Solar Photovoltaic Archives


July 31, 2014

EU, LDK & Suntech Undermine Solar Recovery

Doug Young 

The war of words against Chinese solar panel makers is heating up from both sides of the Atlantic, with growing signs that Europe may reconsider anti-dumping duties as the US moves closer to imposing its own new duties on the beleaguered manufacturers. Meantime, 2 of the biggest Chinese victims of the sector’s recent turmoil have risen from the ashes, with LDK (OTC:LDKSY) and Suntech (OTC:STPFQ) both announcing new moves more than a year after each became insolvent. Among those 2 moves, LDK’s looks the most worrisome, potentially bringing major new volumes of polysilicon, the main ingredient in solar panel production, back into a market whose current recovery is still quite weak.

All of these separate developments show the solar industry has yet to reach a new state of stability, and that such a new equilibrium could still be years away as market and government forces intermingle to keep the sector in a state of uncertainty. The latest destabilizing forces began late last week in the US, as Washington moved one step closer to imposing new anti-dumping duties on Chinese panels. (English article) That move was largely expected and aimed at closing a loophole in an earlier ruling, and drew the usual howls of protest from Beijing and most of the country’s major solar panel makers. (English article)

In a new and similar development from Europe, a major local trade group is blasting a compromise agreement reached between China and the EU last year that averted a similar trade war. (English article) I’ll admit I don’t completely understand the logic in the new sounds of dissatisfaction coming from EUProSun, a group that represents about 40 percent of EU solar panel makers, including Germany’s outspoken SolarWorld (Frankfurt: SWVKk, OTC: SRWRF).

But the bottom line is that the European manufacturers believe that last year’s landmark compromise agreement isn’t working. These latest protests come just over a month after the European panel makers previously complained that their Chinese rivals were finding loopholes to evade terms of the same compromise agreement. (previous post)

If there’s any truth to the European complaints, which seems likely, it could soon become difficult for the European Trade Commission to ignore the situation as more local companies struggle and even go bankrupt. Europe’s trade commissioner previously wanted to impose anti-dumping tariffs on the Chinese panel makers similar to those from the US, and was only prevented from doing so after several major EU leaders intervened to seek a compromise solution. Thus if the compromise really isn’t working, the EU could easily reopen its investigation into unfair state support for the Chinese panel makers and impose punitive tariffs as soon as by the end of this year.

Meantime, let’s look quickly at the latest news bits from LDK and Suntech, 2 former sector leaders that both went bankrupt and are just now starting to regroup and resume business after major reorganizations. The most worrisome of the news bits says that LDK is planning to restart a long-idled plant making polysilicon, the main ingredient used to make solar panels. (Chinese article) The massive 10 billion yuan ($1.6 billion) plant had been idled for 2 years, and its return to the market will inevitably put pressure on global polysilicon and panel prices.

Suntech’s news looks a bit more benign, and will see the company open a subsidiary to serve South Africa. (company announcement) The move is one of the first major ones by Suntech since its primary assets were acquired last year by Hong Kong-listed Shunfeng (HKEx: 1165), which is now trying to move ahead with the well-known Suntech name. An aggressive new Suntech in the solar market could also undermine the sector’s recent stabilization, hinting at turbulent times ahead for the sector for the rest of this year and into 2015.

Bottom line: The EU is likely to reopen an anti-dumping probe into Chinese solar panel makers and impose punitive tariffs, while new moves by Suntech and LDK will further undermine the sector’s recovery.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

July 30, 2014

New Tariffs Likely To Raise US Solar Prices

Jennifer Runyon

The US Department of Commerce announced preliminary findings in the new trade case against Chinese and Taiwanese PV products.

On Friday evening the U.S. Department of Commerce (DOC) announced its preliminary findings in the antidumping duty (AD) investigations of imports of some crystalline silicon PV products from China and Taiwan. Most solar products entering the U.S. market from China and Taiwan will now face import duties.

According to a fact sheet released by the DOC, the AD law “provides U.S. businesses and workers with a transparent and internationally accepted mechanism to seek relief from the market-distorting effects caused by injurious dumping of imports into the United States. The DOC believes that this creates  “an opportunity [for U.S. businesses] to compete on a level playing field.”

The DOC has prelimarily determined that “certain crystalline silicon photovoltaic products from China and Taiwan have been sold in the United States at dumping margins ranging from 26.33 to 58.87 percent, and 27.59 to 44.18 percent, respectively and will be collecting tariffs on the following manufacturers in the following amounts. The tariffs will be collected immediately, although final determinations will not be made until December.

From China:

  • Trina Solar (TSL) – 26.33 percent
  • Rensola (SOL) and Jinko (JKS) – 58.87 percent
  • Suntech (STP) – 42.33 percent
  • Another 42 unspecified manufactures – 42.33 percent
  • China-wide entity (those who didn’t respond to the DOC’s questionnaire) -165.04 percent

From Taiwan:

  • Gintech – 27.69 percent
  • Motech – 44.18 percent
  • All others 35.89 percent

The ruling is inclusive of many pieces of the solar manufacturing puzzle.  According to the DOC fact sheet it includes the following:

Crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials.

For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels assembled in the subject country consisting of crystalline silicon photovoltaic cells that are completed or partially manufactured within a customs territory other than that subject country, using ingots that are manufactured in the subject country, wafers that are manufactured in the subject country, or cells where the manufacturing process begins in the subject country and is completed in a non-subject country.

Subject merchandise includes crystalline silicon photovoltaic cells of thickness equal to or greater than 20 micrometers, having a p/n junction formed by any means, whether or not the cell has undergone other processing, including, but not limited to, cleaning etching, coating, and/or addition of materials (including, but not limited to, metallization and conductor patterns) to collect and forward the electricity that is generated by the cell.

Thin-film PV will not face tariffs.  Also excluded are any products that are covered by the existing antidumping and countervailing duties as well as PV cells not exceeding 10,000 mm2 in surface area that are integrated into consumer goods who function to power that consumer good (like a solar-powered calculator).

The DOC estimates that in 2013, the value of solar PV products imported from China and Taiwan was $1.5 billion and $656 million, respectively.

U.S. Industry Reacts

SolarWorld (SRWRF), the solar petitioner in the case against China and Taiwan, commended the DOC’s determination.

“We and our workers are very gratified to hear that the U.S. government once again has moved to block foreign government interference in our economy and clear the way for the domestic production industry to be able to compete on a level playing field,” said Mukesh Dulani, president of SolarWorld Industries America Inc.  “We should not have to compete with dumped imports or the Chinese government.  Today’s actions should help the U.S. solar manufacturing industry to expand and innovate.”

Jigar Shah, president of the Coalition for Affordable Solar Energy (CASE) released a statement calling the determination “another unnecessary obstacle” that he said will “hinder the deployment of clean energy by raising the prices of solar products.”

He said: “Due to these tariffs, previously viable projects will go unbuilt, American workers will go unhired and consumers that could have saved money through solar energy may not be able to benefit.”   

CASE maintains that America’s solar manufacturers are strong and are providing jobs for 29,000 U.S. workers.  In addition almost 100,000 Americans are employed downstream in the system installation, sales, distribution and project development sectors.

The coalition collected the following statements from some of its members:

Ron Corio, President of Array Technologies, based in Albuquerque, NM and representing over 100 jobs said: “As a U.S. solar manufacturing company, we’re very disappointed in today’s anti-dumping determination. By increasing the price of solar power through tariffs, SolarWorld is shrinking the market for our products here in the United States and punishing successful U.S. solar businesses. Our company is proof that American solar manufacturing jobs will decrease under these special trade protections.”

John Morrison, COO of Strata Solar, based in Chapel Hill, NC and representing over 1,000 jobs said: “Due to their scale, the utility and large commercial solar sectors are particularly sensitive to the uncertainty and price increases caused by these tariffs. Until this dispute is resolved, our industry will build fewer projects and install less solar. It’s time to end the litigation, negotiate a solution and put more Americans back to work.”

Ocean Yuan, Founder and CEO of Grape Solar, based in Eugene, OR said: “My company assembles and sells complete solar energy kits directly to customers and in major retail stores across the country. The number one reason customers cite when switching to solar energy is cost savings, but these misguided tariffs are inflating prices. A negotiated solution to this dispute will ensure the continued growth of our industry and small businesses like mine.”

Chinese Industry Reacts

In an interview with Bloomberg news, Sebastian Liu, director of Investor Relations at Jinko Solar said that top Chinese manufacturers would elect to pay the 2012 duties without using cells from Taiwan or a third-country. Jennifer Liang, a Taipei-based analyst from KGI Securities Co told Bloomberg that the duties would hurt producers from Taiwan the most.

Taiwanese solar stocks including Motech, Gintech, E-Ton Solar and Neo Solar dropped in reaction to the news, said Bloomberg.

Organizations Urge a Settlement

CASE’s Shah believes that SolarWorld should work with the U.S. solar industry to end litigation “in favor of a win-win solution like the Solar Energy Industries Association (SEIA) settlement proposal.”

He said that CASE members represent the industry majority and that they “demand a solution that ends uncertainty in the marketplace by preventing further trade litigation and that allows solar power to compete cost-effectively with traditional energy sources, thus enabling the market’s further growth.”

Rhone Resch, president and CEO of SEIA echoed Shah. “Enough is enough. The Department of Commerce continues to rely on an overly broad scope definition for subject imports from China, adversely impacting both American consumers and the vast majority of the U.S. solar industry,” Resch said. “We strongly urge the U.S. and Chinese governments to ‘freeze the playing field’ and focus all efforts on finding a negotiated solution. This continued, unnecessary litigation has already done serious damage, with even more likely to result as the investigations proceed.”

Resch believes that a “win-win” solution is still achievable. “As the old saying goes, ‘where there’s a will, there’s a way.’ Today, the parties are finally engaged and all sides seem committed to finding a negotiated solution. I am encouraging my U.S. and Chinese industry colleagues to roll-up our sleeves, work together, and find a deal that’s good for everyone,” he said.

For more discussion about U.S. trade relations, play the video below.

Timeline for Next Steps

Final determination of the AD investigation is expected on December 15, 2014. If that final determination is affirmative then the International Trade Commission will issue its final determination on January 29, 2015 and the order will be issued on February 5, 2015.

Jennifer Runyon is chief editor of and Renewable Energy World magazine, coordinating, writing and/or editing columns, features, news stories and blogs for the publications. She also serves as conference chair of Renewable Energy World Conference and Expo, North America. She holds a Master's Degree in English Education from Boston University and a BA in English from the University of Virginia.

This article was originally published on, and is republished with permission. 

