Building solar plants has become a big business as solar energy has become more affordable around the world. But it's not an easy business; it requires a design that's easy to install and panels that efficiently turn the sun's energy into electric power.
That's why First Solar's (NASDAQ:FSLR) announcement that it is launching pre-engineered solar plant solutions that range in size from 800 kW to 3.8 MW is such a big deal. SunPower (NASDAQ:SPWR) also makes a pre-engineered product for its Oasis power plants that is 1.5 MW per block. As two of the largest solar power plant builders in the world, these consistent designs allow for plants to be built quickly, unlike the custom designs once common in solar.
Closing the efficiency gap
A new power plant design is great, but what First Solar really needs is increased efficiency. That's why First Solar's Series 4 module that was also announced yesterday is probably more important than pre-engineered power plants.
First Solar's fleet average conversion efficiency was just 13.5% last quarter, compared to 15%-17% for most Chinese manufacturers, or 21.5% for SunPower's X-Series. Higher efficiency allows project builders to generate power from a smaller area, lowering what's called balance-of-system costs.
That's why it's key for the company to hit its goal of 14.9% conversion efficiency by the end of 2014, and 19.5% by the end of 2017. Without those improvements, even the most efficient power plant design would be too costly versus competitors.
Betting on utility scale solar
While residential solar is getting most of the attention, utility scale solar is a much bigger business. According to GTM Research's recently released Q1 2014 U.S. Solar Market Insight report, 873 MW of utility scale solar was built last quarter compared to 232 MW of residential solar. Last year, 60% of all solar installed in the U.S. was utility scale.
These utility scale projects are where First Solar lives, and lowering costs by pre-engineering systems and increasing efficiency is key to staying competitive.
Travis Hoium manages an account that owns shares of SunPower and is personally long shares and options in SunPower. The Motley Fool has no position in any of the stocks mentioned. 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.