First Solar Is Still the Safest Bet in Solar

Investors often talk about looking for a competitive moat that protects a business. In long-established businesses like Coca-Cola or McDonald's, a moat is easy to identify, but in the fast-changing solar business, it's harder to identify what's a lasting competitive advantage and what's a fleeting technology.

One company has managed to build a moat that has about as much staying power as any company in solar can claim, and that company is First Solar (Nasdaq: FSLR  ) .

Years ahead of the curve
For years, First Solar's competitive advantage has been its industry-leading cost per watt. With module costs of just $0.75 per watt in the first quarter, First Solar is miles ahead of the competition.  Trina Solar (NYSE: TSL  ) and Hanwha SolarOne (Nasdaq: HSOL  ) are two of the few manufacturers that explicitly state their costs per watt, which are $1.16 and $1.27, respectively. They would have to cut costs drastically to catch First Solar.

Cost per watt is not the only factor that goes into the cost of energy, but First Solar's lead is so wide right now it isn't even within shouting distance of competitors.

Improving every day
In the last year, First Solar has spent $94.8 million on research and development to improve its products. That dwarfs competitors and will help First Solar lower costs and improve efficiency. Just last week, the company announced it had set an efficiency record for CdTe solar cells at 17.3%, 0.6% better than the old mark.

Developing its own demand
Another advantage First Solar has is a large project team that can create internal demand for the company's panels. SunPower (Nasdaq: SPWRA  ) and First Solar are leading the way in this trend, but other manufacturers are starting to follow slowly but surely. There's nothing quite like a head start, though, and both of the U.S.-based companies are miles ahead of their Chinese counterparts in project development.

The solar sector's earnings season starts with First Solar on Friday. Keep up with everything that happens by adding your favorite solar stock to My Watchlist.

Fool contributor Travis Hoium owns shares of First Solar and SunPower and has sold puts in SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Coca-Cola. Motley Fool newsletter services have recommended buying shares of First Solar, Coca-Cola, and McDonald's. 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.


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  • Report this Comment On August 03, 2011, at 2:04 AM, Brettze wrote:

    I am still skeptical of any kinds of photovoltaics because of low efficiency ( capturing only 10-15%) of the sunlight into electricity .. To think that we would make vast real estate acqusitions in order to site rows and rows of photovoltaics as far as you can see is a bit of a stretch. Desptie the theory that only a small part of Earth surface is required to supply electricity to the world by solar energy on flawed calculations based on 100% efficiency. So it means 6 or 7 times as much land will be required .. and not only that if you remember that the sun rises and set everyday so you have to triple the land size again. It would take over 100 years to complete the job based on this year production level for photovoltaics.. it is true that we can use everything we can get our hands on. Itis not going to be a total salvation for us all if we contiue to use photovoltaics.. Solar thermal energy is more productive as it can replace natural gas and fuel oil and even firewood. So many people are combusting fuel and releases so much carbon and stench into the air .

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