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First Solar (FSLR)Stock (Energy Industry, Semiconductor - Specialized Industry)
 First Solar makes cadmium telluride (CdTe) glass substrate based thin film photovoltaic (PV) panels, which are used to convert sunlight into electricity. Unlike other solar cell manufacturers, which produce crystalline silicon PV cells, First Solar makes CdTe thin-film PV panels on glass substrates. It is the only manufacturer to do so in volume. Although this new technology converts sunlight to electricity less efficiently than traditional silicon PV modules, thin film PV cells have an advantage in producing electricity under lower light conditions. This means that when it's cloudy or early and late in the day, First Solar's thin film PV cells are still cranking away, producing electricity while their silicon counterparts sit idle. The ability to produce electricity under a wider range of light conditions makes these cells attractive to utility companies who require stable large-scale, utility-sized renewable energy production. In addition to this advantage, producers thin-film PV modules also enjoy a major cost advantage since they are not affected by the scarcity, and subsequent rising price of polysilicon. This has helped First Solar secure $6 billion of contracted sales (3.35GW) through 2012[1] with numerous European energy utilities and solar installers. First Solar is rapidly expanding manufacturing capabilities by nearly doubling manufacturing capacity from 170MW/year (2007YE) to 380MW/year (2008YE)[2], an amount that can roughly power over 200,000 homes! In response to growing concerns over Global Climate Change, governments (State and Federal) in the United States and Europe have passed legislation to encourage the use of solar power, often through tax subsidies, while discouraging the use of dirtier forms of power. These incentives are by no means guaranteed and in some cases are designed to phase out as state our country approaches a certain level of solar usage. First Solar's cost advantage comes largely from that its manufacturing process uses little or no polysilicon. This advantage will diminish in 2009 and 2010 as more polysilicon manufacturing capacity comes on line. Lower polysilicon prices will allow First Solar's competitors to produce their solar cells at much lower prices.
[edit] Business Financials [edit] First Solar's FinancialsFirst Solar has demonstrated strong revenue growth over the past three years. Since 2004, it has more than doubled its revenue each successive year while turning a profit last year. In the first quarter of 2008, First Solar saw net sales of $196.9 million - up $130 million year-on-year but down $3.9 million from 4Q07. Gross margins were 53% - down 2.3% from 4Q07. The company's backlog is worth $6 billion. First Solar's cells cost $0.65 to $0.75 per kilowatt hour, but the company has announced a move of its production to Malaysia, which will reduce costs by $0.20 per kilowatt hour, making the solar cells more competitive with traditional energy sources that cost $0.12 per kilowatt hour. In the second quarter of 2008, the company's conversion efficiency increased by 10 basis points, to 10.7%.[4] Production was 114.1 MW, an increase of 5% from the 1st quarter and 30% year-on-year.[4] Net sales rose 35.6% from the 1st quarter, to $267 million.[4] ASP per watt increased from $2.47 to $2.57. Operating income was $88.7 million, up from $58.1 million.[4] It is important to note that First Solar derives a significant percentage of its revenues from a small core group of customers primarily within Europe, and specifically, Germany. From its 2006 annual report, First Solar states that five customers accounted for between 16% to 19% of net sales. These customers sell turnkey solar systems to end-users that include owners of land designated as former agricultural land, waste land or conversion land, individual owners of agricultural buildings, owners of commercial warehouses, offices and industrial buildings, public agencies and municipal government authorities that own buildings suitable for solar system deployment and financial investors that desire to own large scale solar projects.[5] Losing any one of these key customers could have an adverse effect on the business, but as First Solar develops additional customer relationships outside of Europe and in other markets, it will reduce the company's customer and geographic concentration and dependence. [edit] Conversion EfficiencyThin film PV modules are not as efficient in converting sunlight energy into usable forms of electricity, however, in specific situations such as large-scale utility-sized solar plants, thin film PV is not only cheaper but provides electricity under a variety of light conditions leading to more stable energy production. You can see the average manufacturing costs $/watt for thin film PV vs. silicon PV modules in the "Markets & Competition" section.
[edit] Trends and Forces[edit] Environmental Concerns are Pushing Renewable Energy GrowthThe 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. [edit] Non-Climate Environmental Regulations Could be Very Damaging to First Solar in EuropeThe 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, 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. Solar panels, however, 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. [edit] Continuing Worldwide Silicon ShortagesFirst 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. [edit] Tellurium Dependence Could Be Damaging to First Solar's MarginsTellurium, 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. 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[10]. 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. [edit] Government SubsidiesSolar is not economical today, and is reliant on subsidies and other incentives driven by Government policies. As of now, European countries, especially Germany, are providing considerable incentives for installing solar panels. However, these subsidies will need to remain intact until solar manufacturing costs and the price comes down to a point where it can be cost competitive with the incumbent energy generation solutions. Here are some examples of active government legislation:
Legislative mandates like these benefit renewable energy companies because they force utilities companies to turn to other power sources. Also, such legislation usually leads to government support for renewable energy companies in the form of fiscal incentives. [edit] Solar ThermalSolar Thermal[15] is a technology that harnesses solar energy to create heat used to drive turbines for electricity generation. 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. [edit] Markets & CompetitionFirst Solar, although a leader within the thin film PV space, faces stiff competition from traditional silicon PV manufacturers such as SunPower, Suntech and Kyocera just to name a few.
[edit] Market SizeThe thin film solar PV market is relatively small and accounts for around 8.3% of the total PV market in 2006, and 5.9% in 2005.[16] Shipments of thin-film photovoltaic modules more than doubled between 2004 and 2005, by EIA estimates. Meanwhile, RBC projects thin film solar panels will continue to increase their market share from 6.5% today to 19% by 2011.[17] First Solar currently gets most of its business in Europe; the company is planning on entering the U.S. market with a focus on wooing electric utilities operators who need to incorporate renewable energy sources into their energy portfolios to meet new legislative standards. The company believes its low-cost production will make up for its low efficiency, making it attractive to utilities who want to build large-scale solar installations in regions without year-round sunny weather. [edit] $/WattA common metric among solar PV manufacturers $/Watt; the cost of generating 1 Watt of solar energy capacity. Thin-film PV will continue to demonstrate considerable pricing disparity versus traditional silicon PV. Thus, predictions positions First Solar very favorably moving into the future. First Solar - Manufacturing costs per Watt: $1.12[18] In the first quarter of 2008, First Solar produced its cells at an average cost per watt of $1.14 ($0.02 of which were incurred because of stock-based compensation and $0.03 of which were incurred because of dollar-euro exchange rates), and sold them at an average price per watt of $2.45. [edit] Future ThreatsThere are considerable threats moving into the future. Due to the low cost of producing thin film PV modules, some solar companies are now considering moving into this product area that characteristically requires no/less poly-silicon. As a result, market consolidation or JV's within the industry will step up First Solar's competition. PrimeStar Solar, a private company is using a recent infusion of capital from General Electric to quickly begin production of their own CdTe modules. They do not disclose the timing of production "for competitive reasons," but their hiring and equipment orders speak of an aggressive schedule; production expected to begin this year. [edit] Other Industry CompetitorsOther competitors, with 2005 market share[19], include:
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