United States - First Solar Resonates Attractiveness of US Solar Market

12 Jul 2011 • by Natalie Aster

BMI View: Our expectation that US-based First Solar would prove an outperformer in the US and European solar sector has been validated by news that the company has been awarded conditional loan guarantees worth US$4.5bn. This will ensure that the company has a strong pipeline of projects in development - particularly projects that will use its photovoltaic (PV) panels, a crucial aspect of its strategy.

The US Department of Energy (DoE) will guarantee loans issued to the company for three major solar projects in California, which combined will add 1,330MW of solar capacity to the grid. The first facility that will enter construction in July 2011 will be the 230MW, US$680mn Antelope Valley Solar project. The other two are the 550MW Desert Sunlight project, which received a guarantee of US$1.88bn, and the 550MW Topaz Solar plant which received the largest guarantee of US$1.93bn.

This is a major coup for the company, as it secures a strong pipeline of projects to 2014/15 and takes advantage of the loan guarantees before the government's guarantee programme expires at the end of September 2011. According to Reuters, First Solar has a pipeline of projects that will have a production capacity of 2.8GW by the end of 2012.

As noted in our previous analysis of the global solar market and its various players, First Solar derives a strong advantage from its position in the US market (see BMI's Industry Trend Analysis - Chinese Banks Back Chinese Solar Expansion In Europe, 22 June 2011). A Reduction in subsidies in Europe prompted a sharp fall in new projects and, consequently, demand for solar manufactured products. Reuters cites industry data that show solar panel prices down by 10% in 2011.

First Solar's share price reflects market sentiment. The share price increased 7% on news that the company received the multi-billion dollar loan guarantee that will secure the a profitable future over the medium term. The stock has tested key support three times since early March, but has bounced back, and in mid-June broke through resistance that has been tested three times since May 2011. It has continued to advance and we see scope (if it manages to gain final project approvals for the Desert Sunlight and Topaz projects, and allocate funds by September 2011 when the DoE loan guarantee programme expires) to approach long-term resistance. However, the stock's broader downward trend (in place since February 2011) signals wider bearish sentiment in the solar space; particularly with regard to the glut in the manufacturing market and a fall in prices, as well as the economic viability of projects that still require heavy state subsidies to be cost competitive.

The aims of the US DoE's various different solar initiatives (including the Solar Energy Technologies Program, or the SunShot Initiative) are to support the industry until the total installed cost for utility-scale solar electricity approaches US$6c/KWh, a level that would make it competitive with other fuels/technologies and promote wide-scale adoption. The loan guarantees, which effectively remove risk from financing operations for projects, have been the most popular aspect of the clean energy initiatives. Since 2009, the DoE has approved US$38bn in loan guarantees. If the programme is allowed to expire in September 2011, as is planned, it will certainly mean that activity in the US solar market will cool. However, we anticipate that the DoE will most likely renew the programme (albeit the budget gridlock in Congress may mean it is of smaller scale), as it has been heralded as a great success and was one of the Obama administration's major energy policy goals.

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