第一太陽能 (FSLR) 2015 Q4 法說會逐字稿

Good afternoon, everyone, and welcome to the First Solar fourth-quarter 2015 earnings call.

This call is being webcast live on the Investors section of First Solar's website, at FirstSolar.com.

(Operator Instructions)

As a reminder, today's call is being recorded.

I would now like to turn the call over to Steve Haymore from First Solar Investor Relations.

Mr. Haymore, you may begin.

Thank you.

Good afternoon, everyone, and thank you for joining us.

Today the Company issued a press release announcing its financial results for the fourth quarter and full year 2015.

A copy of the press release and the presentation are available on the Investors section of First Solar's website, at FirstSolar.com.

With me today are Jim Hughes, Chief Executive Officer; and Mark Widmar, Chief Financial Officer.

Jim will provide a business and technology update, then Mark will discuss our fourth quarter financial results and provide updated guidance for 2016.

We will then open up the call for questions.

Most of the financial numbers reported and discussed on today's call are based on US Generally Accepted Accounting Principles.

Please note, this call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from Management's currently expectations.

We encourage you to review the Safe Harbor statements contained in the press release and the slides published today for a more complete description.

It's now my pleasure to introduce Jim Hughes, Chief Executive Officer.

Jim?

Thanks, Steve.

Good afternoon and thank you for joining us today.

2015 was another remarkable year for First Solar and we finished the year with strong operational and financial results.

Slide 4 highlights some of the outstanding achievements from this past year.

First, on the strength of our research and development efforts, we have continued to be the driving force in the advancement of cad-tel solar technology.

In the first half of 2015, we set cell efficiency and module efficiency records of 21.5% and 18.6%, respectively.

The cell record at that time represented the eighth substantial update to our record cell road map since 2011, and the record module efficiency placed us in a superior position to the best recorded multi-crystal and silicon module.

Building on this success, today we have announced that we have achieved yet another new record cell efficiency of 22.1%, as certified by Newport Labs and documented by NREL.

At our last Analyst Day in March, 2014, we set a target to reach a 22% research cell efficiency milestone by the end of 2015; and with this announcement, we have delivered on that promise.

The accomplishment validates our continued confidence in cad-tel as a superior PV material that combines cost effectiveness, reliability and high performance.

This achievement is also a testament to our world-class research and development team, which continues to push the boundaries of cad-tel technology.

Turning back to our 2015 performance, our full fleet averaged 15.6% for the year, which is 160 basis point improvement from our 2014 average.

In percentage terms, our full fleet average module cost per watt decreased by over 15% versus the prior year.

Our EPC group also had tremendous execution, as we installed more than 1.8 gigawatts of modules in 2015.

This brings the total cumulative modules installed by our EPC group to over 6 gigawatts and underscores our tremendous capabilities in providing power plant solutions to our customers.

The performance of our global sales team was also outstanding last year, as we booked a record 3.4 gigawatts DC.

Compared to our shipments of 2.9 gigawatts, we once again exceeded our targeted 1-to-1 book-to-bill ratio.

Our financial results for the full year were equally impressive, with new record annual revenue of $3.6 billion, which resulted in earnings per fully diluted share of $5.37.

We also closed the year with $1.8 billion of cash and marketable securities on our balance sheet, even while ending the year with over $1.3 billion in project-related assets representing projects on our balance sheet under development and in construction.

While I am pleased with these exceptional results for 2015, as an organization, we will not grow complacent, but are setting our sites on even greater success as we look at our long-term vision for this Company.

Next let me provide a brief update on our technology performance in the fourth quarter.

Relative to the prior quarter, our Q4 fleet average efficiency improved to 16.1%, or a 30 basis point improvement.

This is the first time our full fleet has averaged above 16% for an entire quarter.

Also, as expected, our lead line efficiency held steady at 16.4%, as we did not implement any new efficiency process improvements in the fourth quarter.

Turning to slide 6, I will review our progress in securing new business since our last earnings call.

With our 2015 bookings of 3.4 gigawatts and additional year to date 2016 bookings of over 160 megawatts, we have a remaining expected module shipment balance of 4.4 gigawatt as of today's call.

Our book-to-bill ratio for 2015 was approximately 1.2, which exceeded our goal of a 1-to-1 book-to-bill ratio.

