First Solar Wasn’t Always An Industry Darling

03 June of 2009 by

first solar First Solar Wasnt Always An Industry Darling

For those who have jumped into the solar market only in the last few years, First Solar (NDSQ: FSLR) symbolizes an incredible success. It’s the company to be. The one to beat.

For those who have longer memories, First Solar hasn’t alwaysreigned supreme. Once in a while, some of them serve up tales thatoffer a sobering reminder that building a good solar company could takea lot of time – perhaps longer than what venture capitalists havepatience for – and some talent and luck.

"[First Solar CEO] Michael Ahearn was begging for contracts withNREL because it was on the verge of shutting down," recalled ThomasSurek, who worked at the National Renewable Energy Laboratory (NREL)for 29 years and was the PV program manager before he left in 2007 tofound a consulting practice in Denver, Colo.

"When the silicon shortage hit, they had the technology ready toscale up, and they became a success story almost in unprecedentedproportion in the last four to five years," said Surek, speaking at thePhotovoltaic Summit 2009 in San Francisco Monday.

The Tempe, Ariz.-based First Solar went public in November 2006 at$20 per share and saw its stock shot up more than four times the amounteight months later. Even now, during a tough economy when other solarpanel makers are posting losses, First Solar raked in profits (see First Solar Triples 1Q Net Income, Looks for New CEO).

But the company, which in fact traced its roots to another company that started in the 1980s, struggled in its early years to figure out how to make solar panels in volumes and attract buyers.

Its predecessor started developing its manufacturing technology in1987, according to First Solar’s filings with the U.S. Securities andExchanges Commission. Its founder Harold McMaster worked on usingamorphous silicon as the key ingredient in making the solar panelsbefore switching to cadmium and tellurium. A solar startup that makessuch a switch today could easily face tough questions about its chancesfor survival.

McMaster sold his company to True North Partners in 1999, and TrueNorth re-named the company First Solar. The company didn’t set up apilot line until 2002 and began production at its first commercialfactory in 2004, First Solar said in its SEC filings.

Between January 2002 and the end of 2005, the company sold 28megawatts of solar panels. It reported $48.1 million in sales for 2005and never posted a net income prior to its initial public offering.

Along the way, it was lucky to have a generous supporter, John Walton, whose dad founded Walmart. Walton reportedly investedmore than $150 million in First Solar. That’s not the amount of moneythat a single VC might fork over to a solar startup these days. 

McMaster was an expert at making glass plates, and First Solarfigured out a way to quickly produce solar panels coated with cadmiumand tellurium on glass. As Surek said, the company rose to prominencewhen other solar panel makers faced a shortage of polysilicon.Polysilicon remains the main ingredient in most of the solar panels onthe market today.

First Solar, meanwhile, seems to have copied the Walmart founder SamWalton’s strategy of offering low-cost goods to lure in shoppers. Thecompany claims to be able to produce solar panels at $0.93 per watt,cheaper than anyone else. Surek said First Solar is selling panels atunder $2 per watt while crystalline silicon panel makers are offeringtheirs at around $2.25 to $2.50 per watt.

First Solar’s success has made it the company to watch. And investigate. The U.S. Department of Interior is investigatinga citizen’s claim that First Solar might have in appropriately claimedto have bought "strategic land rights of approximately 136,000 acres"in its press release when it bought various unfinished projects from OptiSolar, a startup company in Hayward, Calif., earlier this year (see First Solar Buys OptiSolar’s Power Projects).

OptiSolar had applied to develop power projects on land managed bythe federal Bureau of Management before it sold its project pipeline toFirst Solar for $400 million earlier this year. A BLM official told LosAngeles Times that no values should be attached to those applicationssince the BLM could reject the proposed projects. The concern is thatcompanies would apply for permits and then turn around and essentiallysell those permits or their places in line. But it’s unclear what,specifically, is the regulatory/legal dispute.

The Los Angeles Times story said the 136,000 acres are on public land in San Bernadino, Kern and Riverside counties in California. A story in the Wall Street Journal said the acres are in California and other southwestern states.

When I checked with First Solar last month, its spokesman told me that the company wouldn’t disclose where those acres are.

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