First Solar sells O&M arm, explores future of EPC business as tax equity headwinds loom

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Demand for First Solar's Series Six module continues to be strong, the company said. Image: First Solar.

‘Solar Module Super League’ member First Solar has aimed to double down on manufacturing with the sale of its O&M division, having kickstarted discussions around the future of its EPC business.

But First Solar also warned that current uncertainty around project tax equity and other legislative procedures in the US had created headwinds which were impacting its ability to book “certain opportunities in late-stage negotiations” with regards module sales.  

The discussion came on the back of its Q2 2020 results disclosure, a period in which First Solar recorded net sales of US$642 million. This was a marked increase of US$110 million on the prior quarter, driven predominantly the company said by the sale of its American Kings project.

It maintained its 2020 module production guidance – forecasting for 5.9GWdc in total, made up of 5.7GWdc of its Series 6 modules and 200MW of Series 4 – while confirming capital expenditure to fall in the broad range of US$450 – 550 million.

Having previously noted that it was up for consideration, First Solar confirmed that it had formally started the process of exploring possible options for its EPC business. The company said the onset of the pandemic had affected the timing of its decision making in this regard, but this has since changed, and the company formally started collaborating with its financial advisers in June to determine the best course of action.

Partnerships, sales and other transactions are being considered, however First Solar is remaining tight lipped on further developments.

In selling or exploring options for both EPC and O&M activities, First Solar is doubling down on its manufacturing output.

Speaking to analysts after the results disclosure, chief executive Mark Widmar said the decision to sell off its O&M business had been taken after witnessing the division’s margins contract, while assessing the need for continually increasing scale and service offerings in order to compete in what is a richly competitive market.

“To justify incremental capital investment in O&M, the financial returns would need to exceed those available from further investment in our module business,” Widmar said. An offer, which Widmar described as “compelling”, came in for the business from NovaSource earlier this year, prompting the sale and its completion this week.

A statement issued by First Solar confirmed the sale of its O&M activities in North America to NovaSource Power, owned by parent company Clairvest Group, a private equity firm based in Canada.

It will add to the buy-out of SunPower’s O&M division which Clairvest helped acquire in May before rebranding it as NovaSource. Upon completion, around 220 O&M associates will transfer to NovaSource, alongside its portfolio of assets under contract.

The transaction is expected to complete in Q4 2020.

Manufacturing and shipments

First Solar also updated analyst on its manufacturing output and performance in Q2, confirming that it had seen no material impact from COVID-19 on its core activities. Factories in Vietnam and Malaysia are progressing towards their respective capacity utilisation peaks while its Ohio one and two factories did experience 2.5 days of idle production in June, caused by railway logistics constraints rather than any affects of the pandemic.

Widmar also confirmed that while development of its Series Six factory in Malaysia remains on track to start production in Q1 2021, travel restrictions related to COVID, especially those implicating third-party equipment installers, could cause delays in the second half of this year.

Since its prior earnings call in May, First Solar confirmed that it had secured 800MW in net new module bookings, around half of which are for delivery in 2022. It remains effectively sold out for this year amidst strong Series Six demand, with around 900MW of opportunities in late-stage negotiations.

However, Widmar warned that continued uncertainty around the future of tax equity for projects in the US, combined with other unknowns around the Investment Tax Credit scheme, have created headwinds that have impacted its ability to book. “We believe the current uncertain tax equity environment has contributed to the delays in finalising these negotiations and accordingly has delayed our ability to book these volumes,” Widmar said.

Shipments in Q2 amounted to 1.2GW, around 300MW short of expectations. These delays were due to congestion in ports as well as labour constraints and financing delays, the company said.

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