At first glance, First Solar's (Nasdaq: FSLR ) acquisition of Edison Mission Group's (EMG) solar development pipeline appears similar to last year's OptiSolar deal. But in this case, investors should focus on a few key differences.
First, First Solar and EMG, a subsidiary of Edison International (NYSE: EIX ) , have worked together on these solar projects since 2008. This isn't a case of First Solar swooping in and securing more destinations for its thin-film panels. The company was already tapped as the engineering, procurement, and construction provider for these projects, and the requisite panels had already figured into First Solar's recent decision to significantly expand its capacity.
Where OptiSolar was experiencing financial distress, Edison subsidiary Southern California Edison (SCE) is one of the biggest utilities in California. This indicates an extremely sound financial footing for EMG, which owns more than 10 gigawatts of power generation assets. Meanwhile, SCE has been busily lining up more than a gigawatt's worth of solar projects over the past two years, from developers like eSolar and BrightSource Energy.
So what motivated EMG to pull out of the partnership, leaving First Solar with the additional responsibilities of land acquisition and permitting across the dozen or so moderate-sized projects?
While the Bureau of Land Management recently fast-tracked one First Solar project in Riverside County, the company has faced difficulties pushing through projects on public land. The company canceled a 150-megawatt project in Colorado (part of the OptiSolar pipeline) just last month. But this is irrelevant to the EMG pipeline, which consists of projects on mainly private land.
We're not totally in the dark, because Bloomberg asked an EMG spokesperson why the power player is pulling out. The company has apparently decided to drop solar development for now, in favor of wind power projects.
EMG may very well still want to own solar power plants. It just doesn't want to develop them. The company purchased a wind farm from Cielo Power, A-Power Energy Generation Systems' (Nasdaq: APWR ) new partner, back in 2006. Maybe the company will take the same approach to solar, leaving the heavy lifting to First Solar, NRG Energy (NYSE: NRG ) , and other developers.
Keep in mind that EMG is a merchant power generator, rather than a regulated utility like SCE. Procuring solar power from a third party, and receiving a required rate of return from a regulator, is one thing. Generating and selling solar power more profitably than wind power is another matter entirely. I'll be very interested to see whether the company picks any of these projects back up once they're developed.
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