July 18, 2014

Rulings Boost China Wind, Solar In US

Doug Young

In a quirk of timing, 2 completely unrelated rulings are boosting the outlook for Chinese new energy firms from the wind and solar sectors in their complex relationship with the US. The 2 cases are quite different, but each reflects the wariness Washington feels towards these Chinese firms due to their government ties. In the bigger of the 2 cases, a World Trade Organization panel has ruled that US anti-dumping tariffs against Chinese solar panel makers violate WTO rules. In the second case, a US judge’s ruling has given a boost to a Chinese firm that planned to build a wind farm in the state of Oregon, only to get vetoed by Washington over national security concerns.

Neither of these rulings is the end of the story, and it’s still quite possible that Washington could prevail in one or both cases. But the WTO ruling in the solar case could be a tough one for Washington to fight, for reasons that I’ll explain shortly. That could be good news for the entire solar panel sector, as it could force Washington to seek a negotiated settlement in the matter. Such a deal would benefit nearly everyone by maintaining strong global competition, which is a critical element to foster rapid industry development.

All that said, let’s start with a look at the WTO ruling, which was part of a broader series of decisions critical of Washington’s anti-dumping duties. (English article) Washington had argued that Chinese solar panel makers received unfair government subsidies in a number of ways, from subsidized use of government land, to cheap loans from state-run banks, and tax incentives. The US conducted its own investigation 2 years ago, which ended with its decision to impose punitive tariffs against the Chinese firm.

The WTO’s ruling doesn’t dispute Washington’s premise of unfair state subsidies, but rather finds fault with part of the process. Put simply, the WTO’s rules say countries can only impose such anti-dumping penalties if they can prove the guilty companies are wholly or at least partly state owned. That’s a bit problematic in this instance, since many of China’s biggest solar panel makers started out as venture-backed private companies that are now big publicly-traded firms.

In my view the WTO ruling seems based on a technicality, since China clearly subsidizes all domestic solar panel makers due to Beijing’s decision to aggressively promote the industry. But rules are rules, and Washington and everyone else needs to respect the WTO’s guidelines. Washington could still try to prove that private Chinese panel makers like Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ) are somehow partly state-owned; but I’m hopeful that maybe the Obama administration will use this moment to re-examine its stance and try to seek a negotiated settlement in the matter.

Meantime on the wind front, a US judge has ruled the Obama administration wasn’t transparent enough when it cited national security concerns as its reason for vetoing a planned wind farm being built by construction equipment maker Sany Heavy (Shanghai: 600031). (English article) This particular case dates back nearly 2 years ago, and reverses a previous ruling by a lower court that had sided with the Obama administration.

In this latest ruling, the judge said the Obama administration was too secretive about its reasons for vetoing the plan, which denied Sany the right to defend itself or seek modifications that might placate the government. Previous reports had speculated that Washington was worried about spying, since the wind farm’s location was near a defense plant making high-tech drone aircraft. I would agree with the judge in this matter, and say that Washington needs to provide at least some of the evidence behind its decision that is likely to cost Sany millions of dollars in lost investment.

Bottom line: A WTO ruling against US anti-dumping tariffs on Chinese solar panels could force Washington to re-think its stance in the matter and seek a negotiated settlement.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

July 08, 2014

RGS Energy: Troubling Inconsistencies

Garvin Jabusch

About three weeks ago, I posted a piece called "RGS Energy, Tempered, Opportunistic Growth," an optimistic bit of coverage on one of our holdings,  (RGSE), that included an 18-month price target of $10.00 per share. Since then, several developments and pieces of information have come to light that have caused us to revise our assessment of the company.

Thursday, July 3, a quiet half-market day, RGS Energy released a statement announcing plans to monetize its previously filed potential shelf offering; "RGS Energy (NASDAQ: RGSE) has entered into a definitive agreement to raise approximately $7.0 million in a private placement financing transaction. Under the terms of the agreement, RGS Energy will issue units consisting of an aggregate of 2,919,351 shares of its Class A common stock and warrants to purchase up to 1,313,708 additional shares of Class A common stock, at a price of $2.40 per unit." This deal has been offered to and accepted by as yet undisclosed buyers at well below RGSE's market price in the $2.90s on July 3. The market reacted unfavorably to this low self-valuation from RGSE, driving the share price down approximately 16 ½ percent in the two market days that have followed the announcement, but even so, the private placement valuation remains below market as of this writing.

It gets more interesting. Not only do participants receive this fire-sale valuation, but also, "[e]ach unit consists of one share of Class A common stock and a warrant to purchase 0.45 shares of Class A common stock at an exercise price of $3.19 per share. The warrants are exercisable beginning six months after issuance and for a period of five years thereafter." So participants are buying already in-the-money shares, and also getting up to 5 ½ more years to watch the company grow, risk free, before deciding whether to buy more shares at $3.19. Frankly, I'm surprised that management thinks little enough of their firm that they felt the need to offer such a cheap price and also such a fantastic sweetener to raise equity capital. Not knowing all the deal details, I may be missing something, but if this was the best valuation RGSE could get for equity, why didn't they use low-interest debt instead? As of last report, the company had zero long-term debt, a perfect position for a cash-flow positive business to fund operations on the cheap with some kind of note offering.

All in then, up to 6,137,936 dilutive RGSE shares may be sold at $2.40 and $3.19 per share, representing up to 13.65 percent dilution to the existing shareholders of the previously outstanding 44.97 million shares. This is in exchange for $6.4 million (net: of the $7mm raise, close to 8.6 percent, or $600,000, is going to fees and expenses) in "operating capital," and "debt repayment," and not necessarily so much for expansion, except a vague statement about proceeds "to support the launch of its residential leasing platform."

When we met with RGSE's CEO Kam Mofid on May 22, 2014, we asked him about the shelf filing that made this transaction a possibility. That day, he told us that a "shelf offering is filed, but it is to be used only opportunistically for tactical expansion." We understand that business needs can change -- even in just a six-week period -- but the terms of the execution of the shelf offering and the uses of capital as represented in the press release don't seem to agree with Mofid's in-person confidence in opportunistic growth via smart use of his war chest. And Mofid represented to us that RGSE has no debt except for a revolving credit line with Silicon Valley Bank (SVB), which in late May he told us they pay off in full every quarter. So in what sense can their press release be accurate about using proceeds to pay down debt? Only in the sense that they will pay off the SVB line -- something they were already doing with cash flow -- with the new capital. On the contrary, now would have been the time to take on debt rather than issue new equity, thus providing the opportunity to grow the firm to the point where they could get a much better valuation for its shares upon exercising the shelf offing in another year or two.

In the end, we can't help but feel that RGSE's newly announced sources and uses of capital conflict with the business approach as articulated to us by the firm's CEO less than two months before.

In the last post, I wrote that RGSE had every chance of hitting $10 per share by the end of 2015. That was based partially on the rapid growth of the solar installation industry, on our confidence in management ability to execute, and also partly on my assessment of RGSE's value relative to the total market capitalization of SolarCity (SCTY). Since that post, SCTY has announced plans for massive vertical integration of PV panel manufacturing of the most technologically advanced panels and at prices competitive with any panels out there. This has changed the fundamental nature of SCTY and renders moot my comparison of two installation-only firms.

Where SCTY has added a high-tech manufacturing firm to its business, RGSE has signed a supply agreement with SolarWorld to source panels for installation. We can't help but notice that it was SolarWorld that persuaded the Commerce Department to levy tariffs on Chinese solar panels imported into the U.S., thus doing more to slow the growth of RGSE's core business than has any other single entity. According to Forbes, SolarWorld has been called "a crazed agent provocateur" and "[a]t a recent dinner in San Francisco, Suntech chief technology officer Stuart Wenham, an Australian, was just as blunt. 'SolarWorld is a pariah…No one wants to deal with them.'" SolarWorld's continuing efforts to undermine the economic competitiveness of solar PV in the United States would seem to fly in the face of RGSE's long-term business interests.

Finally, then, we have to revise our price target. To external appearances, it seems RGSE may not be acting entirely within the best interests of the firm or its existing shareholders. Eschewing presumably cheap debt in favor of expensive, dilutive equity fundraising, and offering a sweetheart deal to get it done, seems to show an internal lack of confidence in the firm's valuation and near-term prospects. Nevertheless, the simple fact that RGSE finds itself in one of America's fastest-growing industries still bodes well for growth, and with the low current valuation, for the possibility of a takeover. We're lowering RGSE from "buy" to a "hold" rating, and lowering our 2015 price target to U.S. $5.00. While we're disappointed with current events, and we don't presently intend to accumulate more shares, we are not planning to immediately exit our position in RGSE, since, as our price target indicates, we do think there's upside potential from the current $2.53.

Disclosure: Green Alpha Advisors presently holds both RGSE and SCTY. 

Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha ® Next Economy Index, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club’s green economics blog, "Green Alpha's Next Economy."

July 01, 2014

Chinese Commercial Solar Group Formed To Tackle Trade Wars

by Doug Young

Chinese solar panel makers have taken an important step to solving their ongoing trade spat with the west by formally launching a private sector trade association to speak on their behalf. The move gives the panel makers their first truly commercial representative to discuss the matter with peers in the US and Europe, providing a better alternative to the government-backed groups that previously spoke for them.

This kind of step is long overdue, and should help to de-politicize and hopefully solve what is largely a commercial matter, involving western claims of unfair state subsidies. China should encourage and support the formation of more such independent industry associations led and run by actual companies as an important tool to reduce broader frictions with its major trading partners.

China’s solar panel sector has been locked in a dispute with the west for much of the last 3 years, following a prolonged industry downturn that has led to numerous bankruptcies worldwide. The west argued that China helped to create the huge oversupply that sparked the downturn by giving unfair subsidies to homegrown companies through policies like tax breaks and low-interest loans.

Amid the turmoil, the US last year imposed punitive tariffs against Chinese panels and is now on the verge of implementing a second round of penalties to close a loophole in the earlier ruling. The European Union also threatened to impose its own tariffs, but reached a last-minute settlement last year after negotiating an agreement with a group representing the Chinese panel makers.

Now that settlement is also in danger of unraveling, following recent allegations by European panel makers that the Chinese firms are not honoring the agreement.
In the EU case, the Chinese panel makers were represented in negotiations by the Chamber of Commerce for Import and Export of Machinery and Electronic Products, a government-backed industry group. Such government-backed groups have traditionally been the main spokesmen for various Chinese industries, mostly for historical reasons. But due to their government connections, they often carry strong political overtones that sometimes hinder realistic, commercially-based discussions.

In a bid to break that cycle, the solar panel makers recently formed their own industry association, the China Photovoltaic Industry Association (CPIA). Last week the group elected the CEO of Trina Solar (NYSE: TSL), one of the industry’s largest players, to become its first president for the next 5 years. (company announcement)

The CPIA’s includes most of the sector’s major manufactures, such as Trina, Yingli (NYSE: YGE), Canadian Solar (Nasdaq: CSIQ) and JA Solar (Nasdaq: JASO), meaning it can truly represent the entire industry when dealing with issues like the current trade wars. Equally important, the group has also committed to maintaining close ties with the Chamber of Commerce for Import and Export of Machinery and Electronic Products, ensuring that Beijing will remain informed on all the latest developments in industry issues.

