Green Tech

First Solar exceeded expectations once again in its most recent quarter and told investors that revenue for 2008 would likely come in at $975 million to $1.05 billion, higher than the $900 million to $950 million range provided earlier.

The company--which specializes in cadmium telluride solar cells--reported revenue of $196.9 million for the first three months of the year, more than double the $66.9 million in revenue garnered in the first quarter of 2007. Net income went to $46.6 million, or 57 cents a share, well above the $5 million for the first quarter of 2007.

Production for the year will also climb to between 420 megawatts and 460 megawatts, higher than the earlier estimates of 400 to 430 megawatts. The increase in production is being facilitated by new factories going up around the world.

The company's stock this morning is trading at $294 a share. The company went public for $20 a share in November 2006. A year ago, we dubbed First Solar the Google of solar because of its rapid, yet steady growth. The term prompted self-described financial experts to whine and ring their hands. The stock was at $200 at the time. Instead, First Solar weathered the stock market downturn and is now 50 percent higher than it was then. Revenue and profits have continued to climb quarterly on year-to-year comparisons. Granted, it's trading at a high price-to-earnings ratio, but the price is what it is.

Cadmium telluride solar cells aren't as efficient as silicon ones, but they are cheaper. The company has been tinkering with the technology and manufacturing techniques for decades. Although it only went public in 2006, the company's founders began working on cadmium telluride solar cells in the mid-'80s. And, unlike CIGS, cadmium telluride solar cells are in the market.

Still, detractors assert that the company could be hurt by limited supplies of raw materials in the future. Additionally, other manufacturers are finally entering the market for cadmium telluride cells. Calyxo, a subsidiary of Germany's Q-Cells, is one of the more notable competitors.

First Solar, the fast-growing maker of a type of solar panel that's a big source of debate among those in the clean-tech world, surprised investors again by reporting revenues and earnings that far exceeded expectations, capping a year of unusually strong growth.

The Phoenix-based company, which uses a material whose cost effectiveness is up for debate, said revenues came to $200.8 million for the fourth quarter of 2007 while net income came to $62.9 million, or 77 cents per share. Analysts had expected revenue of $180 million and earnings per share of 53 cents. For the fourth quarter of 2006, the company reported revenue of $52.7 million and $8 million in net income.

As a result, analysts increased their annual estimates for the company. Morgan Stanley's Dave Edwards, for instance, now expects First Solar to report revenue of $981 million for the year and earnings per share of $2.88, up from revenue of $872 million and earnings per share of $2.30.

For the year, revenue came to $504 million, and net income came to $158.4 million. In 2006, revenue hit $135 million (or $23 million less than profit in 2007) while net income came to $4 million.

The company's stock is trading around $223. A year ago, shares of First Solar were hovering around $33. It went public in late 2006 at $20.

First Solar has both fans and detractors. It is arguably the first thin-film solar panel maker to hit it big. Although it was formally launched in 1999, its technology stretches back to the '80s.

The long gestation period has enabled it to fine-tune its manufacturing processes, a key in the solar world. Rather than work with silicon or copper indium gallium selenide (CIGS), it makes its solar panels from cadmium telluride.

Cadmium telluride solar cells aren't as efficient as silicon ones, but they are cheaper. And, unlike CIGS, cadmium telluride solar cells are in the market. First Solar's management has also landed long-term contracts with suppliers and laid out a road map that will lead to a fairly steady expansion of production capacity.

Detractors, though, assert that the company could be hurt by limited supplies of raw materials in the future and increased competition. Additionally, most of the company's sales have been in Germany, which provides sizable subsidies. The stock is also trading at a high multiple of earnings. (When we dubbed the company the Google of solar, armchair experts poo-poohed it.) But despite the predictions, the company has continued to outsell even the optimistic projections.

Morgan Stanley put a price target of $275 in 2012 on the stock, while pointing out bear and bull scenarios that could take it to $125 or $400, respectively.

The big questions for the future are whether the competitors can match First Solar in manufacturing and how well it can do in expanding overseas.

SunPower on Thursday reported a drop on fourth-quarter earnings, but a sharp increase in annual revenues driven by large solar projects.

Net income for the fourth quarter, which ended December 30, 2007, was $4.8 million, or 6 cents per share. That is a 56 percent decline compared to the same period in 2006.

Revenues for the quarter were $224.3 million, over 200 percent higher than the same period a year earlier.

The company said the jump in revenue was due to strong demand for solar electric equipment and the installation of a few large projects, including the Nellis Air Force Base in Las Vegas, Nev. SunPower blamed the profit decline on special charges.

For all of 2007, revenue was $775 million, more than triple the amount in 2006, company executives said.

The company forecast that revenue in 2008 will be $1.2 billion to $1.3 billion and that sales in 2009 will grow between 40 and 50 percent higher, faster than the overall industry.

Despite the positive outlook, SunPower apparently disappointed investors. Its stock dropped 7 percent after it announced results.

Solar sector stocks across the board have been hurt in the past several weeks as investors fear that companies' stocks are over-valued. SunPower's stock is down more than 40 percent since the beginning of the year.

During a conference call with analysts, SunPower CEO Tom Werner said the company is on track to reduce the cost of solar power 20 percent by 2012. It will do that by increasing the output of panels and solar cells and reducing the cost of installation.

He said the company forecasts that supply of silicon--a key constraint for solar cell manufacturers--will be "abundant" this year.