Since our Q3 earnings call, we have booked 420 megawatts DC, with the majority of this volume contracted in international markets, signaling the continued diversification of our business.

A prime example of this diversification is in Turkey, where we have recently booked third-party module sales of over 200 megawatts DC.

The largest of these deals was a 100-megawatt agreement signed with Zorlu Energy which adds additional contracted volume to our 2017 shipments.

We made further progress in Japan this past quarter, with additional contracted bookings which now brings our total development pipeline in the country to nearly 100 megawatts.

We see attractive opportunities in this market and continue to pursue additional project pipeline.

The remainder of the international volume book included an EPC project in Australia and third-party module sales or module plus sales in India and Africa.

In the US, as discussed on our guidance call in December, we signed a 79 megawatt AC 20-year PPA with NV Energy, which was an expansion of a 100-megawatt plant signed earlier in 2015.

All power generated by the combined 179-megawatt switch station will support switches commitment to renewable energy in Nevada.

Our bookings in terms of expected revenue now stands at $7 billion, as shown on slide 7. The decrease in revenue from the beginning of the year is due to a combination of our record 2015 revenue recognized, assets drops to [8point3], and also due to a higher mix of module and module plus deals in the bookings for the year.

Turning to slide 8, I will now cover our potential bookings opportunities, which have further increased to 20.3 gigawatts DC, an increase of approximately 2.9 gigawatts from the prior quarter.

The sharp increase in potential bookings was primarily driven by a number of new opportunities that we are pursuing in the US.

With greater certainty now in place related to the ITC, we are seeing an increase in opportunities.

Our mid- to late stage bookings increased another 600 megawatts this past quarter, to 4.5 gigawatts DC, which is a new record number of advanced stage opportunities.

International opportunities comprise over 75% of these mid- to late stage bookings.

Looking back one year ago to the time when our potential bookings opportunities stood at 13.5 gigawatts, the growth in our opportunity set to now over 20 gigawatts is remarkable.

It is a testament to our global sales effort, as well as the increasing realization in the marketplace of the energy density advantage of First Solar technology.

Moving on to slide 9, our updated potential bookings opportunities by geography shows a significant increase in US opportunities, as previously indicated.

The portion of US opportunities is now over 40%, versus 25% in the prior quarter.

Besides the US, we also saw an increase of potential opportunities in India.

Lastly, we will be holding an Analyst Day on Tuesday, April 5 in New York City.

At this event, we will provide an update on our strategic priorities.

This includes the latest developments in our technology and operations road maps, our plans for growth and capacity, progress we are making in key markets, and our latest business outlook.

There will be a live webcast of the event available on the Investor Relations section of our website.

Our Executive Management team looks forward to the opportunity to provide the latest updates on our business and answer your questions.

Now I'll turn it over to Mark, who will provide detail on our fourth quarter financial results and discuss updated guidance for 2016.

Thanks, Jim, and good afternoon.

I will begin by discussing our fourth quarter operational performance on slide 12.

In Q4, we produced 760 megawatts DC, an increase of 16% from the prior quarter, due to higher module efficiencies, increased manufacturing capacity, and less downtime for technology upgrades.

Production was 50% higher compared to the fourth quarter of 2014, due to the restart of certain manufacturing lines, higher efficiencies, improved throughput, and the addition of new capacity.

For the full year, we produced over 2.5 gigawatts DC, which is a 36% increase compared to 2014.

Our factory capacity utilization reached 100% in Q4, which represents an increase of 6 percentage points compared to the third quarter and a 16 percentage point increase versus the same period in 2014.

Capacity utilization increased in the fourth quarter, due to fewer upgrade activities across the fleet.

For the full-year our capacity utilization was 92%, an increase of 11 percentage points as compared to 2014.

Our fourth quarter best line efficiency averaged 16.4%, which, as planned, was unchanged from the prior quarter.

Compared to the fourth quarter of 2014, our lead line efficiency improved by 160 basis points.

Our fourth quarter average module conversion efficiency for the entire fleet was 16.1%, an increase of 30 basis points quarter-over-quarter and 170 basis points higher year-over-year.

Since quarter end, our fleet full fleet efficiency has continued to improve and has averaged 16.2% quarter-to-date, with an expectation of 16.3% by the end of Q1.

