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Analyst: First Solar Has 'Competitive Advantage'

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Q&A With Clean Energy Analyst Brian Yerger

I got a chance to sit down with Brian Yerger, who is a partner at ARDA Advisors. ARDA provides research and M&A services in the alternative energy field. In the last few years, working as a sell-side analyst before launching ARDA, Yerger saw a massive spike in interest in this group, but more recently saw them shunned as investors fled the more speculative end of the equity markets. With shares no longer falling, and some names even springing back to life, it's time to hear Yerger's latest impressions and outlook for the industry.

We have certainly have had a wild time with clean energy stocks rising sharply last summer and cooling off in the winter. Any sense of how the next three to six months will play out for the group? What positives and negatives might we see?

Brian Yerger: The short-term direction is unclear. The group is still controlled by fast-money players to a large extent and that produces a lot of volatility and sharp price movements. I would say the group in general could provide excellent trading opportunities near term on both the short and long side.

The positives for the group are more headline in nature.... Government program announcements and clarifications on the stimuli, some large megawatt plant announcements and, best of all, the estimates have moved down enough to create some stabilization at these levels. But in general, the continuing credit crisis and lack of capital for some of the larger projects will remain a headwind at least until summer.

Looking at the solar sector, pricing seems to be in freefall as demand slackened and capacity was built out. Do you have a sense of how and when pricing will stabilize?

BY: That is the million-dollar question for solar manufacturers: Where will pricing bottom out? We believe pricing per watt will continue to erode this year as competition heats up for all technologies and economic headwinds keep forcing the large players to adjust pricing, which forces smaller players into M&A activity or simply out of the business. A reduction of the velocity of pricing decline should happen soon as inventory is adjusting, but pricing will continue to decline as solar power moves toward grid parity on a kilowatt hour (kWh) basis.

One thing to keep in mind is that this pricing erosion and increased competition is good news for the general public and great news for the longer-term demand picture. Solar power is still a bit too expensive in most parts of the country but with rapid price declines for panels, the total installed cost will inch toward the magic "grid parity" number in local markets. As parity is reached for that particular region, demand skyrockets as the financial and economic incentives for residential, commercial and even utility applications make too much sense.

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