Solar Power
First Solar Continues to Offer Finance for Solar Power Projects

Alt Dot Energy
March 16, 2009

First Solar (FSLR) has already invested $25 million in the solar financier and
installer SolarCity. Now it is continuing to signal that it will offer financing
of it’s own for solar power projects.

The move to provide financing to its solar power customers has sparked a debate
within the industry on whether the possible reward of additional business
outweighs the lending risk.

Other strong companies like SunPower Corp. (SPWRA) and Applied Materials Inc.
(AMAT) are reluctant to follow First Solar’s lead.

SunPower Chief Financial Officer Dennis Arriola recently said “We’re not a
bank…We don’t have the balance sheet and the wherewithal to be putting a
substantial amount of equity into these deals.”

Normally financing arrangements are in the form of low-interest loans, but First
Solar’s method is different in that the company protects itself by taking equity
in the project until the funding is repaid.

There are not many details about the scale of the current financing, however
during its earnings report last week First Solar Chief Financial Officer Jens
Meyerhoff said the company planned to co-finance a solar power project that
effectively makes it an owner and operator. Instead of selling its thin-film
panels and booking the sale this year, the revenues will accrue over the next 20 years.

The deal has advantages. For one, it keeps First Solar’s project pipeline moving
forward. Additionally, First Solar gains a steady revenue stream and a beachhead
in what could become an important business opportunity as the solar market expands.

But taking on an equity stake likely means taking on risks, including the
operations of the project, the continuation of government subsidies,
infrastructure and other risks than simply selling panels avoids.

Meanwhile, First Solar’s strongest competitors aren’t preparing any similar
strategies. SunPower said it doesn’t plan to finance projects and Mark Pinto,
head of Applied Materials’ solar business, said this week that the company had
no plans to extend financing but is looking at other initiatives to foster demand.

To be sure, First Solar looks better positioned than its rivals. It has a war
chest of more than $716 million in cash and about $163 million in long-term
debt. Comparatively, SunPower has roughly $220 million in cash along with
long-term and convertible debt. Applied Materials, which sells tools to panel
makers and doesn’t make panels itself, posted a loss last quarter as its
semiconductor equipment business has suffered from an industry slowdown.
First Solar’s shares have fallen 49% over the past year; although at $125, they
remain well above its $20 initial public offering in November 2006. And its
market capitalization of $8.9 billion is $2 billion more than the combined
market value of Citigroup Inc. (C) and General Motors Corp. (GM)
First Solar’s decision likely stems in part from the difficult financing
environment the solar industry has encountered because of the global tightening
of lending. Many smaller solar panel makers are having trouble finding funding
to operate their businesses; meanwhile, investors who finance the power projects
have become more sheepish as well.

Product manufacturers in other renewable energy areas have looked at financing
before, said Mark McLanahan, an executive at MMA Renewable Ventures, which finds
financing for solar projects. In the early 2000s, some wind power companies made
similar moves, but they mostly returned to focusing on their technologies.

“You’ll see some fishing around,” McLanahan said. But after a while, “you’ll
start to see people getting back to business, in their core businesses.”
“They’re totally different businesses. The first risk is that you don’t
recognize that,” he added.

First Solar’s Meyerhoff said the company will “explore further activities” in
financing based on the results of this project.

Meanwhile, analysts expect further consolidation in the industry, as highlighted
this week in First Solar’s purchase of the entire solar portfolio of struggling
OptiSolar for $400 million in stock.

First Solar’s stock dropped 22% following its fourth-quarter earnings report,
gloomy outlook and announcement of the financing endeavor, but many analysts,
while noting the risks involved in the new venture, remained bullish on the company.

“If you are producing product, you need somewhere to put panels, ultimately,”
Wedbush Morgan analyst Al Kaschalk said. “If you can provide that financing to
incubate or jumpstart that activity, why don’t you do it?”

Sempra Generation, a subsidiary of Sempra Energy (SRE), is a few weeks away from
signing a contract with First Solar Inc. (FSLR) to have the panel maker install
a 50-megawatt solar project, Michael Allman, Sempra’s president and chief executive said.

The project will be “the cheapest solar project in the country,” according to
Allman. It would also be one of the largest. So far the largest solar
photovoltaic, or PV, installation is a 14-MW SunPower

Corp. project at the Nellis Air Force base in Nevada. Florida Power & Light
broke ground in March on a 25-MW photovoltaics project in Florida.
Allman said he wants to apply for federal loan guarantees to help finance the
project. However, he’s worried about the prevailing wages provisions of the loan
program, which require any project funded by

the federal government to pay workers union-scale wages. Allman said that
typically solar installers earn about $16 an hour, but some of the cheapest
wages on the federal register were around $40 an hour. He also said that to
qualify for the loan guarantees the company would have to complete a national
environmental study, on top of the state compliance, which adds to the cost and
time of installing the project. Allman said he needs to clarify these issues
before applying.

Tempe, Ariz.-based First Solar already installed a 10-MW PV project for Sempra
near Boulder City, Nev., in December. Since then the panel company bought the
project-development business of privately held OptiSolar Inc. Allman said that
he’d like to discuss this with First Solar management as it appears that First
Solar is increasingly “doing what we want to do,” he said.


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