For the full year 2015, our fleet's average efficiency was 15.6%, which represents 160 basis points improvement from the prior year.

Continuing on to slide 13, I'll discuss the P&L results for the fourth quarter.

Net sales were $942 million in the quarter, compared to our record quarterly revenue of $1.3 billion in Q3.

The decrease in sales primarily resulted from lower revenue on the Stateline project, which achieved initial revenue recognition in the prior quarter.

Net sales also decreased due to lower third-party module and module plus sales.

As Jim indicated, we set a new record for net sales for the year of $3.6 billion, which was on the high end of our guidance range.

As a percentage of total quarterly sales, our solar power systems revenue, which includes both our EPC revenue and solar modules used in systems projects, was unchanged from the prior quarter, at 95%.

Module plus sales are included in our solar power systems revenue and totaled approximately $60 million in Q4.

Third-party module sales were slightly lower in the fourth quarter, with the majority of shipments to India.

Gross margin for the quarter was 24.6%, compared to 38.1% in the third quarter.

The decrease in gross margin percentage is due to both the lower mix of Stateline revenue and a benefit in the third quarter from a reduction in the cost associated with our module collection and recycling program.

Our gross margin for the full year was 25.7%, versus 25%, at the high end of our projections.

Our ongoing improvements in module cost per watt and balance of system savings across our project portfolio were the major drivers of the gross margin guidance beat.

The significant reduction in our fleet average module cost per watt in the fourth quarter and robust competitiveness of our technology is also visible in our component segment gross margin, which reached over 26% in the quarter.

Operating expenses increased by $13 million from Q3, to $100 million.

Prior quarter operating expenses benefited from a reduction in our EOL obligation.

In addition, our R&D expenses increased, as we continue to invest in our technology.

For the full year, our operating expenses were $403 million, or slightly below the high end of our guidance.

The fourth quarter operating profit was $132 million, compared to an operating profit of $398 million in Q3.

For 2015, our operating profit was $517 million, significantly above the high end of our guidance range of $490 million.

The strong performance relative to guidance was primarily driven by favorable cost performance across our portfolio system projects.

In addition, we were able to successfully avoid potential penalties on a couple of projects that had aggressive year-end completion requirements.

We had a tax benefit of approximately $15 million in the fourth quarter resulted from a favorable mix of jurisdictional income.

For the year, the tax rate was a 1% benefit, which included a $28 million net benefit associated with the favorable ruling from a foreign tax authority highlighted in Q3.

Our quarterly earnings of $1.60 per fully diluted share of net income -- or excuse me, on net income of $164 million.

Full-year 2015 earnings per share was $5.37.

Our full year results exceeded our guidance midpoint by almost $1 per share.

Operational improvements accounted for slightly more than half of the upside to our guidance and were primarily due to cost reductions realized across our project portfolio.

Our operational strength and ability to scale our module and BOS cost improvements across our large system portfolio continues to be one of our key value drivers.

The remaining [beat] of the guidance to the midpoint was from the lower than expected tax expense which resulted from a favorable mix of jurisdictional income.

Moving on to slide 14, I will now discuss the selected balance sheet items and cash flow summary.

Cash and marketable securities were essentially flat, at $1.8 billion.

Our net cash position was unchanged, at $1.5 billion.

Compared to the end of 2014, our cash balance decreased by approximately $160 million.

We ended 2015 with over $1.3 billion in project-related assets, both in development and under construction.

When taking into account the size of these assets, which increased by approximately $460 million year-on-year, it demonstrates how we have continued to maintain remarkable financial strength while still funding our project development activities.

As a reminder, we expect a significant portion of the projects comprised in this balance to be sold by the end of 2016.

For the quarter, net working capital, including the change in non-current project assets and excluding cash and marketable securities, increased by $85 million compared to Q3.

The increase was driven by higher project assets associated with our Moapa, CA Flats and the various other projects under development.

Total debt increased slightly from the prior quarter, to $289 million.

Cash flow from operations was $53 million, compared to $21 million in the third quarter.

Free cash flow was $20 million, compared to a negative $17 million in Q3.

Capital expenditures were $27 million, a sequential decrease of $18 million.