This kind of independent trade group formed and run by actual companies is quite common in the west, where governments realizes that such independent associations can best represent the interests of their individual members.

In a bid to solve the clash in the US, the locally based Solar Energy Industries Association (SEIA) offered up a plan last year suggesting the Chinese manufacturers set up a fund that could help to compensate US rivals for some of their losses due to unequal state support. (previous post) The SEIA is one of several private groups representing the sector in the US, and its plan has yet to gain any traction, at least not publicly.

But the group’s proposal shows that private industry organizations can often propose innovative plans that are better suited to solving trade disputes than those offered by governments that are less familiar with individual issues. By comparison, China’s deal with the EU deal resulted in a plan for Chinese companies to voluntarily raise their prices to be on par with European rivals. The EU plan’s current troubles hint that the Chinese manufacturers were never fully committed to the proposal, perhaps because of their limited participation in the negotiations.

The formation of the CPIA could provide some fresh new impetus to solve the current disputes, since the Chinese panel makers now have their own group that can directly speak on their behalf. The creation of more such groups could help to reduce China’s trade frictions with the west in other areas by providing creative solutions crafted by companies themselves, which are always the biggest losers when such disputes result in unilateral punitive actions.

Bottom line: A new private solar industry association could bring fresh impetus to solving an ongoing trade dispute between China and the west over state subsidies.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

June 18, 2014

SolarCity Buys Silevo for $200 Million, Plans GW Factory in NY

Meg Cichon

Silevo's Triex Solar Technology
In an effort to further streamline its solar business and lower the overall cost of solar energy, SolarCity (SCTY) announced today that it would acquire high-efficiency cell manufacturer Silevo for $200 million. In an effort to scale up the technology, SolarCity plans to construct a 1-GW manufacturing facility located in Buffalo, New York within the next two years.

The solar leasing company acquired mounting company Zep Solar in late 2013 in an effort to further vertically integrate its business. Now, chairman Elon Musk explained SolarCity’s imminent need for more, and cheaper, solar panel production, which he expects to reach “tens of GW” annually. “We thought that there was a risk of not being able to have the solar panels we need to expand [SolarCity] long-term…[When considering] the rate at which solar power is advancing, the amount of panels that are being made at a large scale today is really not fast enough,” he said during a conference call.

Musk emphasized the need for not only increased panel production, but a focus on advanced panel technology, which is what SolarCity believes that Silveo has to offer. A combination of higher volume and increased efficiency will “have a dramatic impact on solar and in particular be able to have solar power compete on an unsubsidized basis with the fossilized grid,” said Musk. “It is critical that you have high-efficiency solar panels and a total installed cost as low as possible.” 

The Technology

After reviewing dozens of companies, SolarCity ultimately decided to pursue Silevo due to its proven technology and manufacturing success. Silevo uses what it calls “triex” technology to create a crystalline-amorphous hybrid cell, which creates a tunneling oxide and amorphous silicon layer. These layers allow increased temperature tolerance and lead to a high efficiency that currently stands at 21 percent, but SolarCity hopes to reach 24 percent within the next couple of years. The manufacturing process also uses copper electrode metallization rather than silver, which leads to lower costs.

Watch Ucilia Wang discuss Silevo’s technology with then-vice president of business development and marketing Chris Beitel at the 2012 PV America Conference here.

SolarCity co-founder and chief technology officer Peter Rive explained during the conference call that the Silevo technology compares well to standard cells in the 17-18 percent efficiency range and thin film in the 13-14 percent range. While SolarCity’s goal is to eventually reach 24 percent, Rive also noted that 26.4 percent is possible with ground-mounted and tilted flat roof systems due to the technology’s bifacial nature, which means it can absorb sunlight from both sides of the panel.

Rive explained some of the advantages of higher efficiencies with a common residential rooftop system comparison: “Consider a typical 6-kW system with standard efficiency panels and then picture that same system with 24 percent efficiency tri-cell,” he said. “Currently the system requires 24 panels, but the triex-module will require 18 panels. So it requires less labor, less mounting, less wiring, and so on.”

Big Manufacturing Plans 

SolarCity is currently in discussions with the state of New York for its manufacturing facility. According to Rive, its initial target capacity is 1 GW within the next two years, making it one of the single largest solar panel productions in the world, creating thousands of local jobs. Groundbreaking is expected to happen very soon, according to Musk. Silevo currently has a 32-MW factory in China.

When comparing the relative costs of domestic vs overseas manufacturing, said Rive, “we believe that at scale we can achieve a competitive cost domestically as a result of having lower energy costs, avoiding import tariffs, a highly automated manufacturing facility and the fact that the triex cell has less labor content per module due to higher efficiency.”

The Silevo technology can be manufactured with off-the-shelf equipment from the semiconductor and flat-panel display industries and standard wafers, according to Rive. SolarCity also plans to open a research facility in silicon valley to ensure that it meets and even exceeds its efficiency targets.

When all is said and done, SolarCity will be one of the most vertically integrated solar companies in the world, spanning module manufacturing, installation, operations and maintenance, and energy sales. “What I am excited about is when we combine engineers at Silevo, Zep, and SolarCity to tailor manufacturing for all solar panels so they are specifically ready for installation,” said Rive.

Though the company does not have current plans to pursue any of the missing pieces to its vertically integrated puzzle, such as inverters or power optimizers, Musk said that they are open to suggestions and constantly looking to pursue the ultimate goal of the industry — to lower the cost of energy.

“We intend to put a lot of effort R&D on the panel side, into the hardware that we already own, and into inverter and battery technology to provide an overall solution to provide electric power at a price less than fossil fuels that are burdening the grid – that is the key threshold,” said Musk. “The demand grows exponentially as price drops, and it will grow at an enormous pace if we compete with grid electricity with no incentives. That is and has been the goal in order for the world to have sustainable energy."

Meg Cichon is an Associate Editor at, where she coordinates and edits feature stories, contributed articles, news stories, opinion pieces and blogs. She also researches and writes content for and REW magazine, and manages social media.  Formerly, she was an Associate Editor of ideaLaunch in Boston, MA. She holds a BA in English from the University of Massachusetts and a certificate in Professional Communications: Writing from Emerson College.

This article was first published on, and is republished with permission.

SolarCity Soars On Silevo Aquisition

Silevo's Triex Solar Technology
By Jeff Siegel


SolarCity Corp. (NASDAQ: SCTY) has signed a deal to acquire Silevo, a solar panel technology and manufacturing company on June 16th.

With Silevo now in the fold, SolarCity is in discussions with the state of New York to build a new manufacturing plant with a targeted capacity in excess of one gigawatt – within two years. Upon completion, this will be one of the largest solar panel production plants in the world.

Although there are plenty of manufacturers in the marketplace today, this exclusive deal gives SolarCity access to a wealth of standardized product at a very attractive cost.

Here's what SolarCity reps had to say. . .

Given that there is excess supplier capacity today, this may seem counter-intuitive to some who follow the solar industry. What we are trying to address is not the lay of the land today, where there are indeed too many suppliers, most of whom are producing relatively low photonic efficiency solar cells at uncompelling costs, but how we see the future developing. Without decisive action to lay the groundwork today, the massive volume of affordable, high efficiency panels needed for unsubsidized solar power to outcompete fossil fuel grid power simply will not be there when it is needed.

SolarCity was founded to accelerate mass adoption of sustainable energy. The sun, that highly convenient and free fusion reactor in the sky, radiates more energy to the Earth in a few hours than the entire human population consumes from all sources in a year. This means that solar panels, paired with batteries to enable power at night, can produce several orders of magnitude more electricity than is consumed by the entirety of human civilization.

Even if the solar industry were only to generate 40 percent of the world’s electricity with photovoltaics by 2040, that would mean installing more than 400 GW of solar capacity per year for the next 25 years. We absolutely believe that solar power can and will become the world’s predominant source of energy within our lifetimes, but there are obviously a lot of panels that have to be manufactured and installed in order for that to happen. The plans we are announcing today, while substantial compared to current industry, are small in that context.

Clearly, the market was pleased with SolarCity's announcement. The stock soared more than six percent in morning trading. Of course, the stock is also down considerably from its March, 2014 high of more than $77.

I actually commented on this about a month ago, noting that it was time to buy shares. I remain bullish on SolarCity and continue to stand by my one-year price target of $85.


Jeff Siegel is Editor of Energy and Capital, where this article was first published.

June 15, 2014

RGS Energy: Tempered, Opportunistic Growth

Garvin Jabusch

Kam Mofid has a more long-term vision than most CEOs. His emphasis on the next earnings per share (EPS) report and his obsession with short-term focus are minimal relative to America's typical boss. He's not primarily managing to the next quarter.

His company, RGS Energy (ticker symbol: RGSE), is a solar-module installer, mainly in the residential vertical. RGSE doesn't directly compete with most solar panel manufacturers. Instead, it provides residential rooftop installation distribution for them. It then captures lease payments and revenues from selling excess electrical generation to the grid (in states that allow it). Whereas First Solar (FSLR), Canadian Solar (CSIQ), and Sun Edison (SUNE) are primarily engaged in module manufacturing and commercial and utility-scale installations (although not exclusively -- this is a fast-evolving area), RGS Energy and its larger competitor SolarCity (SCTY) are all about home/residential installations. For now, only three residential installation players have national reach: SCTY, RGSE, and Vivint, Inc. (Vivint is privately held and not discussed here).

RGS Energy Logo

RGS Energy was once the idealistic brainchild of green-oriented consumer -goods firm Gaiam, Inc. (GAIA), and was then known as Real Goods Solar. Mofid joined in 2012, soon after RGSE was spun off from its parent, and quickly moved to modify the makeup of the board, diversify the shareholder base, and "move away from the hippie business mentality," bringing on a number of individuals with practical experience and track records of delivering successful businesses.

Pragmatically, RGS Energy didn't become a true competitor to SolarCity until Mofid joined the company. Not that Kam Mofid and his team are necessarily trying to catch SolarCity in terms of scale or market share. They believe their industry's growth potential will generate enough market share to go around. In Mofid's words, "there's plenty of work to do." Since residential installations don't require any new land development, rooftops are effectively brownfields, and as such represent a great low-impact source of electricity. And Mofid sees many greenfield opportunities in those brownfields.

Whether via smart strategy or just good timing, Mofid and his team have had benefitted from observing SCTY's successes and encounters with pitfalls. SCTY in many ways has paved the way in the residential installation business, and RGSE has had a bird's eye view of the process -- stumbles and all.

