First Solar Key Project Can't Cash DOE Check
NEW YORK (
) --
First Solar
(FSLR) - Get Report
is heavily reliant on its large-scale solar projects for earnings, so a new delay in funding from the Department of Energy is worrisome for the company.
On Thursday afternoon, First Solar filed a statement with the
Securities and Exchange Commission
indicating that initial funding of the DOE loan for its Antelope Valley Solar Ranch One project has not yet occurred, pending resolution of an outstanding construction permit issue.
The 230 megawatt project is scheduled to receive $646 million in a DOE loan package.
As the freefall in prices in the solar panel market has made First Solar's stand-alone module sales business a zero profit game, its earnings power comes from sales within its project business and the solar modules going into the huge solar farms in the Western U.S. like Topaz and Antelope Valley Solar Ranch One.
First Solar has already sold the project to
Exelon
(EXC) - Get Report
, however, if the DOE loan doesn't come through within the first four months of the project, First Solar will have to repurchase the project from Exelon. In its filing on Thursday, First Solar said the deadline for initial DOE loan funding has been extended to Feb. 24.
Utility companies have been buying large-scale solar projects on the basis of cheap debt financing from the government. When projects have to be sold without a DOE loan, the expectation is less profit. Less profit on what is already a smaller earnings stream for First Solar is the last thing the solar company needs -- it already reduced its earnings guidance for 2012 to $3.75 per share, half the level previously expected.
First Solar failed to secure a DOE loan for Topaz at the end of 2011, as the political climate surrounding the DOE loan program intensified -- and ended up selling the project to the utility arm of Warren Buffett's
Berkshire Hathaway
undefined
, MidAmerican Energy. The ability to sell to a buyer like Buffett who can secure a cheaper cost of capital than many corporate debt issuers was a minor coup.
The Topaz project has not been wrinkle-free either, beyond the DOE loan issue and since Buffett's utility company acquired the project. Approximately 50 workers on the Topaz project were temporarily furloughed in mid-January during an "installation pause and engineering review," a First Solar spokesman recently told a San Luis Obispo County newspaper, the
New Times
.
First Solar said in the Thursday SEC filing that if the DOE loan isn't provided it will repurchase the Antelope project for approximately $75 million -- what Exelon paid for it -- and then try to resell it. The solar company said it has the cash to cover the repurchase. However, since First Solar earnings are predicated on recognizing revenue from this project as it is constructed, and the company's cash flow has come down, the latest hiccup is not a welcome development.
It also comes amid a tense political climate related to the DOE loan program. This week, the DOE pulled funding for an electric car plant to be built by Fisker in Delaware, the home state of Vice President Joe Biden. The Republican party continues to use the bankruptcy of solar company Solyndra as a battering ram against the Obama administration policy of using government funds to bankroll clean energy companies.
The Fisker news this week led Wunderlich Securities analyst Theodore O'Neill to describe it as "how to create two Solyndras for the price of one." The analyst wrote, "By our estimates, if the Republicans want to create another Solyndra-style bankruptcy or two, all they have to do is permanently delay any further funding of Fisker."
First Solar shares have rallied by 45% this year as the entire solar sector has bounced after a dismal showing in 2011.
The First Solar project funding situation isn't in the same category of direness that one could ascribe to the Fisker situation. It is an energy generation project, as opposed to a manufacturing plant, and that means it is relatively low risk. First Solar's Topaz project was recently rated BBB- by Fitch. These large-scale solar projects have run into all kinds of snafus previously, too. The bottom line, though, is that any loan issues within the larger political headwinds introduces uncertainty to a First Solar earnings model that is reliant on these large-scale projects going off without hitches.
--Written by Eric Rosenbaum from New York.
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