Depreciation for the quarter was $60 million, or $1 million lower than the prior quarter.

Turning to slide 15, I will now discuss our updated full-year 2016 guidance.

As we indicated on our guidance call in December, the outlook we provided at that time did not incorporate an extension of the ITC, and that such a change could lead us to extend some project schedules into 2017.

The revised guidance now incorporates these updates after reviewing our development portfolio.

The adjustments we are making to the development timing of projects benefits our business over the combined two-year horizon, as the schedule adjustments will allow us to achieve a lower installed cost per watt on the construction of these plants.

Specifically, we now anticipate achieving COD on our Cuyama, Switch Station, and the first phase of California Flats projects in 2017.

While our guidance anticipates that we will recognize a significant portion of revenue and earnings on the first phase of California Flats in 2016, the other two projects will be recognized entirely in 2017.

With this in mind, our net sales range has decreased approximately $100 million, to a revised range of $3.8 billion to $4 billion, reflecting the push-out of some projects into 2017.

We are raising the low end of our gross margin guidance by 100 basis points to a revised range of 17% to 18%.

The gross margin improvement is a result of better than originally anticipated module and balance of system costs for the year.

As a reminder of what we indicated in our December guidance call, the net sales and gross margin guidance does not include the sale of minority interest in the Stateline project, which is accounted for as an equity method investment.

We are selling a minority interest in Stateline and we expect the profit on the sale to be recognized in equity and earnings net of tax, not revenue or gross margin.

The gross margin guidance range would increase by about 200 basis points if the transaction was treated as a typical sale.

Operating expenses, operating income and our effective tax rate are unchanged.

Earnings per share guidance is also unchanged.

As a reminder, our EPS guidance include a gain of approximately $200 million net of tax from the expected sale of our equity method investment in Stateline and First Solar's share of 8point3's earnings.

These two items do not flow through operating income, but do impact net income and earnings per share.

Similar to our previous guidance, the profile of net sales and earnings per share are expected to be approximately 40% in the first half of the year and 60% in the second half.

This profile is subject to timing of project sales which could alter this expectation.

We have lowered the expected ending net cash and operating cash flow ranges by $100 million compared to our prior guidance.

This corresponds with the reduction in revenue guidance, as the proceeds from these projects will not be received until 2017.

It should be kept in mind that our operating cash flow guidance does not include approximately $450 million from expected sale of our equity method investment in Stateline, which would be treated as investing cash flows.

Our capital expenditures and shipping guidance remain unchanged.

Our drop down plans for 8point3 next year have changed slightly since our December guidance call.

We anticipate three assets, Kingbird, Stateline and Moapa, which are all part of the ROFO list, to be dropped down in 2016.

Kingbird will be in the first half of the year, with the remaining two assets in the second half of the year.

Cuyama, originally planned to achieve COD in 2016, is being pushed out to leverage the benefits of the ITC extension.

Given the broader economic factors impacting the [YieldCo] sector, the timing and execution of drop downs to 8point3 is subject to market conditions.

Turning to the next slide, I'll summarize our progress during the past year and most recent quarter.

First, we delivered outstanding financial results for 2015 and recorded net sales of $3.6 billion, gross margin of 26%, and earnings per share of $5.37.

We maintain our 2016 earnings guidance range of $4 to $4.50, even while adjusting some project schedules to capture better value of these projects in 2017.

Our technology performance continues its ongoing improvement, with a fleet average efficiency now over 16.2% and a best line at 16.4%.

Our pipeline continues to grow, with record bookings of 3.4 gigawatts in 2015 and a growing number of bookings in international regions.

Our potential bookings of 20.3 gigawatts have grown 2.9 gigawatts.

Our mid- to late stage opportunities are also the strongest they have been, with 4.5 gigawatts of projects.

With this, we've concluded our prepared remarks and open the call for questions.

Operator?

(Operator Instructions)

Paul Coster, JPMorgan.

Thank you.

My question, you're operating at 100% utilization rate, you're intentionally pushing projects out into 2017.

Can you give us some sense as to whether you're leaving money on the table intentionally, turning down business, and what your visibility into 2017 is starting to look like?

We're not turning down very much business.

The ability to push projects out has given us a little more flexibility in terms of available supply.