With more silicon available, there will be downward pressure on product price. To avoid losing revenue as this happens, SunPower is developing its "downstream channel" to sell more to installers, Werner explained.

Chief Financial Officer Emmanuel Hernandez said that despite signs of a recession in the U.S. economy, SunPower and the solar sector overall will not be significantly affected because of rising electricity prices and strong demand for alternative energy sources.

Correction: Spokespeople from SunPower and MMA Renewables said the size of the installation at Nellis Air Force base has been revised to 14.2 megawatts, not 15 megawatts as the Air Force and those companies originally said.

Nellis Air Force Base in Nevada, the land of lots of sun and plenty of land, will be home to a 70,000 solar-panel installation which, at 14 megawatts, will be the largest in North America.

The U.S. Air Force on Tuesday said Nellis and SunPower have finished the first phase of the project, which will save the base $1 million a year and roughly $83,000 a month, when fully commissioned.

Nellis Air Force Base solar panels

(Credit: U.S. Air Force photo/Airman 1st Class Nadine Y. Barclay)

The project, started in July of this year, will bring the final two-thirds of the panels online in the next two months.

The SunPower solar panels will be installed on 140 acres of Nellis Air Force base land and use trackers that move the mounted panels to follow the sun during the course of the day. The trackers improve output by 30 percent.

A different view of Nellis' SunPower panels

(Credit: U.S. Air Force photo/Senior Airman Larry E. Reid Jr.)

The 15-megawatt installation will be one of the biggest solar farms in the world. The Bavaria Solar Park in Germany is a 10-megawatt plant, and the Serpa Power Plant in Portugal is 11 megawatts.

But those solar parks act as power plants, whereas the Nellis installation will power only the base, which employs between 12,000 and 14,000 people, according to a representative. By comparison, Hewlett-Packard installed a relatively large corporate solar array in its San Diego facility last month that can generate 1 megawatt of electricity.

Under the contract, the base will pay a less expensive rate for electricity over the life of the panels, which typically have a 25-year warranty.

Update: The deal is financed by MMA Renewables, which includes equity investments from Citi and Allstate and debt provided by John Hancock Financial Services.

It is a purchase power agreement, or PPA, where Nellis will purchase electricity that the panels generate at fixed rates. The panels themselves are owned by the financiers.

In a release from April of this year, Nellis said that the installation will supply over 25 percent of the power used at the base.

First Solar, which makes cadmium-telluride solar cells, is having one of those years that corporate managers and investors dream about.

Revenues more than tripled in the third quarter to $159 million from a year ago while profits rose to $46 million, or about ten times what they were the year before. Plant expansion is occurring rapidly and the company's stock has gone from $20 to over $200 in a year. The stock price seems vastly inflated when you look at traditional price-earnings ratios, but it's not the first time people have bet big on a growth stock. It's the Google of solar on that score.

So the question is, how come they don't have any major competitors making cadmium-telluride solar cells? VCs have poured over $340 million into five start-ups that hope to make copper-indium-gallium-selenide (CIGS) solar cells in the last few years and CIGS solar cells aren't even on the market. Cadmium-telluride works and there are customers.

Researchers at Lawrence Berkeley and the National Renewable Energy Labs are working on cadmium-telluride cells. Germany's Q-Cells is building production of a line of cadmium-telluride cells through its Calyxo subsidiary, but it won't go online until next year. The first plant Calyxo plant will only have a 25 megawatt capacity. First Solar already has 210 megawatts worth of capacity and will more than double that figure with new factories in the next few years.

I asked some people and here's what they said:

1. Experience. First Solar was founded in 1999, but the history of the company goes back decades, according to Dan Myers of Crosslink Capital. Founder Harold McMaster made his first fortune in the late 1940s with Permaglass and later went onto Glasstech. McMaster was one of the world's experts on tempered glass.

In the 80s, McMaster got interested in solar technology and experimented with different ways to put photovoltaic materials on glass. He worked first with silicon and then cadmium-telluride with a company called Solar Cells. Solar Cells had a rough number of years financially but was finally reincarnated as First Solar in 1999.

2. Patient Investors. John Walton, of the Walton family fortune, was an early investor and stuck by the company through the very difficult early years. Interestingly, Myers noted that none of the big solar success stories have been emerged from the usual Silicon Valley path of being fostered along and funded by VCs, which usually want a return after five years or so. Instead, these companies have taken years to incubate.

3. The secret manufacturing sauce. The company has developed a process with its own machinery that can churn out high volumes of cells. What's more, the company can replicate those factories to rapidly expand capacity.

In a sense, the entire thin film solar industry is a competition around who can build a better machine. The CIGS solar cell companies will all have similar products. The difference between them lay in how they produce those cells: Miasole is sputtering the active materials onto substrates, while Nanosolar is printing them. Many companies are also making their own machinery. (A lot of the success of SunPower, which makes crystalline silicon solar cells, is also based around an efficient copy exactly methodology.)

With that in mind, it's probably a better analogy to say First Solar is trying to be the Intel of solar, rather than the Google.

4. Secrecy. The company doesn't let you see those fancy machines either, says Myers. He visited the company and was barred, like other visitors, from getting an up close look at the production line.

5. Poison. Cadmium can be toxic, which sort of scares some people away. The company has tinkered with its process to cut down on workplace toxins and has recycling programs with manufacturers.

No doubt, First Solar will get some competitors, but that is the situation today.