Canadian Solar Inc. (CSIQ), the solar-panel maker whose shares have dropped 77 percent in the past two years, plans to get almost half its revenue next year from selling solar farms after prices for panels collapsed.
The third-largest solar-panel maker, based in Guelph, Ontario, is developing about 260 megawatts of projects in the Canadian province that it expects to sell for C$1.3 billion ($1.3 billion) over the next 18 months, Chief Financial Officer Michael Potter said. Canadian Solar makes its photovoltaic products in China.
A global oversupply drove down panel prices 60 percent since November 2010. Competitors led by First Solar Inc. (FSLR) are chasing sales by building solar farms with their panels and selling the projects to power companies. Canadian Solar hasn’t reported a profit in five quarters as revenue slid 32 percent and moving further downstream gives the company a dedicated market for its products, Potter said.
“Our decision a few years ago to go more into development has put us in a position where we have a much better chance of swinging back to profitability in the near term than a lot of our competition,” Potter said in an interview Dec. 10 in Bloomberg’s Toronto bureau.
Shares fell 77 percent in the past two years after peaking at $51 in 2008. Canadian Solar tumbled to $2.03 on Nov. 15, a record low, after third-quarter sales declined and the company reduced its 2012 shipment forecast to 1.5 gigawatts to 1.6 gigawatts of panels. It shipped 1.3 gigawatts in 2011, and was the third-largest panel maker by capacity, after Suntech Power Holdings Co. (STP) and First Solar.
Canadian Solar declined was unchanged today at $3.01 in New York. The shares gained 11 percent yesterday on reports indicating that China was boosting financial support for the industry. The company today announced the hiring of Zhang Guangchun as chief operating officer.
A growing number of solar manufacturers are expanding their development efforts. First Solar was one of the first to pursue this strategy and was the only profitable panel maker in the second and third quarters of this year among the 17-member Bloomberg Large Solar Index. (BISOLAR) The Tempe, Arizona-based company is developing projects for customers including Warren Buffett.
There is room in the industry for other manufacturer- developers, said Jenny Chase, head solar analyst for Bloomberg New Energy Finance.
“It’s not about being first -- it’s about making money,” Chase said in a phone interview on Dec. 11.
Solar farms offer steady, long-term revenue from selling electricity, which makes them attractive investments, Potter said.
“If you think about it, it’s a long-term bond at a higher yield, because it’s an asset that generates income,” he said.
Canadian Solar announced Dec. 3 a C$139 million loan from Deutsche Bank AG to build five solar farms in Ontario with total capacity of about 49 megawatts. TransCanada Corp. (TRP) has agreed to buy the projects, which will sell electricity to Ontario Power Authority under 20-year contracts.
The solar company may eventually shift its development strategy by building and retaining power plants. “We’re going to slowly but surely pick some projects that we’re going to keep ourselves,” Potter said. “Two to three years from now, I wouldn’t be surprised if we started owning more projects.”
That business is significantly different from building and selling solar farms, Chase said.
“I don’t think it makes sense for them long term, a manufacturer to be an owner of assets -- it’s two completely different asset and capital requirements,” she said. There “are additional, different risks in project development from being a manufacturing business.”
Canadian Solar was founded in Ontario in 2001. Chief Executive Officer Shawn Qu is from Beijing and received a Ph.D. from the University of Toronto in 1995, according to the company’s website. The company’s business model is based on manufacturing panels in China, where labor is less expensive than in Canada. It has 7,000 to 8,000 employees in China.
Canadian Solar expects to develop solar farms in Asia, especially in China, closer to its manufacturing operations Potter said, though it may not generate significant sales in the near term.
“We think it’s going to be a very big market -- but we don’t think it’s going to be as big as people think as fast as people think,” Potter said.
“When you start doing projects, there’s a period for a year or two where the governments and the banks and the construction companies and everybody kind of sort out what it means to build a project and how you connect it, and make sure everybody gets paid properly,” he said. “China’s in that phase right now.”
China announced Dec. 11 that its investments in domestic solar demonstration projects rose to 13 billion yuan ($2 billion) this year. And China Development Bank Corp. agreed last week to provide as much as $1 billion in financing to JinkoSolar Holding Co., a sign the government is starting to select the solar manufacturers it views as most likely to survive the industry downturn.
Canadian Solar is doing a lot of work on residential rooftop projects in Japan, which is a rapidly growing market, Qu said in an interview in London last week. The government in July introduced the world’s highest feed-in tariff, or fixed-premium rate, for power from solar plants to help fill the gap as the nation shifts away from nuclear energy.
“The country is a rapidly growing market and in this fiscal year we expect to experience healthy volume growth,” Qu said.
The companies that survive the price slump will eventually benefit from increased demand that has been driven by falling prices, Potter said. “It’s been very difficult for the industry, but it’s good for the long-term success of solar,” he said.