(NASDAQ:FSLR) is expected to get a much needed boost from the Indian Government’s announced changes to its annual auction of permits for solar plants, which will make it easier for banks to lend to solar projects and exempt First Solar’s thin film and other related technologies from local sourcing rules that are applicable to crystalline solar technologies. [1] The Indian Government is stepping up its efforts to promote solar energy and the country is expected to become one of the fastest growing markets for solar power. First Solar competes with other major players in the solar modules market such as SunPower (NASDAQ:SPWRA), LDK Solar (NYSE:LDK) and Suntech Power (NYSE:STP).
We have a $135 price estimate for First Solar which is at a 40% premium over its current market price.
Indian demand is good news for the solar industry
The solar manufacturing industry is looking to markets such as India and the Middle East to come to its rescue as manufacturers grapple with oversupply and declining government subsidies for solar power in Europe. Indian efforts to install 20,000 MW of solar capacity over the next 20 years should benefit manufacturers such as First Solar that are struggling to maintain revenues and margins in a low price environment. The present round of auctions in India will award licenses for 350 MW of solar power generation that will be completed by the year 2013. [1] First Solar had already indicated in its Q2 results that falling module prices were expected to stoke demand in the Indian market.
Auction is designed to spur projects; Export-Import Bank lends a helping hand
The Indian government has also announced changes in its auction mechanism that are expected to boost the feasibility of lending to solar projects. The maximum size of each project has been increased to 50 MW from the earlier 20 MW which means that lenders will have to monitor fewer, larger players. [1] The increased project size will also result in greater participation as some companies such as Tata Power had stayed out of the previous auction rounds because of the limit on project size. Overall, better access to finance and increased participation could boost opportunities for First Solar as licensees will look to cut costs and opt for thin film technology products which are financially more attractive in comparison to crystalline silicon products. [1]
India’s plans to expand solar generation capacity have been impeded by funding concerns as $3.2 billion worth of projects have had difficulty securing loans. [2] To ease the situation, the U.S. Export-Import Bank, which was authorized by Congress to fund $100 billion worth of projects sourcing U.S. made goods and services, is expected to provide $575 million in loans to Indian solar deals. This should help U.S. based panel manufacturers such as First Solar and SunPower who face stiff competition from low cost Chinese suppliers. India is expected to become the top recipient of loans from the Export-Import bank next year with solar and clean energy projects receiving a considerable chunk of the overall outlay.