And we continue to be very encouraged by the overall activity levels and the booking activity we are seeing, or the near-term possibility of bookings that we're seeing with respect to 2017.

Vishal Shah, Deutsche Bank.

Hello.

Thanks for taking my question.

Hello?

We're here.

Okay.

I wanted to just better understand your guidance in terms of what you are assuming for line upgrades and whether your previous guidance of 16.2% efficiency for the full year still holds, and also what kind of expectations you have for bookings for the full year 2016?

Thank you.

So Vishal, on the efficiency, as we indicated, we are at, right now at 16.2.

We'll finish the quarter at 16.3.

We will ramp that up as we progress through the year towards our lead line of 16.4.

So as we indicated in prior calls, we are intentionally looking to optimize throughput, and as a result of that, we'll see less impact through our efficiency road map this year.

So would we expect to see the 16.4 trend higher as we exit the year?

Yes.

But obviously, clearly not to the order of magnitude that we saw in 2015, which basically represented 160 basis points improvement year-on-year.

But as we said before, we have a very competitive module right now.

It's mid 16 efficiency.

With the energy yield that we capture through the temperature coefficient and spectral response, we're very happy with the competitiveness of our module.

As it relates to bookings, bookings, we'll continue to reflect our self relative to our opportunity in our pipeline that we've identified.

We are very happy with the growth that we've seen now, with over 20 gigawatts.

We're happy with the 400 or so megawatts that we booked since the last call and a very good mix, not only between systems and modules, but between US and international.

So again, as Jim indicated in his comments, the sales team is doing an outstanding job leveraging the core capabilities of the competitiveness of our technology.

Brian Lee, Goldman Sachs.

Thanks for taking the questions.

Just had two quick ones.

On the 3 gigawatts that you added to the bookings opportunities since last call, it's mostly from the US, as you acknowledge.

Can you talk to what's really changed since the ITC was extended?

Are these new projects coming into the mix?

Are these projects that were on the fence already and you see more viability now with the ITC in place?

And then related to that, what sort of visibility on lead times would you say you have for turning these opportunities into bookings in 2016 and 2017?

It's a combination of a variety of those factors.

The resolution of the ITC, I think more than anything else, it's not any particular outcome with respect to the ITC, but it's removing the overhang of uncertainty and allows people to run their models and be deterministic about what the financial conditions that they are going to be developing projects in.

So it's allowed us to advance some of our own projects, it's allowed customers to advance their project, it's firmed up what the financial environment looks like, the competitive environment has improved a little bit versus, let's say, 18 months ago.

So it's a whole variety of factors.

It's also a broadening of demand.

We are seeing utilities express a desire to begin to participate in solar on a broader basis.

We've had some very large customers that we've dealt with for quite a few years now.

But we're adding to the customers set and we're getting inbound inquiries and seeing RFPs from other utilities.

We're also seeing new developers come into the marketplace that are in new service territories that we've not seen activity before.

So it's the cumulative effect of a fairly broad set of circumstances.

It's not one single thing that triggered it.

It's very broad and across the board.

Sven Eenmaa, Stifel.

Thanks for taking my question.

I want to ask regarding mostly 2017.

How do you think about the domestic versus international mix in that year and how much of that will be self-developed versus module, module plus sales?

I think it's a little early for us to have specific visibility.

We have ample opportunity sets in both markets.

I think that we will see a larger contribution from the US versus what we would've thought, let's say, 9 to 12 months ago as a result of the ITC extension and the firming of demand.

But you know, it's a bit of a horse race/ We've got lots of opportunities and lots of customers, and it's going to be a case of who gets their stuff -- their opportunities over the finish line first with economics that look interesting.

So it's a large opportunity set chasing a finite volume, so that's kind of the circumstance you want to find yourself in.

So I think there are some very big opportunities, both in the US and internationally, that could dramatically impact what that mix looks like, and I think it's still a little early for us to have precise visibility into how those big opportunities are going to play out, both in terms of do they get across the finish line and then, too, some of them have uncertainty as to timing, whether they would be a 2017 impact or potentially a later impact than that.

So it's a little too early.

All I can tell you is we've got lots going on, both internationally and in the US.

Phillip Shen, Roth Capital Partners.

Thanks for taking my questions.

