When First Solar, Inc. (NASDAQ:FSLR) announced the acquisition of TetraSun yesterday it really announced a fundamental shift in the company’s strategy. It isn’t giving up on thin film, not yet, but it is laying the groundwork for a future without its familiar CdTe panels. TetraSun is an investment in crystalline silicon solar cells that First Solar, Inc. (NASDAQ:FSLR) has been fighting against for over a decade. Silicon has won the battle, and now even First Solar, Inc. (NASDAQ:FSLR) will join the crowd.
The claims of TetraSun
First Solar, Inc. (NASDAQ:FSLR) says it is buying technology that will allow it to make panels that are more efficient and cheaper than competitors. So, is that claim really true? There are a lot of unknowns.
The press release from First Solar, Inc. (NASDAQ:FSLR) claims that TetraSun can make 21% efficient cells at costs similar to those of conventional multicrystalline silicon solar cells. If we use Trina Solar Limited (ADR) (NYSE:TSL) as the proxy, that means manufacturing costs of about $0.64 per watt.
The challenge is that TetraSun’s cost structure and manufacturing process are only hypothetical; at least on the scale First Solar, Inc. (NASDAQ:FSLR) needs to operate on. There’s no evidence that any significant manufacturing exists and First Solar is entering uncharted territory. It has no expertise with silicon and there have been plenty of new solar technologies that never lived up expectations. Evergreen Solar, Inc. was supposed to have a better process for making silicon cells, amorphous silicon had high hopes, so did CIGS, and who can forget Solyndra, Inc..
But let’s assume that First Solar has a winner on its hands and TetraSun can produce 21% efficient cells at $0.60-$0.65 per watt. So what?
Another record in solar
We’ve been hearing about solar efficiency records for years. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) said that its Panda cells reached 19.89% efficiency way back in 2011. Trina Solar Limited (ADR) (NYSE:TSL)’s Honey technology can reach 19.6% efficiency. Then there’s the efficiency leader, SunPower Corporation (NASDAQ:SPWR), whose Maxeon cells can be 24% efficient, creating a 21.5% efficient production module.
The first thing to keep in mind with First Solar’s claims is that cell efficiency and module efficiency are two different things, so let’s not jump to First Solar creating a 21% efficient module just yet. Even if TetraSun’s claims are true, a module would only be 18%-19% efficient, which isn’t off the charts against today’s competition.
| Top Cell Efficiency | Top Module Efficiency | |
|---|---|---|
| SunPower X-Series | 24.0% | 21.5% |
| First Solar TetraSun | 21.0% | ~18.0%-19.0% |
| Trina Solar Honey | 19.6% | 17.4% |
| Yingli Green Energy PANDA | 19.9% | 16.5% |
| Trina Solar Multicrystalline | n/a | 16.0% |
| Yingli Multicrystalline | n/a | 16.2% |
| First Solar CdTe Panel | 18.7% | 12.9% |
Source: Company press releases and product datasheets.
The top cell and module efficiencies I’ve highlighted above also don’t account for a majority of sales at solar manufacturers. The multicrystalline lines from Trina and Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) would be closer to an average efficiency of around 15% for most Chinese modules.
What First Solar has done is flip its position in the industry. Instead of playing a constant game of catch-up with Chinese competitors it may now have a slight lead. Let’s keep in mind that the production modules I’ve highlighted above are in production and they’ll likely improve before we ever see a crystalline module from First Solar. So the lead First Solar appears to have above may shrink before production begins.
The untapped market for First Solar
What may be most important for First Solar isn’t passing industry leaders in efficiency, but building a presence in commercial and residential solar. First Solar is relying almost entirely on its systems business for revenue and the drop in backlog last quarter was a warning shot for investors. Giant utility-scale projects are harder to come by these days and utility demand will be choppy, making for a risky market to rely on. Residential and commercial solar have grown steadily as costs have fallen, and this will give First Solar a foothold in both of those markets.
Changing the investment proposition
For investors, what First Solar did yesterday was give hope that it has a plan for its module business beyond CdTe panels. Investors haven’t been giving much value to these thin-film panels because they don’t have a lot of value in a world that demands high efficiency.
First Solar has a lot of work to do in building out plans for manufacturing and supply to exploit TetraSun’s technology, but it has the capability to do it. This could be a game changer for First Solar, turning its weak strategic position in residential and commercial solar upside down.
The article Did First Solar Just Upend the Solar Industry? originally appeared on Fool.com.
Motley Fool contributor Travis Hoium manages an account that owns shares of SunPower. Travis Hoium personally owns shares of SunPower and has the following options: Long Jan 2015 $7 Calls on SunPower, Long Jan 2015 $5 Calls on SunPower, and Long Jan 2015 $15 Calls on SunPower. The Motley Fool has no position in any of the stocks mentioned.
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