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First Solar Inc. (FSLR - Analyst Report) has entered into a purchase power agreement with Pacific Gas and Electric Company (PG&E), a subsidiary of PG&E Corporation (PCG - Analyst Report). As per the contract, the former will sell 72 megawatts AC of solar electricity from its two power plants to the latter.

The delivery term for the purchase power agreements is expected to start from 2019, subject to the approval of the California Public Utilities Commission. The company expects a decision from CPUC to begin in the first half of 2013.

First Solar is developing two photovoltaic (“PV”) power plants in California. One is the Lost Hills project in Kern County that has the energy generation capacity of 32- megawatt and the other one is a 40-megawatt Cuyama project in Santa Barbara County. As soon as the development process is complete, the company plans to begin the construction of the project by 2013.

Both the projects are expected to create 600 jobs during the peak construction period. The projects will further help California to meet its goal of generating 33% of electricity from renewable energy. The projects will produce adequate clean and renewable energy to power approximately 24,000 homes in California that will be sufficient to offset approximately 45,000 metric tons of CO2 annually, which is equal to taking about 8,900 cars off the road each year.

First Solar’s grid-friendly utility-scale power plants get easily integrated into the electrical infrastructure. The company has been in these kinds of purchase power agreements with PG&E Corp. earlier also. In May this year, the company along with MidAmerican Solar began the major construction process of 550 MW Topaz Solar Farms, located in San Luis Obispo County, California. The energy generated from the project will be sold to PG&E.  Also, the energy generated from one of its other project, the 290 MW Agua Caliente Solar Project, will also be sold to PG&E under a 25-year agreement.  This plant is owned by NRG Energy Inc. (NRG - Analyst Report) and MidAmerican Energy Holdings Co.

One of the company’s peers, SunPower Corporation (SPWR - Analyst Report) had also recently entered into an agreement with PG&E to supply 100-megawatt power from its Henrietta Solar Project.

First Solar is a leading global provider of comprehensive PV solar systems that uses its advanced thin-film modules. Currently, the company’s integrated power plant solutions are engaged in delivering an economically attractive alternative to fossil-fuel electricity generation.

Currently, the company is witnessing a steep drop in Average Selling Prices. Also, the current macro scenario does not bode well for the solar industry, which thrives mainly on subsidies and grants. However, in order to counter the weak trend, the company is focusing more on utility-scale electricity power projects. It is a partial mitigation for its drop in margins through a major restructuring of its operations.

The company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.

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