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First Solar's U.S. Ambitions Slowed

First Solar has big plans for the development of large-scale solar markets in the U.S., but some recent terminations of government applications call all that into question.

TEMPE, Ariz. (


) -- When

First Solar

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earlier this year, the $400 million deal was supposed to push the company into a preeminent position in the nascent U.S. large-scale solar-project business.

But several developments on Tuesday placed those plans in doubt and may have left investors with questions about First Solar's prospects for growth.

On Tuesday, a local Colorado newspaper, the

Pueblo Chieftain

, reported that First Solar had dropped out of a 150-megawatt project in Colorado's San Luis Valley. At the same time, an inquiry by an analyst at Wedbush Securities determined that First Solar has retreated from four additional planned large-scale solar projects in the U.S.

The Wedbush analyst, Christine Hersey, discovered that four of the company's project applications in the Barstow District of California were cancelled by the Bureau of Land Management.

Hersey said the Bureau of Land Management canceled the applications because First Solar hadn't responded in a timely fashion to requests for additional information after the company paid an upfront fee to begin the application process. Two of the projects -- the Amber 500 MW project and the Jasper 500 MW project -- have already passed a 30-day appeal phase. The other two -- the Ruby project of 1,000 MW and the Onyx project of 585 MW -- are still in the appeals period.

It could be that First Solar decided these projects don't make sense strategically or fiscally, or that the company doesn't have a big enough development team on its staff to handle all the projects on its plate.

The company didn't immediately respond to a request for comment.

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However, Wedbush's Hersey is cautioning investors about the cancelled contracts, since that shelved project pipeline comprises about 2.6 gigawatts of the seven acquired from OptiSolar. At the time, First Solar trumpeted the additional wattage as a key part of the deal.

"It's curious to me that First Solar would let 2.6 gigawatts lapse," Hersey said. She added that the cancelations don't change her financial models for the company, since projects typically aren't included in such models until power-purchase agreements are signed and electricity is actually sold.

Hersey maintains a neutral rating on First Solar shares, but she says the cancellations should raise a red flag for investors.

Even beyond First Solar, the cancellation of five big alternative-energy projects calls into question the expected rise of the large-scale solar market in the U.S., Hersey said.

"To me, it underscores the overarching theme that analysts and investors cannot expect the U.S. utility market to be a big market

for solar companies in the next few years," she went on. "These projects are hard to develop and are loaded with permitting and transmission issues."

So far, the only OptiSolar project with which First Solar has reached a power-purchase agreement has been the 550-MW Topaz project -- a deal not subject to oversight by the Bureau of Land Management.

What's more, the sidelining of the utility-project build-out in the U.S. comes ahead of Germany's expected cut in subsidies (or "feed-in tariffs") for the solar industry there. Many analysts believe the tariff reductions will hurt Germany's ground-based solar business the most, a space where First Solar is a huge player.

"If people had been thinking that Germany may flatten or decline, but don't worry, the U.S. and China will pick up the slack, it doesn't look like the U.S. is going to do its part any time soon," Hersey said.

The other major tariff markets -- Ontario, Italy and France, for example -- don't have enough wattage combined to equal Germany or even the First Solar projects cancelled by the Bureau of Land Management.

Even if First Solar has made a short-term strategic decision to pull back from the U.S. large-scale market, Hersey said, one problem will nevertheless remain. Now that its applications have been cancelled, First Solar would have to queue up at the back of the government's application-processing line if any other entities place new bids on the projects.

First Solar shares ended Tuesday's session at $135.50, down $1.49, or 1.1%.

--Reported by Eric Rosenbaum in New York.


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