First Solar (FSLR) today announced that it had signed a contract with the Chinese government that will allow it to build a 2 gigawatt solar power plant in Ordos City, Inner Mongolia, China. The closing of the deal is contingent on execution of definitive agreements.

The new solar field would be the largest in the world, by far. Once it is completed, the installation will cover 25 square miles, larger than the island of Manhattan. It will be able to supply power to three million homes and will be completed in four phases.

First Solar’s shares rose 10% on the news to $134.41.

First Solar indicated that the project would cost $6 billion to construct in the US, but that costs will be lower in China.

The news should be considered outstanding for the solar industry which has been in horrible financial shape for longer than a year. Shares in First Solar are down more than 40% over the last year. The stock in rival Suntech Power (STP) is down 60% over the same period.

Credit Suisse recently made negative comments about the solar industry based on a decline in the prices companies in the sector have charged customers. Jeffries recently cut First Solar’s rating to a “hold” from a “buy” and reduced its price target from $200 to $130.

First Solar is one of the few firms in the industry that has done relatively well financially. In the second quarter, revenues were $525.9 million, up from $267.0 million in the same quarter a year ago. Net income was $180.6 million, or $2.11 per share, up from $69.7 million, or $0.85 per share, for the second quarter of fiscal 2008.

First Solar has been the industry’s leader. The China deal should cement that position.

Douglas A. McIntyre

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