With the OpEx guidance being maintained at $380 million to $400 million and with the ITC extension, can you speak to how much of your resources you're moving back to the US, and can you quantify the degree of international projects you may be leaving on the table or pushing out?

We're not changing our resource allocation at all.

We have built, over the last several years, with a focus on reining in OpEx and being a very lean, low-cost operation.

We've also intentionally structured our operations so that we can leverage growth and future opportunities off of a given level of OpEx.

We've spent a lot of time, debate, head knocking internally over how do we build an organization and how do we structure the business we're pursuing from a strategic standpoint so that we can leverage against that OpEx level.

And the way the organization has been built, with the shared service centers we've built in some of our international locations, those resources and those centers can cost-effectively support our operations, whether they are in the US or whether they're in almost any jurisdiction around the world.

And so that gives us greater flexibility and relieves us of the need to redeploy resources.

So we try to centralize certain resources in shared resource centers and centers of excellence that can be deployed anywhere, and then we have local resources that are focused.

And we structure both of those activities so that they can be leveraged against greater opportunities without having to add to OpEx.

So the proof that our efforts and concepts are working is the fact that we've been able to shift gears through this sort of changing market cycle without having to retool the organization.

And it's given us -- it's demonstrated that we've built what we intended to build, which is a highly flexible, highly responsive organization that can adapt to changing markets, to circumstances very quickly.

Patrick Jobin, Credit Suisse.

Thanks for taking the questions.

Sorry to beat this to death here.

Just want to go back on 2017, if I can.

Jim, I think you mentioned previously mix pressures moving away from systems in 2017.

But with these two projects pushing out and the late stage opportunity set mainly US driven potentially hitting 2017, should we think about that as no longer being a pressure or a drag, or could it be more of a positive element?

And then just a follow-up item.

You mentioned the competitive landscape has improved, so I guess some of the bids from a year ago or so that were pretty aggressive that perhaps might not get finished, are you sensing any opportunities to be the rescue provider or potentially rebidding some of those contracts as near-term opportunities for you?

Thanks.

First, let's talk about the mix in 2017.

I would say with the ITC extension, it does increase the addressable opportunity set on the systems side within 2017.

In addition, I think in certain markets, such as Japan internationally, we have a pretty solid systems opportunity set that is addressable in 2017.

So it's not a dramatic shift, but there have been some increase in the relative weight of the two, I would say.

In terms of rebidding assets or capturing stress in the marketplace, we've looked at a lot of stuff.

I think that the final stories have yet to be told in terms of the resolution of some of the assets in the marketplace.

And I think we're also taking a very cautious approach to how much risk we're willing to take on board, particularly how much counter-party risk we're willing to take on board.

We have a lot of high-quality opportunities and I think we've, quite candidly, backed away a little bit from chasing stuff that's going to require us to take a bunch of risk.

I think we're just continuing to execute down the path we were on and feel like that we can generate an outstanding shareholder result.

That doesn't mean we won't be opportunistic and that doesn't mean that we won't see things.

We're just taking a cautious approach.

Stephen Byrd, Morgan Stanley.

Hello.

Good afternoon.

Good afternoon.

I wanted to just talk broadly about as you compete day-to-day against other players, you're obviously making really strong improvements in your products' competitiveness, but of course, the competition is trying not to stand still, as well.

I am wondering if you can speak to trends in terms of the competitiveness that you're seeing for your product versus others?

Are you seeing, call it, the all-in economic value proposition for your product increasing in terms of its benefit relative to peers?

Or are you seeing that competition remains intense and other products are nipping at your heels?

At a high level, can you speak to overall competitiveness?

Sure.

So there's absolutely no doubt that the competition doesn't sit still.

And they're endeavoring to improve their product at the same time as we are.

However, if you go back to late 2012 through today, the rate of change of our efforts versus the competition is clearly significantly higher.

And this is something we'll spend some time on at the Analyst Day.

But we have clearly been improving the relative value proposition, improving the margin entitlement, improving yield, energy density, across all markets.

And we've been doing so at a higher rate of change than our competition.

I can't speak to what they're going to do in the future, but we believe that we have a lot of opportunity in front of us in terms of continuing to drive our road map, and we'll talk a lot about that at our Analyst Day.

