Americas: Energy: Alternative Energy: Takeaways from First Solar's analyst day - Goldman Sachs - 12/11/07
First Solar's analyst day was December 3rd in Perrysburg, Ohio While there was no materially new "news" in our view, we highlight 3 key takeaways below. We continue to rate First Solar shares a Buy.
(1) First Solar could be the first to reach grid parity (2010-2012)
Management reiterated their goal of getting to grid parity by 2010-2012 by driving towards a $0.70/watt manufacturing cost. If they achieve this goal, First Solar may well be the first solar company in the world to reach grid parity. The back-of-the-envelope calculations assume grid parity is achieved at retail rates of $0.08-0.10/kwh and that, to get there, installed costs needs to be in the range of $2.00-$2.50/watt. Assuming a 50/50 split of balance-of-system costs to module costs means that the module needs to cost about $1.00-1.25/watt to the end user. If First Solar can manufacture at $0.70/watt, they can sell modules into this market price.
(2) Utility-scale solar in the US may be a battle on the horizon
First Solar discussed their interest in entering the US market (they acquired Turner Renewable Energy on 11/30/07), but only if they can see a big enough TAM (total addressable market) to make it worthwhile. And, thus far, they see the most potential for a large TAM if they can help build out utility-scale PV to assist utilities in meeting RPS standards. Given that high efficiency crystalline PV, low cost thin-film PV, and solar thermal technology providers have all made comments about utility-scale installations, this could be an interesting battle on the horizon. Ultimately, the winner will be the low cost provider and that winner is still to be determined in our view.
(3) Management's RONA focus is right on point in our view
While the exact financial metric is not altogether critical in our view (RONA vs. ROIC vs. ROCE vs. CROCI), management's focus on earning a return on their capital employed helps give confidence that they are focused on the right financial goals. The typical risk with a RONA focus is one of under-investment (thereby reducing your capital base and potentially earning a higher return in the short-run at the expense of the long-run). However, First Solar's expansion plans are aggressive but, importantly, their capex/watt is also industry leading. Strong growth plans supported by low capital usage is exactly the type of growth that we like to see. |