As a result, RGSE has chosen not to directly emulate SCTY. In Mofid's opinion, that company is taking on inappropriately high risk. In particular, Mofid thinks SolarCity is banking too heavily on its retained-value-model and being too aggressive in terms of assumed value of solar modules after 20 years of depreciation and continuing technological innovation. Learning from SCTY's success and risks with this model, RGSE will soon no longer rely on tax-equity concepts, reflecting a belief that retained value made sense in the past but no longer applies in "2014 thinking." Already, RGSE has incorporated lower tax value into its growth model as a risk control.

Mofid is not as sanguine as SCTY is about the retained-value-model of valuing solar panels. He also believes that SolarCity is in general too aggressive and too eager for risk -- not only in poor potential realization of retained value of installations but also, and perhaps more importantly, in the "deteriorating policy and subsidy environment in the U.S.," and on a state by state basis.

In any fast-growing industry where the name of the game is to capture as much emerging territory as possible, it's always a struggle to manage between top line growth vs. EPS. Here, RGSE, like SCTY, has chosen to invest in growth at the expense of current EPS, but in a more conservative way than SCTY. As Mofid says, "meaningful GAAP revenue is possible soon with our model."

There is not yet a clear winner between the more and the less aggressive strategies, not that there needs to be. That two of the three largest solar installer companies in the U.S., SCTY and (the much smaller) RGSE, each employ one of these approaches means that a public equity investor can get exposure to both and not have to choose between methods. This is fortunate, because it's possible that both the rapid and the measured growth strategies could turn out to be winners. We like both the high-growth SCTY and the measured-growth RGSE, as each brings interesting and potentially valuable characteristics. Another benefit of investing in both approaches: Not only do RGSE and SCTY employ different approaches to managing growth but they also don't operate in many of the same states. However, for investors who find SCTY's all-out-for-growth approach too aggressive, RGSE may represent a more temperate alternative.

The residential installation market is new and growing fast, so larger players with more access to capital have a major advantage over smaller, locally based firms, both in ability to leverage pricing, engage more projects, and have the flexibility to emphasize growth in states with the most favorable conditions for the solar installation business. This last point is more important than it may seem: Many areas, under the sway of the local public utility commission and the monopoly or near-monopoly of electric utilities, can, or have, or may at some point attempt to stall growth in solar with policies unfavorable to the industry. A national model diversifies and mitigates this risk. Ultimately, as renewable energies cause overall electricity prices to fall, sentiment will cause states and utilities to relent, which will ultimately help solar and wind all along their value chains, but until then, geographic diversity is going to be key. RGSE currently operates in 16 states.

Mofid has a goal of becoming and remaining at least the third-largest installer nationally. His understanding of the scope and depth of the solar installation market in the U.S. shows strongly here: He is content to capture 1/10th of that rapidly growing business.

So RGSE is now beginning to take steps to accelerate growth. Primarily, this is taking the form of a financing joint venture called RGS Energy Asset Management, owned with Altus Power America Management. Goldman Sachs (GS) has agreed to provide capital access for the JV, but Mofid didn't address the terms or scale of its involvement. (Goldman evidently likes installation diversification as much as we do: They are also major capital providers to SCTY.)

RGSE has a couple of other sources of and access to capital. First, the firm currently has no long-term debt, only a revolving line of credit with Silicon Valley Bank that it pays down to zero at the end of each quarter. Long-term debt financing does appear to be in the cards going forward, though. As Mofid says, with respect to expansion, "there will be a debt aspect". Second, they have a $200 million mixed shelf filing reserved to fire growth (acquisitions and capital) when they perceive an opportunity.

Near-term, Mofid feels the industry has now and will continue to have access to state and federal incentives at least until 2016. After that, incentives most likely won't go away, but may drop by some meaningful percentage. So Mofid projects the solar installation industry will have record growth through 2016, then slow a bit, which concurs with our own view of the situation.

When asked what RGSE's key risks involve, Mofid gets more macro. Utilities present a patchwork, he says: "some good, some quite bad" (he says RGSE's home state of Colorado, for example, is currently a tough environment), so, again, a national model is key to offset that risk. As a result, the residential installation industry will likely experience both consolidation and failures of local installer firms, providing growth-by-acquisition opportunities for all three major, multistate players.

Regarding tariff risk involved with buying modules from Chinese manufacturers, Mofid sees the additional costs as "very low" relative to his business at $0.02 to $0.05 per watt (I note here that this actually presents meaningful inflation for utility scale plant developers that depend on Chinese prices, but that's a different discussion). Moreover, RGSE buys from multiple panel manufacturers, and most of these are positioning themselves to make and ship from plants outside of China (via possible additional manufacturing capacity in Mexico, for instance).

Manageable as Mofid sees them for now, there are definite political risks involved with being a solar installation business in the U.S., including states' regulations, utilities' intransigence, and national tariffs. Investors should consider their view of national and local policymaker sentiment toward renewables when assessing risks associated with an investment.

And perhaps those risks explain RGSE's recent lackluster share performance and high short interest of late. On the latter, RGSE has recently hired a professional short interest monitoring service to report violations of shorting rules (such as naked short selling) to FINRA. This may have the effect of dissuading unscrupulous shorters, but I doubt it. I'd rather see RGSE spend capital growing, and silence the critics that way.

There's also been bad press regarding RGSE's recent Hawaiian acquisition, Sunetric. And not without reason -- Hawaii presents other risks and opportunities. The business pipeline there is mostly comprised of commercial demand, so residential firms may face declining business and ultimately attrition, potentially including RGSE. But this may also mean larger firms with geographic diversity away from the islands and some staying power may be able to consolidate market share. It's too soon to tell.

That said, the Hawaii deal reveals some RGSE strengths. Mofid and team were willing and able to move nimbly from a cash/equity deal to an all-equity deal as the situation with Sunetric evolved. The Sunetric acquisition is interesting for another reason. Mofid says RGSE is, again, like SCTY, becoming active in the solar-to-storage space, and he thinks they can use isolated, contained-grid environment and expensive-utility bill center Hawaii as an ideal proving ground for perfecting a business model that can work. And the two residential installation firms aren't the only ones who think the panel-to-storage model will work. As Barron's recently reported, "Barclays this week downgrades the entire electric sector of the U.S. high-grade corporate bond market to underweight, saying it sees long-term challenges to electric utilities from solar energy… and recommends investors who can do so should underweight the electric sector versus the broader U.S. Corporate index, and rotate out of bonds issued by utilities in areas 'where solar + storage is closer to competitiveness.'" RGSE is looking at both Hawaii and California markets for the solar+storage model, and they will look to "innovate into those services as technology comes on line."

SCTY has a major advantage over RGSE in the storage race due to its sisterhood with Tesla Motors (TSLA) and its forthcoming Gigafactories, which may produce high-quality batteries for as little as 60 percent of the cost of other manufacturers. But this doesn't mean RGSE can't make significant progress with the same model, especially in states where SCTY is not present.

Similarly, RGSE plans to keep expanding within its existing markets. Where there is no strong local player, RGSE can establish its brand and presence de novo; where there is a local brand that is already valued by the community, there could be opportunities to acquire installers with their infrastructure, employees, trucks, and sales pipelines. Mofid mentioned twice that the residential solar installation space is still in its "constantly evolving," "Wild West" stage, and that keeping a war chest (no debt yet, shelf filing) ready for his "best opportunities" is his approach. It's hard to disagree with this, and yet we can't help but wonder whether he shouldn't be deploying his war chest a little faster; sometimes the largest risk is the one you don't take, and residential solar installation won't be an immature market forever.

When we asked whether sitting on the "war chest" of unused shelf offering and zero debt is itself a risk, Mofid sidestepped. While he did affirm their forward guidance, he gave little insight on a concrete path toward achieving this guidance, offering only, "we're gonna keep doing what we're doing." What we can glean from regulatory filings and conference call transcripts reveals only a bit more clarity. Important components for RGSE's roadmap include establishing new funding vehicles for project financing (that may or may not be part of the current JV), which must be an essential aspect of the plan to move away from relying on tax equity in financing and bankrolling ongoing business operations.

Mofid clearly passionately feels that the industry is compressing, and small installers will be pushed out, leaving space for companies like RGSE to move in with their larger bankrolls and resources to capitalize on the vacuum. For now, RGSE is estimating 50-55MW installed capacity in 2014, but it's not clear if this includes the acquisition of smaller private solar firms.

In any event, "what we're doing," for now, also seems to include expanding installation capacity via acquisitions. The last four of the company's buys were paid for primarily with RGSE shares; so far, Mofid seems to be taking a bet on dilution over debt. And it appears that RGSE is about as petal-to-the-metal as it can realistically be at this point: Mofid noted that the company's final acquisition in 2013 slowed its plans down significantly as it dragged on through the first quarter of 2014. It seems that RGSE has capacity to take deals one at a time, but not faster. And evidently, this suits their temperate growth model fine.

We asked Mofid if the confluence of new efforts to grow, emphasizing states where SCTY is not already present, and having not yet taken on any debt means RGSE is beginning to position itself as a possible acquisition target. Mofid says they have no current focus on becoming part of a larger peer such as SCTY or any other potential bidder. Further, since Mofid claims "there will be a debt aspect to our growth plan," it seems the zero debt balance sheet will at some point give way to the desire to expand. Still, while not currently courting suitors, Mofid admits that "everything is for sale."

Between now and 2016, both SCTY and RGSE are likely to accumulate small local installers within a chaotic environment of consolidation, regulatory changes and price fluctuations. It may well be that some panel manufacturers and utility-scale players such as SunEdison (SUNE) and SunPower (SPWR) are waiting for the residential space to sort itself out before deciding to make offers for firms like RGSE, which could then act as verticals to get their panels into the U.S. residential market.

Acquisition target or not, we see no reason why RGSE should not realize market capitalization growth to about eight to 10 percent of that of SCTY. As of the time of this writing, that implies a 300 to 400 percent upside for the stock, not counting 2015/2016 growth. Thus, we feel comfortable placing a $10.00 2015 price target on RGSE. And considering the rapid growth of the industry, higher valuations than that going forward from there are Mofid's to lose.

Background notes on Kam Mofid:

  • Canadian-born, from the Niagara Falls area
  • Undergraduate degree from University of Waterloo
  • Was a fellow at GM Canada, sent to
  • Georgia Tech for his masters
  • Strong engineering and primarily automotive background
  • 29 year old exec at UTC
  • First non-founding president at REC Solar
  • In 2011, brought over to MEMC (SUNE), just in time for the solar market crash
  • In July 2012, RGSE called Kam with CEO opportunity
  • RGSE at that time was controlled by GIAM, and had very low trading volume. Mofid turned over the board and diversified the shareholder base, now 17% owned by a Boston PE firm via several rounds of share issuance
  • He hasn't sold a single share of his holdings yet
  • Has little professed regard for analyst/commentators who write negative things about companies he leads -- he feels most focus too much on short-term results at the expense of long-term shareholder benefits

RGSE Suppliers:

  • Panels: CSIQ, STP, and several others. RGSE does not utilize long-term purchase requirements
  • Inverters: Fronius and several others (no share with question)
  • Racking: Uni-rack

– HQ Visit, May 22, 2014

Jeremy Deems, Robert Muir and Jake Raden contributed research for this post.