Krish Sankar, Bank of America Merrill Lynch.

-- my question.

Two quick ones.

One is Jim, if you look at the utility scale market in the US, especially where you guys are targeting, the PPA prices have come down over the last several years.

In California and Nevada, we're hearing $0.04 a kilowatt hour PPA rate.

Do you think that's a floor level for PPA, or do you think there's more downside to these pricing?

And the second follow-up is, out of your 20.3 gigawatt pipeline, how much of that is modularly?

Thank you.

So on the PPA pricing, I don't think we're at a "floor level".

But what you have to bear in mind is there is two primary components that drive that pricing.

And one is the capital cost of the project itself.

And that's both the module, the balance, the system, and the development costs, which includes land, interconnect, permitting costs, et cetera.

The other is the cost of capital, and that's the return demanded by both debt and equity investors in the project.

There is no reason to believe that cost road maps are not going to continue to decrease as we move forward in the future.

Now I do think you will see some tendency to asymptote a little bit.

I'm not sure the rate of change will be what it was several years ago.

But there will continue to be benefits moving forward.

What is harder to predict is where are the capital markets going, what is the required rates of return on the part of investors, and when there's going to be, and that's a little more of a crystal ball type of exercise.

But if you assume constant capital cost, then there's no reason to believe that PPAs would be at a floor.

And then on the mix of that, I don't believe we have ever shared the mix on that opportunity set.

So can't comment on that.

Edwin Mok, Needham and Company.

Thanks for taking my question.

So Jim, just following up on that question, on your answer you got into cost of capital.

Obviously, we've seen increased cost of capital in the energy space in general.

How do you think about that in terms of running your business and how that impacts?

And specifically in certain parts of solar, like residential, it seems like cost of capital has gone up pretty fast.

Have you seen more competitors try to go into utility scale as a result of that?

And then just quickly, any update on TetraSun?

Thank you.

So in terms of the way we think about it, we have always had a very deep pool of investors that we have tapped for to monetize the assets.

Those investors' expectations in terms of return, we've seen variations over time, but the amplitude of those variations has been relatively mild.

And we've also always been relatively conservative in terms of what we've baked into our modeling in terms of what we could achieve in the marketplace.

So the way we think about it is, it's obviously a critical element to our development process, and so we spend a lot of time making sure we're in touch with the market, making sure we're in touch with our customers, making sure we have a sense of what's happening out there.

And we certainly recognize it as an exposure if we didn't pay close attention to it.

But we feel like, and we've demonstrated over the last several years, that we understand the market, and we know how to price our products so that we have the ability to monetize effectively.

So it's sort of yes, it's a big issue and it's a big risk, but that's core to succeeding in our business.

And so managing that risk and understanding that risk is core to what we do.

And there was a second question.

TetraSun?

We'll have more comments about TetraSun at Analyst Day.

Colin Rusch, Oppenheimer.

Thanks so much guys for sneaking me in here.

Can you talk a little bit about your pricing power in the market right now with both the module and model plus products, as you see the efficiency improvements?

And then can you just also give us the delta on underlying cost of capital assumptions on the guidance that you just provided?

So as it relates to pricing power, it all relates to energy density.

And what we've been trying to communicate over the last few calls and we've demonstrated the advantages that we have, not only here in 2015, but where we're going into 2017 and beyond.

And obviously, we're pricing forward with that type of advantage.

So when you think about the spectral response advantage, the temperature coefficient advantage, which ultimately drives to an energy density advantage upwards of high single to low double digits advantages.

So we have quite a bit of pricing power relative to technology.

We have the advantage of the First Solar bankability and strength, and the quality and reliability and willingness to stand behind our product over the long run.

So I think that does translate into significant value in the marketplace.

As it relates to the second to last question -- I'm trying to remember what the last question was -- the cost of capital assumptions, we're not going to get into specifics around that.

It varies by region.

So as we think about what our cost of capital assumption is in Japan, it's dramatically different than what it is in the US, which is dramatically different than what it is in India.

I wouldn't say that we're assuming any significant changes relative to the current environment.

We believe it will be relatively stable, maybe slightly higher in some regions, but we don't go into the specifics of what that assumption is by region.

That does conclude the presentation.

Thank you for your participation.