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Under a 10-year power purchase agreement (“PPA”), First Solar, Inc. (FSLR - Analyst Report) will sell the electricity generated from the Lost Hills photovoltaic power plant to the City of Roseville, Calif., once the plant comes online. First Solar will begin the construction of this power plant in Kern County, Calif. in early 2014. This agreement is the first agreement for First Solar with a municipality and will be effective from 2015.

The plant has an electric generation capacity of 32MWAC. According to the agreement, all the electricity generated from the plant will be purchased by Roseville for the first four years. However, from 2019 First Solar will begin sharing the power with Pacific Gas and Electric, thereby splitting the output between Roseville and Pacific Gas and Electric, a subsidiary of PG&E Corp. (PCG - Analyst Report). First Solar thus has an additional PPA for Lost Hills’ output with Pacific Gas and Electric.

In the first year, Lost Hills will produce clean and renewable energy that will be sufficient to power 11,000 homes. This clean energy will be able to offset more than 20,000 metric tons of CO2 per annum, which is equal to eliminating 4,000 cars off the road each year. On an annual basis, it will also save 18,000 metric tons of water consumption. During the peak construction period, the plant is expected to create 200 jobs.

This agreement will help California in reaching its goal of generating 33% of renewable energy by 2020, as per the state’s requirement. For the last 10 years, Roseville Electric has purchased 325,000 MWH of renewable energy for $24 million. However, this contract will reduce the cost of purchasing electricity by $6.5 million from the amount spent last year on renewable energy purchase.

First Solar has a proven ability to build big projects cost effectively. In order to counter the weak economic scenario, the company is focusing more on utility-scale electricity power projects. In July this year, First Solar and AGL Energy Limited entered into a partnership on two utility-scale photovoltaic projects in Australia. Per the agreement, First Solar will construct a 102 MW plant at Nyngan and a 53 MW project at Broken Hill.

Moreover, the company continues to execute its strategy by diversifying globally with a focus on rising bookings, and improving its costs.  Despite these positives, we prefer to remain on the sidelines due to the industry-wide oversupply of solar products, its weak second quarter results and rising competition in the market.

Recently, First Solar Inc. reported adjusted second quarter 2013 earnings of 39 cents per share, well below the Zacks Consensus Estimate of 50 cents by 22% and 43.5% from the preceding quarter. The considerable plunge in earnings reflects lower revenue recognition from the AVSR project and lower sales volumes to third-party module-only customers. The company presently retains a short-term Zacks Rank #3 (Hold).

Among the stocks worth considering in the solar space are JinkoSolar Holding Co., Ltd. (JKS - Snapshot Report) and SunPower Corp. (SPWR - Analyst Report). While JinkoSolar carries a Zacks Rank #2 (Buy), SunPower Corp holds a Zacks Rank #1 (Strong Buy).

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