Disclosure: Green Alpha® Advisors has current positions in RGSE, SCTY, SPWR, FSLR, CSIQ, SUNE, and TSLA. Green Alpha has no holdings in or near-term intention to buy any other company mentioned in this post.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha ® Next Economy Index, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club’s green economics blog, "Green Alpha's Next Economy."

June 07, 2014

Trina Joins Solar Fund Raising Queue

by Doug Young

Just a day after the solar panel sector was hit by a new negative trade ruling from the US, Trina Solar (NYSE: TSL) gave its investors another unwanted surprise with word that it is preparing to raise more than $200 million through a combination of new stock and bond offerings. Trina joins a growing list of solar panel makers that are looking to western capital markets as confidence returns to the sector following a prolonged downturn dating back to early 2011.

The fact that Trina and others are turning to western capital markets to obtain funding is probably a good sign overall, as it means these companies are healthy enough to raise their own money rather than relying on handouts from Beijing. But western investors are showing such money won’t come cheap, with Trina’s shares tumbling after it announced its plan.

In fact, shares of all the solar panel makers fell in the latest trading session on Wall Street, after a ruling from Washington laid the groundwork for new punitive tariffs on Chinese panels. (previous post) Shares of Trina, as well as Yingli Solar (NYSE: YGE), ReneSola (NYSE: SOL) and Canadian Solar (Nasdaq: CSIQ) were all down 4-6 percent in the trading session after the news.

But Trina shares fell another 4 percent in after hours trade after it announced its newest fund raising plan, meaning the company has lost nearly 10 percent of its value in the last 24 hours. Trina actually issued 2 separate announcements, starting with one detailing plans to issue $150 million in convertible bonds. (company announcement) That was followed by another announcement that it would issue 8.8 million new American Depositary Shares (ADSs). (company announcement)

Based on Trina’s latest closing price before the 2 announcements, the company could raise around $100 million from the share offering, bringing its total fund raising to around $250 million through the 2 different plans. There’s nothing else of major interest in the announcements, though Trina did say it could raise up to an additional $40 million if overallotments for the 2 plans are exercised.

Trina’s plan makes it the latest of China’s major solar panel makers to tap western capital markets for much-needed new funding. Last month Yingli raised a more modest $83 million through the issue of new shares. (previous post) But the company ultimately had to sell the shares for 20 percent less than its stock price before it announced the deal, reflecting the skepticism many western investors still feel towards solar panel makers. Canadian Solar has also raised $200 million through its own offerings of new stock and debt.

As I’ve said above, one could interpret these latest plans as a positive development because they signal a level of confidence that the companies feel about their near- to mid-term prospects. But growing protectionist sentiment in some of the world’s major markets makes these companies’ prospects look shaky at best.

The US ruling this week is just the latest in a growing series of protectionist moves against solar panel makers. China responded to earlier US tariffs with retaliatory moves against American makers of polysilicon, the main ingredient used in solar panel production. India has also taken its own recent protectionist moves, and Japan is taking similar though less obvious moves by refusing to finance projects that use non-Japanese solar cells.

Shares of the solar panel makers all staged a huge rally last year, as companies finally returned to profitability and signs emerged that the trade wars could be easing. But many shares have begun to retreat this year, and more downside is likely ahead if companies start to report they are feeling effects of all the protectionist moves happening in the market.

Bottom line: Trina’s new fund-raising plan is the latest sign of growing confidence in the recovering sector, but a fresh series of protectionist moves could put a damper on the turnaround.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

June 04, 2014

US Closes Solar Tariff Loophole

Doug Young


In a move that should surprise no one, the US has announced it will levy new punitive tariffs on China-made solar panels to close a loophole from an earlier ruling. This move won’t help anyone and could seriously stifle the industry’s development just as it starts to emerge from a prolonged downturn. It also looks worrisome from a broader perspective for Chinese panel makers, since signs are emerging that their products could also be shunned in Japan and India, 2 of the world’s other promising emerging markets for solar power plant construction.

I’ll return to the Japan and India angle shortly, but let’s start with the latest news that comes in the form of a new ruling by the US International Trade Commission (ITC). (English article) A panel recommended earlier this year that the ITC should levy anti-dumping tariffs against Chinese solar panels that were made with cells produced outside the country in places like Taiwan. Such cells are the main component used to make finished solar panels.

The ITC had ruled in 2012 that Chinese solar panels received unfair government support through policies like cheap loans from state-run banks and export rebates, and imposed anti-dumping tariffs against the products. But the Chinese manufacturers used a loophole to skirt the punitive tariffs, which didn’t apply to panels that were made using solar cells manufactured in other countries. Now the ITC is moving to formally close that loophole with this latest ruling.

Under the new preliminary ruling, the US Commerce Department has recommended preliminary duties of up to 35.21 percent on Chinese-made panels that had avoided the punitive tariffs through the loophole. Some duties are a bit lower, with one report pointing out that panels from Trina Solar (NYSE: TSL) will be subject to punitive tariffs of 18.56 percent. Actual amounts could differ slightly, but I do expect the tariffs will get finalized later this year and deal a new blow to the Chinese panel makers.

We’ll probably see a flood of disappointed statements from the Chinese panel makers soon, and Germany’s SolarWorld (SRWRF), which has initiated most of the complaints, was quick to issue its own praise for the latest decision. (company announcement) There’s still time for the 2 sides to negotiate a settlement before the tariffs are finalized, which is what happened with a similar complaint in Europe last year. But based on the recent climate of hostilities between the US and China, I doubt we’ll see such conciliatory actions take place.

This latest US move, while quite expected, is casting yet another shadow over solar panel makers just as it appeared the sector’s woes from a recent supply glut were in the past. India announced late last month it would levy anti-dumping tariffs against Chinese and US solar panels, in what looks like a highly protectionist move to promote its small homegrown industry. (previous post)

Meantime, I’m hearing that Japanese banks are making similarly protectionist noises by refusing to finance any new solar power projects in Japan unless they use panels made by local companies. That’s certainly not a positive sign, since Japan is quickly emerging as one of the world’s biggest hot spots for new solar plant production as the country seeks to diversify from its previous heavy reliance on nuclear power.

At the end of the day, all of these protectionist measure will slow development of the global solar sector. US and European companies should enjoy relatively free access to each others’ markets, and Chinese and Japanese companies will inevitably dominate solar power building in their respective home markets. But lack of competition means prices will probably remain artificially high in many of those markets, making construction of new plants less commercially attractive than it would be under a more competitive environment.

Bottom line: The latest US anti-dumping ruling against Chinese solar panels is the latest sign of a rapidly emerging protectionist mentality in the sector, which will keep prices artificially high and stifle development.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

May 24, 2014

SolarCity: Fanning the Flames

by Debra Fiakas CFA

SCTY residential solar.pngSolar power installer Solar City (SCTY:  Nasdaq) has attracted a swarm of shareholder lawsuits in recent weeks.  The stock is trading at a price level 44% below its 52-week high of $88.35 set in February 2014.  That has to be disheartening for those who were on the wrong side of the trades at those lofty levels. 

In February when traders were bidding $88 and change for SCTY, the stock was trading at about 50 times revenue and 47 times cash flow from operations.  Of course, since the company had yet to produce a profit, the price/earnings ratio was negative.  What was it about those valuation metrics that looked appealing?

From a technical standpoint SCTY shares had begun to look precarious even before the end of December 2013.  For example, the Commodity Channel Index (CCI) began signaling that the stock had entered overbought territory as early as the third week in December.  I frequently use the Moving Average Convergence/Divergence (MACD) line in combination with the CCI to make certain higher highs are not still in on the way.  Even with that nuanced analysis, the show appeared over by the end of January 2014.  Granted as the temperatures dropped in February, trading in SCTY was hotter than ever.  Unfortunately, it was more flame-out than solid price appreciation as the stock has been on a steady decline ever since.

So now that the stock price re-entered the atmosphere, is it a better value?  First quarter 2014 results, did not change the profitability picture for Solar City.  The company is still reporting substantial expenses that eat up profits.  However, in the twelve months ending March 2014, the company turned sales of $197 million into $150 million in operating cash flow.  The current price level near $50 per share implies a multiple of 30.7 times operating cash flow.  That is still rich, but an improvement from three months ago.

In one of my last posts on Solar City in March 2013  -  I suggested that management needs to spend a bit more time in explaining the company’s business model and a bit less time fanning the flames under the trading of its stock.  Apparently, they did not listen.  Analysts following Solar City do not expect the company to report a net profit any time soon, but it is clear the company has conjured a business model that generates positive cash flow.  Despite reporting net losses, the company has the cash resources to grow.  Management needs to fan the flames under that story.  The stock may not experience one of those dramatic climbs again, but there might be fewer lawsuits.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

May 22, 2014

Investing In Solar Innovation

By Jeff Siegel

The road into the digital age has been paved with innovation. Everyday items have been electrified with panels and displays for endless possibilities of interaction.

Automobile windscreens, household appliances, even walls and furniture are lighting up all around us, wired with sensors and displays that receive and transmit information.

It seems the only surface left to electrify on this road to an everything-digital future is the roadway itself. Some folks believe one day soon, your local road network could be carrying not only the flow of vehicle traffic, but torrential flows of digital data and electricity as well.

Of the more than 4 million miles of roadways in the U.S., some 2.65 million miles are paved — occupying nearly 12,000 square miles of land, or about the area of the entire state of Maryland.

Now imagine if you covered that area with panels that are something of a cross between solar cells and digital displays. What you would have is an electrified road that generates enormous amounts of electricity from the sun’s rays by day, provides perfectly lit road markings by night, and keeps streets snow- and ice-free even on the coldest of days.

Slippery When Wet?

The brainchild of electrical engineer Scott Brusaw and his wife, the Solar Roadways system uses glass panels in the shape of hexagons that link together to coat the surface of roads, parking lots, and driveways.

Some folks question the safety of such a system. After all, glass is fragile, and no one would want to drive over sheets of glass, especially when wet.

But these panels have been specially designed to withstand more than normal amounts of weight and wear on even the busiest of city roads, with no loss of traction.

Embedded under the top layer of tough glass are arrays of photovoltaic panels that convert the sun’s rays into electrons. The electricity generated by the road panels can be stored in batteries during the day for powering street lighting at night, as well as augmenting the electrical needs of homes and businesses lining the street.

As well, heat cells can be used to warm the panels’ surfaces to melt ice and snow, keeping the road surface clear in adverse winter weather.

They could even be used to carry digital signals, including phone, television, and Internet data. No more digging up the road to install new cable lines.

Even overhead power lines could be eliminated, as electric power from power stations would be transmitted into homes and businesses via the Solar Roadway network.

Sounds Fantastic!

