First Solar builds PV project pipeline; reports strong 2Q’12 sales

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Major restructuring efforts at First Solar took a backseat during the company’s second quarter conference call as management focused on a significant increase in its PV project pipeline. First Solar said it had added almost 1GW of new projects to a pipeline that previously stood at 2.9GW. Net sales were US$957 million, up from US$497 million last quarter while revenue guidance was raised for 2012 to US$3.6-US$3.9 billion, up from a range of US$3.5 billion to US$3.8 billion.

Merchant module sales guidance was raised to between 500MW and 600MW, up from a range between 300MW and 500MW. To meet demand, management said that module production would be raised to between 1.8GW and 1.9GW, up from previous guidance of between 1.4GW and 1.7GW.

First Solar also reported an operating income of US$140 million compared to an operating loss of US$456 million in the first quarter of 2012. The second quarter net income was US$111 million.

Project pipeline

Leaving the results to one side, First Solar management placed key emphasis on the company’s new strategy for delivering sustainable growth in new and emerging markets and building PV power plants using its CdTe thin-film modules.

James Hughes, Chief Executive and Chief Commercial Officer at First Solar, highlighted new project wins in Australia and India as well as projects in the company's main market, the US. Improved module demand from third-party customers came from both Europe and India.

Hughes noted that the company had been successful in the first two major competitive bids for utility-scale projects in Australia, highlighting that the utility-scale market there was just starting to take off and that First Solar could be on track to take a 30% market share as a result.

As part of its operations in Australia First Solar will be designing, constructing and maintaining two power plants for AGL Energy with a combined 159MW (AC). The company is also building a smaller 10MW plant in Geraldton, Western Australia for Verve Energy and GE Energy Financial Services.

“This is a significant step forward for the utility-scale solar industry in Australia and testimony to the confidence new utility customers have in the performance of our technology in some of the hottest and harshest conditions in the world,” commented Hughes. “These projects demonstrate First Solar’s ability to apply its vertically integrated capabilities to deliver competitive, comprehensive, utility-scale, solar solutions internationally in future, sustainable markets. Furthermore, we are currently in negotiations for, or actively bidding on, other multi-megawatt projects in Australia.”

First Solar management also noted that it was in the process negotiating on a number of PV power plant projects in India, primarily in relation to third-party module sales. Hughes said that he expected the company to win around 20% of the Indian market in 2012 and retain that share going forward.

“We are also gaining traction in our other target markets such as the Middle East, where independent studies confirm First Solar’s superior performance in the hot climate conditions of our target markets relative to crystalline silicon and another solar technologies,” added Hughes.

New projects in First Solar’s core US market included a 139MW (AC) Campo Verde Solar Project, which First Solar will construct in Imperial County, California. Management noted that the project was jointly owned by First Solar and a third party, but that First Solar was in the final stages of acquiring the project outright before construction begins in the third quarter of this year. San Diego Gas & Electric Company is expected to purchase this project’s output under a 20-year power purchase agreement (PPA).

Hughes continued to explain that First Solar had more than 10 bidders wanting to purchase the Campo Verde project as investor interest in its projects continues to increase.

Management also noted that it had signed a deal with enXco to deliver 61MW of modules to enXco’s Catalina Solar Project in Kern County, California, which starts construction in September, 2012.

First Solar said that the Antelope Valley Solar Ranch One power plant in L.A. County started installing modules in June. Another four large utility-scale projects which included Agua, AVSR, Topaz and Desert Sunlight, were all said to be progressing well.

As a result of renewed efforts to rebuild its project pipeline as major projects are completed, First Solar said that its current pipeline stood at 2.9GW, up nearly 1GW. Hughes explained that more than half of the new additions were considered secured, although some were still being closed. The other 500MW were said to be deals that have a 50%-or-better probability of being realized. This was said to include both systems and third-party module deals, which were being planned for next year and beyond.

Temperature coefficient

Aside from the warranty claims and previous notification that some of its modules were found to be underperforming in hot climates, First Solar management discussed what it claimed to be key advantages of its CdTe module technology in energy yield in many of the emerging markets it is targeting that are also with hot climate conditions.

“PV manufacturers tend to focus on the nameplate power ratings of modules, but investors look at total energy output,” noted Hughes. “All PV modules receive their nameplate power rating at standard test conditions, which is 25 degrees Celsius. But most of the time, modules in the field don't operate at standard conditions. In temperate climate conditions, module operating temperatures often reach 65 degrees C, which is 40 degrees C above the standard test conditions rating. In hot climates, module operating temperatures can reach 85 degrees C, which is 60 degrees C above standard test conditions. All PV semiconductors incur increasing resistive losses when module operating temperatures rise, but the losses in a First Solar module are about half of what you would see in a c-Si module.”

During the conference call Hughes claimed that in hot climates the energy output of a multi-crystalline silicon module could be reduced by up to 20%, while First Solar's module output would only be reduced a nominal 10%.

This was claimed to be a key advantage of First Solar’s module characteristics and where it was targeting emerging markets. Due to the energy yield difference in hot climates, Hughes claimed that this enabled a reduction in the balance of systems penalty First Solar has compared to conventional c-Si modules.

Continued progress and roadmap for improved module conversion efficiencies would also support First Solar’s system cost advantage. Hughes noted that its system cost target of between US$1.15 to US$1.20 per watt in 2016 remained a key target, which would drive significant demand for solar power without subsidies.

Production update 

With increased demand through the rest of the year, First Solar said it would raise production targets. However, plant utilization was only 63% in the second quarter, down from 85% in the first quarter. Total module output was 369MW in the recently completed quarter.

Management noted that in the second-half of the year, capacity utilization was expected to around the 90% mark, which supports improved cost-per-watt.

Module manufacturing cost-per-watt in the second quarter was US$0.72, up US$0.02 quarter-over-quarter. First Solar noted that its core cost per watt was US$0.53.

Management said that its best plant was manufacturing modules at a cost of US$0.63 per watt, with the assumption of full capacity utilization.

The average production line module conversion efficiency was 12.6% in the second quarter, with the best performing line was producing modules with 13.1% conversion efficiency, 0.1% up on the previous quarter.

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