First Solar Slow Boat to China Putters On

NEW YORK ( TheStreet) -- First Solar ( FSLR) is finally moving forward with the massive 2 gigawatt Ordos project in Mongolia, but it's a baby step, and some skeptics might think First Solar is giving more than it gets.

First Solar announced on Tuesday morning that it had signed a memorandum of understanding with China Guangdong Nuclear Solar Energy Development Co. to develop the first 30MW test phase of the 2GW Ordos project.

China Guangdong Nuclear will be the majority owner and operator of the project. First Solar is more or less placed in the role of straight module sales. First Solar originally touted the Ordos project as a major opportunity for its systems business, as opposed to its straight module sales business segment.

Now it looks like First Solar has had to scale back its ambitions in relation to actually constructing the Ordos project. Given that the project has been well behind its original timeline and the press has been full of reports that China would ultimately renege on its deal with First Solar and open up the Ordos project to competitive bidding, a little given from First Solar is not a surprise to keep itself in the running for the big stages of Ordos, which won't come until 2014, and feature 970MW of solar installations. It's winning phases two and three of Ordos that really matter.

It's the expectation of many solar analysts that the big Chinese solar module makers, including Suntech Power ( STP), Trina Solar ( TSL) and Yingli Green Energy ( YGE), will be making a run at the Chinese systems market as well, and might trigger a bidding war to get deals done.

The 30MW of module sales slated for the first phase of Ordos aren't really important from a current investment standpoint for First Solar investors. For one, Ordos has never been built into most Street models due to the uncertainty surrounding it. Secondly, most analysts are assuming that First Solar sells out in terms of its module business in 2011 -- it's the price at which it can move modules that matters -- so 30MW of modules is not a needle mover in terms of the near-term outlook for First Solar shares.

Aaron Chew, an analyst at Hapoalim Securities, said a rough estimate of the 30MW would put it at no more than $40 million to $50 million, a drop in the First Solar revenue bucket.

First Solar's announcement about the Ordos deal won't end the debate about how much it is giving versus taking to get a foothold in China, either. The expectation of many solar experts remains that module vendors will have to bid at pricing which could even include taking a loss -- though First Solar as low-cost leader may not be forced into that strategy -- just to establish a presence in the Chinese solar systems market.

For First Solar, its low cost lead means that even at low pricing the Ordos module sales can be accretive, though that type of pricing information won't be released to the market and will remain open to debate.

"It's hard to say it's not a positive. It's better to have it than get nothing, but it's a small deal wrapped up in the rest of module sales that everyone assumes will sell out anyway," Hapoalim's Chew said.

In fact, a bigger systems-business news development from First Solar on Wednesday was the sale of three projects totaling 50MW in Canada, which is a significant size for the Canadian market. The Canadian market also has attractive subsidy support for solar, indicating that unlike China it's a market where First Solar would be able to sell at a higher ASP.

While the three Canadian projects at 50MW aren't anywhere near the huge southwestern U.S. deals that First Solar has in its solar project pipeline, it's still a meaningful chunk of business, and larger than straight modules sales to contracted customers.

In the end, comparing the First Solar news from China to the First Solar news from Canada, it shows that the U.S. solar bellwether is following through on the project sales that the market expects in 2011 -- while China, well, China remains a market to watch, but one where follow-through on Ordos' 2GW remains a wildcard.

First Solar shares were close to flat on Wednesday morning on light trading volume.

-- Written by Eric Rosenbaum from New York.

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