First Solar (FSLR)/Trends and Forces

The movement to address global warming has convinced governments and their citizens to begin exploring viable and sustainable energy solutions. In addition to cleaner energy alternatives, the shrinking fossil fuel supply combined with the insatiable energy demands from developing countries, such as China, has dramatically driven up fossil fuel prices. China’s demand for fuel is projected to increase by 150 percent by 2020, a rate of 7.5% per year, seven times faster than the U.S. As these trends continue to take hold, alternative energy sources such as solar only become more attractive. Solar energy production produces little, if any, pollution or emissions, making it one of the cleanest sources of power. Increased popular education on these issues is creating pressure for governments and energy companies to regulate energy production. This movement is having a worldwide impact on energy regulation in the form of increased government subsidies for clean energy sources and global emissions caps.

Non-Climate Environmental Regulations Could be Very Damaging to First Solar in Europe

The Restriction of Hazardous Substances directive enacted by the European Union in 2003 took effect on July 1st, 2006. Though the RoHS bans only a small number of substances (six), cadmium, an extremely toxic carcinogen that can cause kidney and breathing problems, is one of them. Unfortunately for First Solar, cadmium is a key component of the company's panels (47% composition), and though there is a short list of products exempt from the RoHS, solar panels are not included. In response to this First Solar argues that Cadmium-telluride renders cadmium inert drastically reducing the contamination risks of cadmium alone. For cadmium telluride to breakdown, according to the National Renewable Energy Laboratory, it must be heated to 1,041 Celsius. This is good news for First Solar since most roof fires are reported to burn at 800-900 degrees.^[1] In addition to these studies, to ease concerns over the potential danger of panel disposal, the company has developed a reclamation plan for used panels.

Fortunately, solar panels, are also not on the list of restricted products, creating a potential loophole for First Solar. The company will have to apply for an exemption in order to avoid a potential crackdown by EU authorities, but if such exemption is not granted, the negative results for the company could be tremendous, considering that Europe is its primary market.

Continuing Worldwide Silicon Shortages

First Solar, unlike most other PV manufacturers, does not use polysilicon for its products. As a result, the continued worldwide polysilicon shortage drives up the cost of manufacturing for silicon PV manufactures and further widens the price disparity between thin-film PV and traditional silicon manufacturers. However, silicon is one of the most abundant elements on earth. Polysilicon production capacity is being ramped up in response to recent shortage. So the temporary polysilicon shortage is not a long lasting factor in First Solar's competitiveness.

Tellurium Dependence Could Be Damaging to First Solar's Margins

Tellurium, a major component in First Solar's panels (which are made of Cadmium Telluride), is one of the nine rarest elements on Earth. Though First Solar claims it has identified enough tellurium reserves to provide for future growth, the company needs about 110 to 130 metric tons of tellurium for one gigawatt worth of solar panels, at about 3 microns CdTe film thickness. Statistically it has been reported that 160 to 215 metric tons of Te are mined each year. This means that First Solar requires 51% to 81% of the world supply of Te.^[2] If a tellurium rush should occur due to quickly increasing demands from the electronics industry as well as rapid expansion of First Solar's own business, there is no guarantee that global supply of this element, which is rarer than platinum, will hold up, and the ensuing rise in global tellurium prices would probably destroy First Solar's profit margin.

First Solar does not use tellurium directly, they use the high purity cadmium telluride compound, provided by 5N Plus Inc. and another supplier. But they recently acknowledged that they try to buy tellurium themselves to pass to CdTe suppliers, as well as try to establish a strategic inventory. This might show that the company is anxious about a possible global tellurium shortage.

From January 2008 through mid April, the price of tellurium increased by a factor of 2.44, rising from 860 yuan/kg to 2100 yuan/kg. Furthermore, since 2004, tellurium has risen from $10/kg to $300/kg^[3]. These stratospheric price levels (and their projected growth) are indicative of a trend similar to those affecting oil prices: growing demand from companies like First Solar and Emcore are forcing the commodity's price up. Unfortunately for First Solar, it was the low cost of tellurium that gave it a cost advantage over silicon PV. If tellurium continues to rise (and with the advent of Emcore's phase-change memory hardware, it's likely that it will), First Solar will lose its cost advantage completely.

Government Subsidies

Without government support, solar companies would have difficulty selling their products, as solar energy is less cost effective than coal and natural gas.^[4] Governments worldwide have implemented legislation to encourage alternative energy production, due to political pressure from public concerns about climate change and energy independence, but the financial crisis of 2008 and 2009 has hastened the decline of subsidies in large markets like Germany and Spain, the world's largest and second largest solar markets, respectively.^[5] Examples of legislation benefiting the industry by making it more profitable, and therefore more likely to grow include:

The European Union has inked its goals to get 20% of its energy from clean sources by 2010.^[6]
China's Renewable Energy Law aims to raise the total percentage of renewable energy used in the country to 15% by 2020.^[7]
The U.S. Stimulus Bill of February of 2009 included $60 billion in loan guarantees for companies building solar and wind plants.^[8]
Although the Obama administration has the goal of doubling renewable energy production from 2009 to 2012,^[9] until an actual federal law is passed, many states are keeping their local goals and initiatives in place.

**State Level Renewable Energy Usage Targets**^[10]
State	AZ	CA	CO	CT	DC	DE	HI	MA	MD	MN	MT	NJ	NM	NV	NY	PA	RI	WA
Target Percentage	15%	20%	10%	10%	11.00%	10%	20%	4%	8%	25%	15%	23%	20%	20%	24%	18%	15%	15%
Target Year	2025	2010	2015	2010	2022	2019	2020	2009	2019	2025	2015	2021	2020	2015	2013	2020	2020	2020

As the financial crisis has strained government budgets and crashed the price of oil, once a strong motivator for developing renewable energy, support for solar power has, in some places, decreased. Examples include:

In June of 2008, Germany approved a law cutting its solar subsidies by 10%. Further, under the law subsidies will fall another 8%-10% each year for the next three years.^[11] This is particularly damaging to Sovello, the German solar power manufacturer that Evergreen has a one-third stake in.
Also in mid 2008, the Spanish Government cut its solar subsidies by 30%.^[12]

Nevertheless, shifts of power from one administration to another and one party to another in several countries and states have increased the likelihood that new legislation benefiting the industry will pass. Examples include:

Obama wishes to implement a carbon trading scheme. Doing so would make polluting methods of power generation, like coal and natural gas plants, more expensive, making solar power and other clean energy sources more cost-competitive. ^[13]
Ontario is considering implementing solar subsidies.^[14]

Solar Thermal

Solar Thermal is a technology that harnesses solar energy to create heat used to drive turbines for electricity generation.^[15] This technology has been primarily harnessed by large-scale utility plants and represents a source of competition for Cadium PV cells. The energy conversion efficiencies range from 20%-40% depending on the type of setup and equipment used in the field. The primary advantage of solar thermal is the heat storage capabilities. Heat storage allows a solar thermal plant to produce energy at night or overcast days. The advantage is that the power generation becomes reliable and can be sold for higher prices. Also, the utilization of the generator is higher which reduces cost. (Read More about First Solar's competition...)

Introduction and Overview | Trends and Forces | Competition

References

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