UTILITIES VS. INSTALLERS IN THE SOLAR WORLD?

California’s dynamic solar energy market has separated into 3 segments: The distributed home solar system “retail” market, the utility- and big-money dominated solar power plant “wholesale” market and the “’tweeners,” distributed but larger-scale systems for commercial-sized buildings.

Utility giant Southern California Edison (SCE), a solar industry leader, wants to own and operate 1- to 2-megawatt systems on all those tweener rooftops. It introduced its first 250-megawatt distributed generation initiative earlier this year to much fanfare.

Nothing is better for a company like solar industry star First Solar than orders of the size SCE placed to kick off its initiative, the largest such commitment by a U.S. utility.

First Solar is only too happy to take the order. Recent announcements have it getting the go-ahead and starting installation of a 2-megawatt commercial rooftop, the first 2 megawatts in SCE’s big undertaking.

First Solar also got the go-ahead on a 7.5 megawatt solar power plant in SCE’s region of the California desert, a project that may grow to 21 megawatts.

It was orders like this, and being able to effectively meet them, that sent First Solar’s profit margin for 2nd quarter 2008 soaring to unexpected heights. Market and solar industry analysts had expected profits, but not 57% quarter-on-quarter growth in profits.

Behind the glitz, however, there is a potential battle brewing between California solar system installers and SCE. The smaller companies, fearful SCE’s big initiative will draw resources allocated by the state’s California Solar Initiative (aka CSI or “million solar roofs”) breakthrough program away from them, have gone to the California Public Utilities Commission (CPUC) to exert the only leverage they have: The installers are demanding SCE’s access to CSI be limited.

SCE has an obligation to install solar under the terms of California’s Renewable Electricity Standard (RES), which requires the state’s utilities to obtain 20% of their power from New Energy sources by 2010. The installers claim it is enough that SCE’s undertakings will contribute to meeting that obligation.

SCE has a variety of size and volume advantages over the independent installers, including the ability to drive costs in the solar industry up by employing union installers. The independents also claim the SCE initiative is ratepayer-financed and amounts to a de facto subsidy to the utility. The fiercely independent installers therefore demand CSI rebates and other state incentives be reserved for retail customers instead of going in any part to the volume-oriented utilities.

There can be little doubt other utilities will follow SCE into the tweener market, even if the installers’ challenge succeeds. It is another indication of solar industry consolidation and the weakening of the independents’ ability to keep the big utilities from taking over.

NewEnergyNews can find no report of a decision from the CPUC on the installers’ challenge. Nevertheless, along with its announcement CPUC has granted First Solar permission to build the solar power plant, First Solar also announced it begun the 2-megawatt build for SCE. Do they know something about the CPUC’s decision the solar installers don’t know?

How will the installers react? California solar installers are an organized and vociferous lot. Stay tuned.

In a related story, First Solar is pursuing opportunities in Italy and France but not pursuing the legendary market in Germany or the booming market in Spain. Why? Germany is about to cut its subsidies (including its feed-in-tariff) and the world-leading market there is expected to fall off fast. Spain’s big market is considered inflated because of its feed-in-tariff and the government has just acted to cut it dramatically. More on feed-in-tariffs soon.

SCE was just ranked as one of the best U.S. utilities for solar energy. (click to enlarge)

First Solar 2nd-qrt net soars past view, shrs rise
Nichola Groom (w/Jeffrey Benkoe, Toni Reinhold), July 30, 2008 (Reuters)
and
First Solar starts constructing panels for 2-megawatt Calif. rooftop plan, gets OK for plant
July 16, 2008 (AP via CNN Money)

WHO
First Solar Inc (Mike Ahearn, Chief Executive Officer; Jens Meyerhoff, Chief Financial Officer); Southern California Edison (SCE);

WHAT
First Solar reported a higher-than-expected 57% quarter-on-quarter 2nd quarter 2008 profit. It announced the beginning of the first 2-megawatt installation in a 250-megawatt undertaking with SCE and it got approval on a 7.5-megawatt solar power plant that could expand to 21 megawatts.

But is SCE's success these guys' loss? (click to enlarge)

WHEN
- SCE’s rooftop project, initiated with the 2-megawatt project begun July 14, would see installations developed over a 5-year period.
- The initial project is scheduled to be ready for grid hookup in September.
- First Solar went public in 2006 and its stock gained 795% in value in 2007. The stock value is up 7% for 2008 in a falling market.
- The company’s first two production lines at its Malaysian plants are progressing faster than expected. Full capacity on the 1st line will be in 3rd quarter 2008. The 2nd line will begin production in 3rd quarter 2008 and get to full capacity by year’s end.

WHERE
- The 7.5- to 21-megawatt solar power plant will be in Blyth, Calif.
- First Solar is based in Phoenix, AZ.
- First Solar’s new plant in Malaysia, just on line, helped the company meet increased demand and up its profits.
- First Solar is largely focusing on utility-scale projects in California and in stable European markets.

Either way First Solar makes money. They're a little like Microsoft - no matter what, they make money. (click to enlarge)

WHY
- First Solar’s conversion efficiency got better in 2nd quarter 2008 as well, going from 10.6% to 10.7%.
- First Solar 2nd quarter 2008 net income: $69.7 million (85 cents/ share) (analysts' estimate: 57 cents/share) 2nd quarter 2008 net income: $44.4 million (58 cents/share).
- First Solar 2nd quarter 2008 revenue: $267 million (2nd quarter 2007: $77.2 million (analysts estimate: $217.3 million).
- The new Malaysian plant did $47.4 million of the 2nd quarter sales.
- First Solar expects 2008 sales of $1.175 billion to $1.225 billion. (Analysts estimate: $1.037 billion).
- First Solar solar module output forecast upped to 470 - 485 megawatts from April forecast of 420 - 460 megawatts.

QUOTES
Mark Bachman, analyst, Pacific Crest: "Despite expectations being so high, they completely outdelivered again…"