First Solar was up 15%+ today on news they are in advanced negotiations to form a joint YieldCo vehicle with SunPower to which they each expect to contribute a portfolio of selected solar generation assets from their existing portfolio of assets.
Putting this in simple English, First Solar and SunPower are going to combine some of their solar energy generation plants into a joint venture that they will partially sell-off in an IPO. The new company will have a high dividend yield ensured by the recurring revenue streams that the energy plants create from long-term contracts of supplying energy to utilities and commercial customers. Recall that First Solar announced an $800 million deal to supply energy from one of their big solar plants to Apple. Recall also, that $FSLR reports earnings tonight.
I thought it’d be dead money while energy is down and remains down. But FSLR is killing it lately with the $AAPL deal and now this Yieldco IPO spin off deal.
In all seriousness though, the energy crash is likely going to have some impact on First Solar and the alternative energy sector over the next few years. All energy supply companies are ultimately competing to sell units of the same thing and when the price of those units of energy have dropped 50% in a straight line, as oil, for example, has fallen over the last six months, it’s going to have ripple effects on every company in the business of selling energy.
That said, the beautiful part of solar energy generation vs crude energy generation is the recurring nature of the source of the energy vs the depletion of the other. The sun shines over and over and over every year. Dinosaurs and ice ages won’t combine for to make new oil supplies on earth for at least another few millennia, so you can’t really consider carbon-based energy to be renewable in any real-time sense. So once you build a solar generation plant, the significant part of the spending to build such recurring revenue generating assets is over. Oil wells, shale oil wells and oil barges and coal mines and so on, all deplete over time and new investment to find new sources is a constant in the carbon-based energy business.
By its very nature then, solar and other renewable energy sources like wind, with their fixed investment and recurring revenue generation models are inherently more viable over the long-term than oil, coal or even plant-based energy sources like ethanol. You have to plant your corn fields and then harvest them and then process them into energy over and over every year forever, right?
Meanwhile, once built you just have to make sure your solar and wind generation plants are maintained but not much more than that. And even here, solar energy has an inherent long-term cost advantage over wind energy. Wind energy requires moving parts on the windmill and inside their motors. Any engineer will tell you that the more movement you have in your product, the more wear and tear and therefore the more costs you’ll have to maintain your product over time. Solar panels move to follow the sun by tilting slightly, but the source of their energy is light and heat, not movement. And that makes solar a better longer-term solution as a renewable source of energy than wind.
So looking out over the next ten to thirty years, I remain as bullish and excited about the upside potential in First Solar and other solar stocks as I have been since we moved into this sector after its bubble had popped and we were able to get into it while sentiment was low and stock prices collapsed. Indeed, we even nailed the popping of the alt-energy bubble by riding A123 and other alt-energy stocks into their bankruptcies as the crash finished itself up. Recall that when I turned bullish on the alt-energy sector, it was in the midst of a wave of bankruptcies in the sector and it just about marked the bottom. Recall that I’m expecting to see a rash of similar bankruptcies in the oil and carbon energy sector in the next year or three before we’ll see energy bottom.
And while this stock is up roughly 40% since that article and also up 40% in the last month, I do think there’s a lot more upside to First Solar — particularly over the next 10 to 30 years.