Times, they are changing. The reign of the undisputed king of solar energy, First Solar (FSLR) might be about to come to a grinding halt. Who is going to profit?

First Solar has had a mighty run, see the following graph

The reasons for that are quite simple. Apart from near flawless execution, it’s caused by the fact that:

• Their ”thin film’ technology they’re using is much cheaper to manufacture (currently, their panel prices are less than $1 per kW to manufacture than it’s main rivals, who use polysilicon. However, these ‘thin  film’ panels are also less efficient, so there is something of a trade-off, especially when space for placing pannels is limited
• The polysilicon based rivals were hobbled by a large shortage in this raw material, which made it very expensive (prices of $400-500 on the spot market were common last year).

This is now shifting. Poly prices have come down from the $400-500 range to just above $100, so the silicon based players are given a big boost in competitiveness, and competition is ensuring that these advantages are reflected in prices of panels, which have come down significantly already.

None of this actually comes as a surprise. We wouldn’t count First Solar out (there is a Barron’s article that argues it’s shares could be cut in half), but poly prices have fallen so far, so fast that First Solar is no longer immune to what happens with rival technologies.

Bad news for First Solar is good news for the poly based companies, like Suntech (STP) and Trina Solar (TSL). These have had nice runups, despite falling prices for their panels. Cancelling their plans for their own polysilicon plant turned out to be a good move for Trina Solar.

LDK went ahead with their polysilicon plants (two, as it happens), and they’re paying the price. However, when these plants start performing, they will be able to produce polysilicon for about $30 per kilo, giving them a price advantage despite falling poly prices.

So we think long-term call options (for instance the Jan 2011 $20 calls) in LDK could be a nice strategy, especially since China is starting to stimulate the sector in earnest. Picking up a couple at $1.6-1.7 seems quite a reasonable idea to us. There is every chance that these things will rally between now and Jan 2011..