First Solar Makes a Sale (ENB, FSLR, YGE, TSL, STP)

Canadian oil and gas pipeline company Enbridge Inc. (NYSE:ENB) today announced that it would purchase a 20 megawatt solar generation plant from First Solar, Inc. (NASDAQ:FSLR). No purchase price was given for the plant, which is located near Sarnia, Ontario, but Enbridge’s CEO said that the company would invest about $100 million on solar energy projects in 2009.

Enbridge shares are down slightly this morning, off 0.56% to $37.62. First Solar shares have jumped more than 5.5%, to $151.78. Other solar PV makers are also basking in the glow. Yingli Green Energy Holding Co. Ltd (NYSE:YGE), Trina Solar Ltd. (NYSE:TSL), and Suntech Power Holdings Co. Ltd. (NYSE:STP) are all up a bit, while most other solar shares are trading down.

First Solar acquired the project’s engineering, procurement, and construction (EPC) rights when it bought the project pipeline of privately owned OptiSolar for about $400 million back in April of this year. The Sarnia project is the first one to come to fruition for First Solar, which hopes to expand its EPC business substantially.

One interesting thing about the deal is that the plant is being built in a province that imposes a feed-in tariff on the local power utility. Under this tariff, the power company is obligated to buy electricity generated from alternative sources for more than the utility can charge retail customers. For example, if the retail kWh rate is $0.10/kWh, the alternative energy supplier might receive $0.50/kWh to cover costs and profit. The utility then spreads the cost around among all its retail customers. Government regulators set the tariff and the utility just has to shut up and pay.

Ontario’s feed-in tariff rate for solar photovoltaics varies by installation type from a high of $0.443/kWh to $0.802/kWh. The rate differential will decline and eventually disappear as the cost of alternative energy generation comes down to meet the cost of traditional coal- or gas-fired generation. Utility operators generally despise feed-in tariffs, but the tariffs do offer one way to mitigate CO2 emissions, which is the primary reason for the tariffs in the first place. The Sarnia plant is expected to eliminate 6,600 tons of CO2 emissions annually.

Another interesting thing about Enbridge’s acquisition is that it seems like a natural extension of the company’s regulated pipeline business. Pipeline companies know how to work the regulation puzzle; it’s been their meat and potatoes for years. Enbridge will hold on to this plant as long as it can make a profit on the feed-in tariff.

Paul Ausick