Thin-Film Solar Panels Soon to Come of Age
Nihar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I was dismayed to hear the news a few months ago that General Electric (NYSE: GE) decided to delay its plans to open a massive thin-film solar manufacturing facility. When I first read about thin-film panels, I thought the technology had far-reaching applications. I was a bit delusional in how far-reaching (i.e. thin-film house siding), but it is still a cheaper alternative to standard panels. My delusions dealt with flexible thin-films, which was the focus of the article I read. GE's factory is for rigid thin-film panels, which is still the most common type of thin-film panel.
Rigid thin-films were first brought to market on a mass scale by that solar stalwart First Solar (NASDAQ: FSLR), a company that has fallen on hard times. The end of solar subsidies have hit the stock hard, and its 1-year return is -50%. It needs to survive while the market gains strength, the oversupply disappears, and it improves its products. It has the know-how and experience to squeeze out improvements faster than GE.
First Solar can go farther faster, and it's going to have to. With net income ttm lower than -$550 million after flying so high before, First Solar needs to show that it can be profitable without fat and wasteful subsidies. At least First Solar's debt-to-equity ratio is hovering right above 0.15, and the current ratio is above 2. This means that there's little chance of it going immediately bankrupt.
The main benefit of thin-films was that they were cheaper to make. However, the price for traditional silicon solar cells has fallen. These are the normal thick ones we see on people's houses. Now that they are cheap, thin-film has less appeal. With the one advantage of thin-films gone, GE decided to work on efficiency before creating a massive manufacturing complex.
Do I think that these solar panels will have an effect on a giant like GE? Yes, if real breakthroughs in efficiency and cost can be made and if the company goes for flexible panels, then solar should become a large part of the revenue stream for GE.
Another issue is whether having a titan like GE entering the thin-film market will crush First Solar. I think that First Solar could benefit by having GE step into the market. It signals that thin-film is not just the fringe of an already fringe technology. Having a company as storied as GE at least validates the space. There are still plenty of people who do not know that there is such a thing as thin-film solar panels. At least having another big player in the market will increase the technology's profile. Thin-film is not arcane or obscure, but it is not widely known among the general public. As investors, we want the public to catch on to how great the product is right after we take a position.
It is important to explain that thin-film panels work better in harsh climates and low light situations. Both First Solar and GE's product pages mention that thin-film panels out-perform traditional ones in harsh climates and low light. Does the desert count as a harsh climate that lowers the efficiency of standard cells? Because the deal that First Solar closed with the United Arab Emirates would suggest they convinced the desert nation that thin-films suit them best.
You might want to wait before jumping into First Solar,which is the star of this article despite all the talk about GE. Wait for conditions to improve, and wait long enough for you to do the extensive amount of research required. The solar market is not recovering overnight, so there is time to learn more about it.
As for GE, there are so many other reasons to invest and not invest in gigantic company. Thin-film solar panels form part of an investment thesis for GE, but only part. I just like solar into the next 2 decades, and if GE can start now then it can position itself for a nice new revenue stream. At least wait to see if it meets it efficiency goals and completes the manufacturing facility. I will say that EPS growth at GE has been negative for a few quarters, and if the market punishes it for earnings continuing to shrink it might be worth grabbing a position in the 3% yielding stock.
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TheArchivist has no positions in the stocks mentioned above. The Motley Fool owns shares of General Electric Company. Motley Fool newsletter services recommend First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.