First Solar’s Solar Farm Deal Hits Regulatory Hurdle

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FSLR: First Solar logo
FSLR
First Solar

First Solar (NYSE:FSLR) saw its stock ease by almost 10% after it announced last week that it may be forced to buy back a 230 MW solar power plant that it sold to Exelon Corp for $1.36 billion. The deal was backed by Department of Energy loans but the project has not received any payments from the government because of issues in obtaining a local construction permit. First Solar is focusing on systems development in the U.S. in efforts to reduce the impact of price competition in the modules sales market. The company is facing increasing competition from Chinese manufacturers like Suntech Power (NYSE:STP) and Trina Solar (NYSE:TSL).

We have a $52 price estimate for First Solar, which is at a 20% premium to the current market price.

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Impact on First Solar

First Solar is focused on its systems installations business in the U.S. and has entered into multiple, large solar farm developments. It has also succeeded in winning Department of Energy loan guarantees on some of its projects, which has made them attractive purchases for utility companies. The Antelope valley project was purchased by Exelon for $1.36 billion of which the company has already paid First Solar $75 million. The company retains the right to walk away from the project if the loan payments from the DoE do not begin by February 23rd. Although Exelon has reiterated its support for the Antelope project, First Solar could see its cash flows being hit by $75 million if the buyer chooses to walk away. Analysts estimate that the company would be further burdened with having to raise resources to continue to work on the project by itself while looking for another buyer. The project’s value could fall by almost $130 million if it fails to secure the DoE loan guarantee.

The Department of Energy has said that it continues to support the Antelope project but must wait for all necessary permits to be processed before it can begin loan payments to protect taxpayer dollars. First Solar has faced issues in getting a construction permit for the proposed project but is continuing to pursue construction and is maintaining 185 workers on the site.

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