guangdong in providing engineering, procurement and construction and advisory services.

Solar Energy Development Company is a wholly-owned subsidiary of China Guangdong Nuclear Power Group. The company focuses on investment, construction, operation and maintenance of solar power projects. The company by the end of fiscal 2010 completed construction of solar facilities capable of producing 20MW, and is currently in the mood to add another 70 MW capacity.

Based in Phoenix, Arizona, First Solar designs, manufactures and sells solar electric power modules using a proprietary thin film semiconductor technology. The company's solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity.

First Solar designs and manufactures solar modules using a proprietary thin-film-semiconductor technology, which allows it to reduce its average solar module manufacturing costs to one of the lowest in the world.

At the end of the first nine months of 2010, First Solar's average manufacturing cost amounted to $0.77 per watt; this is significantly lower than those of traditional crystalline silicon solar module manufacturers. However, the advantage is dwindling fast with falling polysilicon prices.

First Solar's growth potential and that of the solar industry on the whole requires a prudent long-term enhancement with technological makeover, capacity build-out and cost minimization. Balancing all the three aspects will take some effort.

Going forward, the company will be ramping up its production capacity to further lower its cost of production through economies of scale. At the end of the third quarter of 2010, the company operated with an annualized global manufacturing capacity of approximately 1.4 GW.

The company expects to increase its manufacturing capacity to 46 production lines by the end of 2012, with an annualized manufacturing capacity of more than 2.7 GW.

First Solar will benefit from the steady recovery in the economy as well as favorable legislations supporting PV installations. The company is focused on capacity build-outs, technological enhancements and cost minimization. The technological superiority that it enjoys over its silicon-based solar peers is quite commendable.

However, its short-term growth may be partially hampered by the volatile euro, apprehension over reduction in German subsidies, falling crystalline silicon prices and the overproduction of modules.

Also competition in the industry is becoming tougher by the day for U.S. solar players such as First Solar, who have a huge German exposure in their top line compared to Suntech Power Holdings Company Ltd. (STP), SunPower Corporation (SPWRA) and ReneSola Ltd. (SOL) whose markets are more diversified.

We currently have a market Neutral recommendation on the Zacks #3 Rank (Hold) First Solar stock.

 
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