A series of important markers in the development of the Solar Roadway have already been established, including recognition and awards from GE (NYSE: GE), Google (NASDAQ: GOOG), the World Technology Award, and the IEEE Ace Awards.

Brusaw has also attracted attention to his electric road through speaking engagements at TEDx, NASA, and Google-sponsored Solve for X.

Funding milestones include the awarding of a two grants from the U.S. Federal Highway Administration, as well as contributions from a crowdfunding campaign on Indiegogo. The funding has paved the way for a prototype installation.

All in all, this sounds fantastic. But I have to be honest: Based on all the amazing and wonderful technologies I've seen fall through the cracks or blow up in investors' faces over the past two decades, I'm extremely skeptical that this thing will ever get off the ground.

Not only are you talking about working with a giant bureaucracy to transition miles and miles of roads — which alone would take at least a decade to cut through all the red tape — but if we can't fund basic infrastructure needs, you really think the government's going to be able to pony up for something like this? Especially considering that we're talking about solar here — the scapegoat for decades of flawed energy policies.

The truth is, we've been down this road too many times before. And as much as I love the idea of solar roadways, I wouldn't get too excited about this one. I sure as hell wouldn't invest in it, either. The fact that these folks crowdfunded through Indiegogo tells me there probably wasn't much smart money interest to begin with.

Look, if you're that hyped up about investing in the burgeoning solar space, stick with what you know works. Stick with companies that actually generate revenue. SunPower (NASDAQ: SPWR), SolarCity (NASDAQ: SCTY), even an alternative energy REIT like Hannon Armstrong (NYSE: HASI).

Point is, while immediately discrediting new technology does nothing to stoke the fires of innovation, throwing money at untested technologies and unrealistic goals hoping for a quick payoff will only leave you broke and angry.

And that's no way to live.

Jeff Siegel is Editor of Energy and Capital, where this article was first published.

May 21, 2014

Private Equity Giant Eyes Chinese Solar

by Doug Young

Following reports last month of the imminent formation of a major new private equity investor, media are now saying the company, China Minsheng Investment, has formally registered and is gearing up to make its first investments. The new company certainly has the resources and connections to quickly become a major player on both the domestic and global private equity scenes, with an initial 50 billion ($8 billion) in registered capital. Now it appears the company will start by helping to consolidate China’s embattled solar panel-making sector, which will become its first focus area.

According to the latest reports, Minsheng Investment formally completed its registration on May 9 in Shanghai, which is where several of its founding members are based. (Chinese article) One of its founders is Dong Wenbiao, chairman of Minsheng Bank (HKEx: 1988; Shanghai: 600016), China’s first privately funded bank. Previous reports said other Minsheng Bank officials would also invest in the new company. Another partner is Lu Zhiqiang, chairman of Beijing-based China Oceanwide, one of the country’s earliest conglomerates set up back in 1985.

Dong Wenbiao will act as chairman of the new company, while another Minsheng executive Li Huaizhen will be the general manager. The report adds that many of the new company’s other top executives will also come from Minsheng Bank. That’s a positive sign since Minsheng is considered one of China’s more entrepreneurial banks due to its private status, meaning it’s less likely to make decisions based on political considerations.

That said, many of the company’s top officials also have strong government connections, and its decision to focus initially on the solar panel sector also seems to have some political overtones. Beijing decided about a decade ago to strongly support the sector by offering a wide range of government support, in a move that quickly propelled China to become the world’s largest solar panel producer with more than half of the global market.

As with similar cases in China, many companies that flocked to the industry were state-run firms that had little or no experience in the sector but were simply rushing to help fulfill Beijing’s latest policy directive. Many of those facilities have been losing big money for the last 3 years, after the sector plunged into a prolonged downturn due to huge overcapacity created by the rapid China build-up.

Early signs last year seemed to indicate Beijing was preparing to engineer a consolidation for the sector, using the policy lender China Development Bank as the main driver. But such a unified rescue plan never came, and instead the market has so far seen a trickle of bankruptcies for big names like Suntech (OTC: STPFQ) and LDK Solar (OTC: LDKSY), and occasional acquisitions of smaller companies by big remaining players.

Beijing has indicated it won’t come to the rescue of bigger players like Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ), which are relatively healthy and can still raise limited money from overseas commercial sources. (previous post) But there are still dozens and probably hundreds of smaller state-run operations that are losing massive money and could become good acquisition and consolidation targets for the new Minsheng Investment.

We’ll have to wait and see how exactly Minsheng Investment proceeds, but I would expect it to move quickly following its recent registration and make its first acquisitions in the next few months. Most of those are likely to come at bargain prices, and the company could use its large cash pile to quickly assemble one or two major new “companies” with assets across China.

It would most likely shut down many of the weakest operations and move their best manufacturing assets into one or two single locations. Such an approach could produce an asset or two that would make an attractive purchase for Canadian Solar, Yingli or one of the other bigger remaining players in the sector, or even a foreign buyer. I would expect Beijing to provide financing for such a deal, which could come as soon as next year if Minsheng’s consolidation plan moves ahead.

Bottom line: Newly formed Minsheng Investment could become a consolidator for China’s smaller money-losing solar panel makers, assembling a new asset for eventual sale to one of the bigger remaining players.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

May 16, 2014

The Solar PV Shipment Shell Game

by Paula Mints

Outsourcing has been a common practice in the photovoltaic industry since…always. Ignoring it in favor of reporting higher shipment numbers has been a common practice since…always. There is more outsourcing now than there was ten years ago because the industry is bigger. When the PV industry was at megawatt levels, outsourcing was at megawatt levels. Now that the industry is at gigawatt levels, outsourcing is at gigawatt levels. Today’s outsourcing is also more acceptable — in the past everyone did it quietly, today it is out in the open. Yet despite this openness and acceptability, double counting continues and the industry continues to be oversized.

Figure 1 presents the various metrics that make up the PV industry during a calendar year with the exception of grid connections.  These metrics are supply and demand inventory, commercial capacity, production, shipments, installations and defective modules.  Think of production and shipments as conducting a little dance in and around inventory levels. That is, production can be lower than shipments depending on inventory levels. Production can also be misreported, that is, shipments are sometimes used as a stand-in for production and vice versa. In breaking industry activity down into its various components (except for grid connections) it appears as if should be easy to correctly size the PV industry's annual activities. Nope. 

Figure 1: PV Industry Metrics, 2013

The Shipment Counting Shell Game

A shell game is a now-you-see-it-now-you-don’t trick of evasive maneuvering.  The rules (such as they are) consist of this: there are three cups and one small object such as a stone. The stone is placed underneath the cups, the cups are shifted around and everyone places bets as to where the stone will end up. 

Shipments of PV cells/modules are counted in order to arrive at the correct business size of the industry during a specific calendar year.  The point is to accurately size the megawatts based on the technology developed and manufactured at point A followed to its arrival at point B; everything from point B on is a new count.

Most manufacturers buy from other manufacturers and many include what they buy as their own production or in their shipment count.  Manufacturers with wafer capacity and module assembly capacity send out their wafers for tolling and then assemble the cells in modules in-house. For example, manufacturer A ships 1-GWp of wafers to Manufacturer B who returns 1-GWp of cells to Manufacturer A.  Both manufacturers report shipments of 1-GWp of PV cell technology and the PV industry is oversized by 1-GWp. 

Another way in which shipment numbers are inflated is when subsidiary relationships are unclear and nontransparent. In this case, Manufacturer A ships 100-MWp to a wholly owned subsidiary that may or may not install the technology and may even ship it back to the parent. In this way and over the course of many such exchanges the PV industry can also be oversized, significantly.

Why This Is Dangerous for PV

The PV industry has been experiencing accelerated growth for quite a few years — not always profitably.  It has also been underutilizing its available commercial capacity for quite a few years.  In 2013, capacity utilization for the PV industry was 82 percent — based on shipments to the first point of sale.  This is a vast improvement over the past few years during which capacity utilization fell at times below 60 percent. 

Overtime, the systematic oversizing of PV industry output, whether through outsourcing or through shipping to subsidiaries, has made the industry look significantly more successful than it is and helped (along with too low prices) bring about the end of most of its incentives.  Conventional energy, of course, does not need to worry about its success interfering with its ongoing incentives and subsidies. 

Pragmatically, stakeholders all along the PV value chain have a vested interest in having access to data about capacity, production, shipments and inventory that is as accurate as possible — for business planning purposes.  Successful strategies require good data.  Unfortunately, shipment reporting has often been a matter of saving face and looking successful more than arriving at an understanding of what is really happening. 

Think of it this way: you are wandering through a shopping mall and you come across a map of the facilities with a helpful icon indicating where you are in terms of the other stores as well as your destination.  The helpful icon typically reads: You are here. So, now that you know where you are, you can figure out how to get to where you are going, or, you can decide to go someplace else entirely.  If the helpful icon pretended you were further along, it would not be very helpful.  The point of shipment and production reporting is to offer accurate information as to where the industry is at a certain point in its history so that it can develop a strategy to get where it wants to go.

The PV Industry Is Here

Figure 2 offers capacity, production shipments and inventory from 2008 through 2013.  During this period PV industry capacity to produce commercial c-Si and thin film modules increased by a compound annual 34 percent with production and shipments increasing by a compound annual 44 percent.


Figure 3 presents technology (c-Si and thin film) shipment market shares for 2013.  Crystalline technologies had a 91 percent share of shipments in 2013.

Figure 3: Crystalline and Thin Film Shipment Shares 2013


You Are Here, Where Do You Want To Go?

One problem with outsourcing is that the farther production gets from the original manufacturer the lower the quality gets over time and the bigger an industry gets, the more outsourcing is conducted. Currently there are module quality complaints from Japan, the US, Europe as well as other countries.  In some cases, quality complaints go back seven or eight years (about the time the PV industry surged into gigawatt levels of shipments).  In many cases cells and modules are reshipped so many times that it is almost impossible to pinpoint where the lower standard production began in the first place.  Unfortunately, more than one region is responsible, so, pointing fingers is counterproductive to solving the problem. 

Outsourcing is not going away and, aside from the unfortunate oversizing of the industry, the focus should be on quality.  Back to oversizing the industry, at this vulnerable stage in its always vulnerable history, the PV industry should exert tight controls on both quality and representations of its size so that it can have a clear eyed vantage point from where it wants to go and how to get there.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

This article was originally published on, and is republished with permission.

May 10, 2014

SolarCity: Sunburn, or Healthy Glow?

By Harris Roen

SolarCity (SCTY) fell 9.1% Wednesday when the company released its first quarter earnings report, but gained all of it back and then Thursday on huge volume. Still, the stock has plummeted 22% in three months, and is down 37% from its highs in February 2014. Is this just a healthy correction from its outsized 400%+ gains from the IPO just 17 months ago? Or have we entered into a new lower trading range more in line with financial realties? This article will analyze current developments to this distinctive energy stock, and project where SolarCity should go from here.


