With the $400 million purchase of OptiSolar's project portfolio, First Solar has, in effect, declared war on two other large solar energy companies who also aren't satisfied at being merely solar panel makers.

Can you hear the battle cry, SunPower and Suntech Power?

First Solar already has staked a claim as the company that can make solar panels cheaper than anyone else. The company, based in Tempe, Ariz., has become a Wall Street darling in recent years by delivering impressive financial returns. Startup solar companies aspire to be First Solar – or beat it.

Now it's making a serious foray into the business of developing power plants for the U.S. utility market. First Solar announced Monday that it's snatching up 1.85 gigawatts worth of power projects under development – and enough land to build another 19 gigawatts – in an all-stock offer to Hayward, Calif.-based OptiSolar. The package comes with a 550-megawatt project in California, and First Solar needs to start building in 2010 in order to meet power delivery deadlines previously set by OptiSolar, which has been crushed by credit crunch (see First Solar Buys OptiSolar's Power Projects).

That's a heavy work load for a company whose biggest, completed project to date is a 10-megawatt plant in Nevada for Sempra Generation, which began selling electricity from that plant to Pacific Gas and Electric Co. in January this year (see PG&E to Get Solar Power for the First Time).

First Solar sees the move as a sure way to boost demand for its panels and to lower the overall costs of building a power plant by consolidating the procurement, engineering and installing processes, said Mike Ahearn, CEO of First Solar, over a conference call with analysts Monday. Ahearn called the deal "a watershed acquisition."

The ambitious undertaking will pit First Solar against its fellow solar panel makers, SunPower and Suntech Power, both of whom have jumped into the business of developing large-scale projects for businesses and utilities, said Daniel Englander, a senior analyst with Greentech Media's market research division.

"Big successful PV companies are being integrated downstream. It's a great way for them to cut costs along the supply chain," Englander said. "Companies that can access the capital will be able to build the projects."

The utility market has become especially attractive thanks to a growing number of states requiring utilities to offer a certain percentage of power from renewable sources such as solar and wind. A new, 30 percent federal tax credit, in place starting this year, also has enticed utilities to own and operate their own solar power plants. In the past, they mostly preferred to ink long-term contracts to buy solar power from independent power plant developers and owners.

Earlier this week, SunPower named Jean M. Wilson as its new vice president and general manager of utilities and power plants. Wilson, who was formerly a senior vice president at PPM Energy (which became Iberdola Renewables), will oversee the engineering, construction and other project development work in North America.

SunPower, based in San Jose, Calif., bought PowerLight for $265 million in 2006 to enter the business of designing and installing solar energy systems. SunPower then went on to buy two other such companies, one in Australia and the second in Italy (see SunPower Buys Australian Distributor). SunPower scored a key deal last July to build a 25-megawatt power plant for Florida Power & Light to own and operate. A few months later, it announced a plan to build and operate a 250-megawatt solar farm in California in order to sell the electricity to PG&E.

China-based Suntech Power, meanwhile, bought EI Solutions and formed a joint venture with MMA Renewable Ventures last year to woo utility, government and other business customers (see Suntech Buys EI Solutions, Teams Up With MMA). The joint venture, Gemini Solar Development, is pursuing a 30-megawatt project for the city-owned utility in Austin.

Spain's well-financed solar project developer, Fotowatio, said only a few days ago that it would buy MMA, a deal that Suntech said would only strengthen its pursuit of power project deals (see Fotowatio Buys MMA Renewable Ventures).

First Solar also has been eyeing the utility market for more than a year, and bought Turner Renewable Energy for $34.3 million in stock and cash in 2007 to learn how to engineer and build solar power plants. The deal came with an unfinished project in Blythe, Calif., that First Solar plans to build this year. Southern California Edison already has agreed to buy power from the project, which will start at 7.5 megawatts.

First Solar's acquisition of OptiSolar's large portfolio of pending projects cuts short the amount of time it would otherwise take for First Solar to secure that much land, regulatory approval and customers on its own, Ahearn said.

The deal to sell the power from the 550-megawatt project, called Topaz Solar Farm, to PG&E already has gotten approval from the California Public Utilities Commission. It plans to raise money to develop the project instead of using its own capital, said Ahearn, who also noted that the company would have to expand its panel production to meet the project's demand.

Although the Topaz project calls for First Solar to own and operate the power plant, Ahearn indicated that the company is primarily interested in being a general contractor. This move would make sense particularly given the utilities' growing interest in owning and operating their own power plants (see PG&E to Build and Own Solar Power Plants).

Seeing the Topaz deal go to First Solar is bad luck for SunPower. SunPower CEO Tom Werner told analysts last month that the company would try to increase its 250-megawatt deal with PG&E since OptiSolar was having financial troubles.

Some financial analysts see the acquisition as a smart move by First Solar.

"While investors have noted a meaningful gap between production targets and contracted deliveries, this new pipeline of projects should give them confidence that the company should not be faced with stocks of unsold inventory," wrote Mark Bachman, a senior analyst at Pacific Crest Securities, in a research note.

Others are more skeptical. Gordon Johnson, head of alternative energy research at Hapoalim Securities, believes First Solar overpaid for OptiSolar's assets in a rush to prevent SunPower and Suntech from getting them. Then there is the question of whether First Solar can carry out the projects on time.

"We remind our readers that financing is not fully secure for this deal, and the cycle time for large projects typically takes more than 2 years due to: (1) permitting process, (2) siting, and (3) delays," Johnson wrote in a research note.


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