Alternative Energy Watch: First Solar Downgraded; New Ethanol Bill in the US Senate; Spain's Iberdrola Gets Boost from US Wind Projects (FSLR, IBDRY, STP, SPWRA, YGE, TSL, CSIQ)

Today’s alternative energy news leads off with a downgrade to First Solar Inc. (NASDAQ: FSLR), then looks at a new bill to cut ethanol subsidies, and wraps up with profit news from Spain’s Iberdrola SA (OTC: IBDRY).

Even though First Solar posted strong results for its first quarter, the stock has taken a hit because it lowered its revenue guidance for the second quarter. The company has maintained its full-year outlook, but as a new research report from Caris & Co. notes, in order to meet that full-year target First Solar has to get 70% of its profits in the second half of the year.

Caris & Co. downgraded First Solar to ‘average’ from ‘above average’ and lowered its price target from $172/share to $139/share. The central issue is new projects in Europe, particularly in Germany, Italy, and France. This issue is not unique to First Solar. It affects other solar PV makers like Suntech Power Holdings Co. Ltd. (NYSE: STP), SunPower Corp. (NASDAQ: SPWRA), Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), Trina Solar Ltd. (NYSE: TSL), and Canadian Solar Inc. (NASDAQ: CSIQ), all of which do a lot of business in Europe.

According to Caris & Co., First Solar books about 70% of its sales in Europe, and even though it has a solid US project pipeline, US sales won’t make up for weaker sales in Germany and Italy.

Eight US Senators from four Midwestern farm states have jointly introduced a bill called the Domestic Energy Promotion Act of 2011 which is intended to dramatically reduce federal subsidies for corn-based ethanol. As with all things related to US ethanol production, the legislation is complicated.

Under the proposal, the current $0.45/gallon blender’s credit (or VEETC) would be lowered to $0.20/gallon in 2012 and lowered again to $0.15/gallon in 2013. Beginning in 2014, the credit would be tied to the price of crude oil. If the price of crude is less than $50/barrel in 2014 or thereafter, the credit would be $0.30/gallon. For every $10/barrel increase in crude, the credit would be reduced by $0.06/gallon until it disappears at $90/barrel. The blender’s credit, which is scheduled to expire at the end of 2011, would be extended through 2016. Certain other tax credits would also be extended through 2016.

This legislation has the support of a number of ethanol industry groups, including the Renewable Fuels Association, which appears to have seen the writing on the wall and relaxed its strong opposition to eliminating ethanol tax credits.

A plan announced last week by Senator Max Baucus would repeal some of the tax breaks currently enjoyed by big oil companies, and the success of this new ethanol bill probably depends to some extent on reductions in the tax credits available to the oil companies.

The Baucus plan would eliminate about $4 billion in oil company tax breaks. That works out to about $0.018/gallon at the pump. Cutting the ethanol subsidy in 2012 saves $0.25/gallon of ethanol. Ethanol is currently blended at 10%, which works out to $0.025/gallon at the pump. Not a lot of savings for drivers, no matter how you look at it.

Finally today, the Spanish utility company Iberdrola SA posted higher profits and revenue in the first quarter of 2011 primarily on the strength of its wind energy projects in the US. The company owns an 80% stake in Iberdrola Renovables and is planning to buy the remaining shares for about $2.8 billion later this year.

Iberdrola Renovables generated more than 3 billion kWh of electricity from its US wind farms in the first quarter of 2011. That’s about 40% of its world-wide generation and nearly 50% more than the company generated in the same period a year ago. Iberdrola Renovables has installed capacity of more than 4,700 megawatts in the US, having added 900 megawatts in 2010 alone. Only in Spain does the company have more capacity.

Continued growth in the US is somewhat more problematic though. Low natural gas prices make gas-fired plants more competitive, and Iberdrola expects to install only half as much new capacity in the US in 2011 as it installed in 2010. For 2012, the company expects to add half again as much as in 2011.

That view may be a bit pessimistic, because a 300-megawatt wind farm in North Carolina has received approval from the state utilities commission. If all the required permits are received, construction could begin early next year.

Paul Ausick