SolarCity Revenues Climb as Profits Fall

SolarCity revenues have been steadily gaining for over a year. Revenues are up 34% from the previous quarter, and are more than double the same quarter last year. At the same time, net income has continued to deteriorate, with losses twice that of the previous quarter. Revenues are not the problem, it is the expense side of the ledger that is keeping SolarCity in the red.


SolarCity Debt

SolarCity’s debt long-term debt is at reasonable levels, and improved slightly this quarter. Total liabilities/total assets fell to less than a percent to 69%. The current ratio, looking at short-term liabilities and assets, deteriorated somewhat, and now hovers around 2.3.

Comparing SolarCity debt levels to other industries poses a challenge because it is a hard company to categorize. We classify SolarCity primarily as a financial company because of the way it interacts with its clients through financing, lease arrangements, notes, etc, and how those instruments appear on the liability side of its balance sheet. Looking at debt for financial companies is different from other sectors because in many ways, their business is debt. Having said that, the chart above shows SolarCity’s current ratio compared to other industries the company is commonly grouped under. The higher the number the better, so SolarCity debt remains under control.


SolarCity Client Ratios

The chart above shows ratios of revenues and expenses per customer for FY 2009 through 2013. 2014 ratios are projected using current rates of customer growth, revenues and expenses. The results show a mixed picture for SolarCity.

Total revenues per customer have been steadily declining. This is to be expected, as SolarCity moves more and more into home and small business installations, revenues per customer get diluted when compared to its larger utility-scale clients. So long as client growth continues at an ample pace, which it has, falling total revenues per customer is not a grave concern.

Net revenues per customer, though still negative, have been steadily improving. In a company’s early stages, net loss per customer should shrink as revenues grow. This has been the case through 2013, and should remain around the same level for 2014. I view this as a very positive sign: the more this trend stays on track, the sooner SolarCity becomes profitable.

On a more negative note, SolarCity’s acquisition cost per customer has risen to over $2,700. It is still below 2010-2011 levels, but has not improved at the pace one would hope. This ratio must be kept under control as SolarCity’s business model hinges on unremitting growth of its client base. Similarly, total expenses per customer are below 2010-2011 levels, but have basically flattened since then.

Glowing Profits or Wall Street Sunburn?


Source: SolarCity Q1 2014 Earnings Conference Call

There is much conflicting analysis of whether SolarCity remains a good investment, or will turn out to be a case of Wall Street sunburn. I was concerned with projected time to profit for SolarCity in my previous article, and that bias remains. Total expenses per customer will need to drop significantly before SolarCity turns a profit, no matter how many customers they add. It could take several years before earnings turn positive.

On the other hand, SolarCity’s business model aims to do just that, bring expenses way down. By recouping the investment in panels in 5-7 years, revenues will continue to flow at essentially no cost for as long as the lease lasts and as long as the sun shines. And if its projections are realized, straight-line growth could mean enormous profits in the future. SolarCity is likely overpriced current levels, but I still remain bullish on SolarCity as a profitable long-term investment.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

May 08, 2014

Flying into the Sun

by Debra Fiakas CFA

Shares of two solar panel producers appeared on one of our favorite stock screens the other day  -  energy stocks that have traded downward to a point they appear oversold.  Trina Solar, Ltd. (TSL:  NYSE) recently closed at $11.22, down 39% from its 52-week high set in early March this year, but well above where the stock was trading a year ago.  RenaSola, Ltd. (SOL:  NYSE) has followed a similar track, recently closing at $2.61 well above its 52-week low. 

The question for investors is whether investors should take advantage of the current price weakness to pick up shares of long-term winners in the solar power race…..or not!

Neither company has reported a recent profit.  RenaSola lost $258.9 million on $1.52 billion in sales in the last twelve months.  Trina Solar reported higher sales of$1.8 billion in the same period, but managed to keep its net loss at a more modest level of $72 million.  The losses came amidst a global shakeout in the industry, allegedly triggered by dumping by China’s numerous solar panel producers.

The half dozen or so analysts who follow these companies seem to think the worst is over.  The consensus estimate for Trina Solar is $0.86 earnings per share in 2014, followed by $1.52 in 2015.  Those estimates are the results of upward adjustments to published estimates made within the last couple of weeks.  Only one analyst has published estimates for RenaSola, but this brave soul also thinks RenaSola is going to report a net profit in 2014 and 2015.

If these solar companies are about to round the corner, it makes sense to load up for long positions at relatively cheap prices.  Or does it?

It is not hard to find viewpoints the solar industry.  For example, industry analysts at the sell-side firm Credit Suisse recently issued a warning on slowing growth in the solar sector.  If they are correct that means the competitive battle is about to go from bloody to gory.  There are hundreds of solar panel producers still operating around the world, with a good share of them located in China.  I believe some will not survive.  I think the ones that are more likely to survive will the among those that 1) have the most efficient and therefore most marketable solar panels and 2) have strong balance sheets with low debt and ample cash.

SunPower (SWPR:  Nasdaq) is widely hailed as the developer with the most efficient solar power technology, that is how well the solar cells convert the incoming solar rays into electricity.  While most solar panels deliver efficiency in the range of 11% to 15%, SunPower has developed panels that have tested at 20% conversion.  What is more SunPower has come up with a multi-junction concentrator that converts a whopping 44% of the solar energy they receive to energy.  When these two modules come into the market place, I would wager it will result in capture of significant market share.

Trina Solar offers solar cells with efficiencies in a range of 12.9% to 16.7%, while Renasola’s efficiency range is 13.5% to 16.0%.  Trina spent $131.7 million on research and development over the last three years or 4.1% of sales during that period.  Over the last three years RenaSola has spent $90.5 million on research and development or 1.8% of sales.

Interestingly, SunPower spent $179.4 million over the last three years, or just 2.5% of its sales to deliver those industry leading efficiency ranges.  It appears both Trina Solar and Renasola will need to step up their respective R&D games to keep apace.

Performance superiority has paid off for Sunpower, which has converted 1.3% of its sales to operating cash flow over the past three years.  Consequently, the company has managed to keep its debt level to a respectable level and its debt-to-equity ratio to 0.74.  Trina has been a net user of cash over the past three years, so it should be no surprise that its debt levels and are higher.  Its debt-to-equity ratio is 1.56.  RenaSola managed to squeeze out positive cash flow in the last three years, but its conversion ratio is less than 1.0%.  RenaSola’s tepid cash flow generation is probably why the company has racked up some debt to the point its debt has built up to 2.48 times is equity.

From these few data points, it might be premature to count RenaSola or Trina Solar out of the solar panel market despite that they do not compare favorably with the industry leader.  Both companies still have ample cash balances.  Coupled with an improving profit picture, some might conclude both have a chance to remain viable competitors in the solar industry.  In the meantime, traders appear skeptical and both TSL and SOL are trading as if the companies are about to fly into the sun and burn.  

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

May 02, 2014

Can't Put Solar On Your House? Four Ways To Invest In Solar Leases

Tom Konrad CFA

Disclosure: I and my clients have long positions in HASI. I have sold NYLD $40 and $45 calls short.

The secret sauce for bringing residential solar into the mainstream is the solar lease.  With the simple value proposition of little or no money down and cost savings from day one, a homeowner does not have to be an environmentalist or green to be interested in the green of a solar lease.  He or she simply needs to live in a state where the combination of annual sunshine and state incentives provide the economics to make solar leases profitable for the lender and installer.

Low interest rates and the rapidly falling price of solar panels have rapidly expanded the number of states where solar leases are available in recent years, so much so that residential solar lease pioneer SolarCity (NASD:SCTY) grabbed 26% of the rapidly growing residential market in 2013.  Of the top five residential solar installers on GTM Research’s 2013 U.S. PV Leaderboard, four offer solar leases.  Commercial solar leases were pioneered by SunEdison (NASD:SUNE) a decade ago, but they only began to transform the solar market place when SolarCity and competitors like SunRun and Vivint Solar began offering them to homeowners.

Solar Gardens

While the opportunity to take advantage of attractive solar economics is expanding rapidly to more states, not every home owner has a suitable unshaded roof.  Those who want to democratize the solar opportunity usually favor community solar farms, also known as solar gardens.  These structures allow community members to each buy a share of a larger central solar installation, receiving credits on their electric bill, as well as a proportional share of the tax benefits. Unfortunately, creating solar gardens requires specific state legislation or action by the local utility or utility regulatory commission, and the difficultly of making such rule changes means that solar gardens are available in far fewer locations and to fewer individuals than solar leases.

Solar Crowdfunding

Solar Mosaic is also working to democratize solar investment through crowdfunding.  The company avoids the complexity of direct investment in solar farms by making loans to solar developers backed by a solar farm’s cash flow.  It then offers pieces of loans to small investors though its crowd funding portal, taking a small cut of the interest to pay for its operations.  While individuals can investment as little as $25, securities laws currently limit this opportunity to accreditied (i.e. wealthy) investors and residents of California and New York.

In practice, an even greater limitation has been the lack of available projects, with only $5.6 million invested in 34MW of projects since the first investment in late 2012.  That is approximately as much solar as 5,683 typical 6kW residential solar systems.

Fortunately, the size and number of Solar Mosaic’s loans has been increasing.  One particularly intriguing forthcoming project is the Mosaic Home Solar Loan in partnership with national installer RGS Energy (NASD:RSGE).  I expect this product will appeal to Solar Mosaic’s investors, since it will finance residential systems.  Financing solar for a homeowner will likely have more emotional appeal than financing a commercial installation on a convention center or school.

Another crowdfunding site, SunFunder, enables individuals to invest in solar projects bringing power to the developing world.  It offers interest-paying investments to accredited investors.  Ordinary investors can participate with loans that earn repayment of principal as well as interest credits in the form of “Impact points.”  Impact points cannot be withdrawn, but they can be re-invested in other projects.

Solar Bonds

It seems likely that it will be some time before Mosaic can get enough solar loans (residential or otherwise) into its system to satisfy investor demand.  Until that happens, and until Mosaic is able to offer investments to ordinary investors nationwide, many will have to look elsewhere to invest in solar installations.

One promising option on the horizon is bonds backed by solar leases.  SolarCity was the first to issue such bonds, with a $54.4 million offering in November of last year.  That offering was 71% backed by residential solar leases, with the balance backed by commercial solar.  They followed this with a 87% residential $70 million offering which closed on April 10th.   Like most green bond issues in recent months, SolarCity’s bonds were only available to institutional investors.  SolarCity has little incentive to offer these bonds to small investors, because demand from institutional investors greatly exceeded supply.

Another company likely to issue bonds partially backed by solar leases is Hannon Armstrong Sustainable Infrastructure (NYSE:HASI.)  This REIT invests in a wide range of sustainable infrastructure, and then issues Sustainable Yield Bonds (SYBs) backed by these projects, but also keeps some on its balance sheet.

Hannon Armstrong’s CEO, Jeffrey Eckel, told me in an interview that he believes Hannon Armstrong is unique in that it explicitly measures the climate emissions reduction associated with each project it invests in.  The first $100 million round of SYBs, issued in December, invested in projects which reduced greenhouse gas emissions by 0.61 metric tons per $1,000 investment.   That means a typical US-based investor with a carbon footprint of 17.6 metric tons per year could offset a year’s worth of emissions with a $28,852 investment in the first tranche of SYBs.  While that is far more than the cost of equivalent carbon offsets, such offsets are a cost, while SYBs are an investment which also pay a competitive 2.79% interest rate.

Investors interested in funding solar leases should be interested in Hannon Armstrong’s future SYB rounds, since the company just signed two deals to fund solar leases.  On April 16th, the company announced a deal to jointly originate and fund up to $100 million financing for distributed solar projects with Sol Systems.  This followed the April 3rd announcement that the company had provided $42 million in debt to fund SunPower Corporation’s (NASD:SPWR) residential solar lease program.

According to Eckel, solar leases tend to have a lower climate impact per dollar invested than most of it other investments, but the impact will be positive for both these investments.

Solar Lease Stocks 

With bonds backed by solar leases mostly being sold to institutional investors, stocks are probably the easiest way for individual investors to gain exposure to solar leases.  Both SolarCity and Hannon Armstrong are retaining a portion of their solar leases on their own balance sheets.  By far the purest exposure to solar leases will come from industry leader SolarCity, while Hannon Armstrong’s exposure to renewable energy projects will always remain below 25%, since this is a requirement of its REIT status.

SolarCity had deployed approximately 380 MW of solar through the end of March.  With a market capitalization of $5.28 billion, that means each $14 dollars invested in SCTY was backed by 1 watt of a solar lease.  In other words, if you’re thinking of investing in SolarCity stock as an alternative to putting solar on your roof, you’re essentially paying $14 a watt.  That is far more expensive than any installation SolarCity has installed.  The typical cost per watt for a residential solar system in California was $5.75 in the fourth quarter of 2013.

While Hannon Armstrong has funded far fewer solar systems, the two deals for $142 million described above should account for about 15% to 20% of its future market capitalization.  If the $42 million for SunPower comes in at $6 per watt, and the $100 million of distributed commercial systems cost $4 per watt, that will amount to a total of 32 MW of solar.  As of the end of 2013, Hannon Armstrong had invested 32% of its capital (or $202 million) in clean energy projects, some of which would have been solar.  If 20% of this was solar at $5 per watt, that would amount to another 40MW of solar.   Putting this together, my best estimate is that each $10 to $20 invested in HASI will include funding for 1 watt of solar, as well as 5 or more watts of wind and geothermal projects and yet more energy efficiency.  Unlike SolarCity, Hannon Armstrong is currently profitable and pays a 6.6% dividend yield at the current $13.34 stock price.

Another yield-focused stock with some investments in solar leases is NRG Yield (NYSE:NYLD.)  This company has a dividend yield of 3.1% at the current stock price of $42.50.  The company owns a mix of thermal and renewable generation, with 34% of its generation from renewables in 2013.  It owns 313 MW of mostly utility scale solar, and 101 MW of wind farms, and has a $2.09 billion market capitalization.  Hence each $6.67 invested in NRG Yield funds 1 watt of utility scale solar and 1/3 of a watt of wind.


If you always wanted to own a solar system, but lack a suitable roof, a large and rapidly growing number of investments are now available.  If your primary goal is attractive financial returns, the best investments are Solar Mosaic (4.4% to 7% yield) and Hannon Armstrong (6.6%.)

Solar Mosaic investments have a number of downsides, such as the limited number of available projects, restriction to accredited investors and residents of New York and California, and the requirement that you hold your investments to maturity.  While most of the money invested in Hannon Armstrong goes to fund types of sustainable infrastructure other than solar, each dollar funds approximately as much solar as a dollar invested in SolarCity, but also includes much larger investments in other types of clean energy and in energy efficiency.

At $6.67 per solar watt, NRG Yield is the cheapest way to fund solar with a stock market investment, but this company includes considerable fossil generation and has a much lower yield (3.1%) than Hannon Armstrong.

While none of these investments is perfect in its ability to replicate the economics and climate impact of putting solar on your home, the number of options is rapidly increasing.  If you live in one of seven states (MA,CO, ME, RI, VT, WA,DE, OH) you may be able to invest in a solar garden.  Until then, my top pick combining high climate impact with high yield and ease of investment is Hannon Armstrong Sustainable infrastructure.

This article was first published on the author's blog, Green Stocks on April 21st.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

April 30, 2014

Beijing Taking Hands-Off Approach To Solar Recovery

by Doug Young

China sent an important message to the struggling solar panel sector last week when one of the country’s major manufacturers was forced to turn to global capital markets to raise new funds, hinting that it couldn’t receive the money from state-backed domestic sources. The move sparked a sell-off for New York-listed shares of Yingli Green Energy (NYSE: YGE), as its request for funds met with a frosty response on Wall Street.

The fact that Yingli had to seek funding from commercial-oriented western investors indicates Beijing is taking a hands-off approach to financing for this important but embattled industry as it tries to emerge from a 3 year slump. Chinese leaders should continue to send similar signals not only for the solar sector but also other key industries, in a broader effort to wean them from state support and create sustainable companies that can become global leaders.

Yingli hasn’t posted a profit for more than 2 years, and reported a net loss of $128 million in its most recent reporting quarter. The company and most of its peers have been losing money since 2011, when the industry tumbled into the red due to overcapacity.

The downturn caused many firms to go bankrupt, with former giants Suntech (OTC: STPFQ) and LDK Solar (OTC: LDKSY) as the 2 most prominent examples in China. In the meantime, the financial position of surviving players like Yingli remains weak as prices finally start to rebound. To shore up its position, Yingli turned to Wall Street last week to raise a relatively modest $83 million through the issue of new American Depositary Shares (ADSs) in New York where its stock is currently traded.

The company ultimately sold the shares for $3.50 each, or more than 20 percent below its stock price when it first announced the plan. (company announcement) The need for such a big discount reflected ongoing investor concern about both Yingli and broader prospects for the solar sector’s recovery. Announcement of the discount sparked a sell-off in Yingli’s shares, which tumbled 18 percent in the 3 trading days after the plan was first announced, wiping out around $100 million in shareholder value.

Yingli’s decision to tap western markets for its fund raising followed two similar earlier developments that showed Beijing was taking a more hands-off approach to the solar panel sector in the uphill climb from its downturn.

The first of those came in February, when Canadian Solar (Nasdaq: CSIQ) announced plans to issue new stock and bonds to raise $200 million. That announcement sparked a smaller 8 percent sell-off in Canadian Solar’s shares as investors also greeted the plan with limited enthusiasm, even though the company is one of the few to recently return to profitability.

The second sign of Beijing’s laissez faire approach came last month when mid-sized panel maker Chaori Solar (shenzhen: 002506) missed an interest payment on some of it domestic bonds, becoming the first default on such domestic corporate debt in modern Chinese history. Many viewed that move as a sign that China was preparing to allow similar defaults on corporate debt, and abandon its past practice of sending in state-run entities to rescue such companies.

In all 3 cases, it would have been quite easy for Beijing or local governments to come to the assistance of Canadian Solar, Chaori and Yingli. Officials could have provided critical assistance in a number of ways, such as ordering local state-run banks to make low-interest loans or calling on other state-run entities to provide funding.

But in each instance, the government has shown a determination to let market forces dictate developments, even if that meant wiping out millions of dollars in investor value or shaking the domestic corporate bond market by signaling the potential for more defaults. Such actions may cause some pain in the short term for companies, their investors and local economies, but will help to create a profitable, sector that can be commercially viable over the longer term.

Beijing should extend this market-oriented approach to other sectors that are also struggling with overcapacity, such as steel and aluminum, which would help to build commercially viable industries over the longer term. In place of direct financing, it could gradually introduce less aggressive, more western-style incentives like tax breaks to foster growth in sectors it wants to develop.

Such an approach will inevitably create some pain for the affected sectors, forcing plant closures and lost investment dollars. But over the long run it will put China’s economy on a sounder footing to ensure healthy sustainable growth.

Bottom line: Yingli’s move to raise capital in New York signals Beijing will take a laissez faire approach to the solar sector as it claws its way back to health.Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

April 21, 2014

Don't Bet Against SolarCity

By Jeff Siegel


SolarCity truck It wasn't an April Fool's Day gag when I said it was time to buy SolarCity Corp. (NASDAQ: SCTY) at the beginning of the month.

After a brief standstill, the company's battery-backed solar projects have begun to move forward again.

The State of California Public Utilities Commission has added an important item to its May 15 agenda that will make a huge difference for SolarCity. Utility companies may finally be blocked from imposing big fees on battery-backed solar systems.

For more than a year, California's largest utilities companies demanded that battery-solar systems undergo costly and time-consuming inspections to prevent them from “laundering” power they pulled off the grid.

Non-battery solar systems were not a concern for the utility companies, because that energy could be unquestionably verified as solar in origin as it was fed back into the grid. Battery systems did not provide an equal degree of certainty.

Each new battery-backed PV user had to submit an application to connect to the grid that cost $800 and required additional meters and hardware that cost as much as $3,700. Only a dozen of SolarCity's customers completed the application and approval process out of the more than 500 customers who had signed up.

In March, SolarCity had had enough. It halted its applications for interconnections to Southern California Edison, Pacific Gas and Electric, and San Diego Gas and Electric.

Now, the Public Utilities Commission seeks to exempt battery solar installations from these huge fees, so these customers can get their systems. SolarCity has resumed filing applications.

The Threat to Utilities

Energy companies expressed concern that solar batteries could store power from the grid rather than from solar panels, and feed it back into the grid for net metering billing reductions.

Net metering is a system that allows residential solar users to send their unused solar energy back into the grid and roll their traditional electric bills backwards. With this type of system in place, people can install solar panels on their home and not really rely on them to power anything except the grid.

Since solar batteries allow customers to store the power they generate, this means they can save their energy to use on themselves and not even have to participate in net metering if they don't want to.

It essentially rearranges residential power priorities into a pyramid with solar on the top, solar battery as the backup, and traditional grid as the backup to the backup.

Solar battery systems, therefore, threaten to slash customer reliance upon local power monopolies.

SolarCity, however, isn't positioning itself as a threat. It wants to work with the power companies.

In a blog posting entitled “Put Battery Storage in the Hands of Grid Operators,” SolarCity Co-founder and CTO Peter Rive said:
“While cutting the cord enables one household to be 100% renewable and self-sufficient, it limits what these technologies can do. In short, the grid is a network, and where there are networks, there are network effects. When batteries are optimized across the grid, they can direct clean solar electricity where (and when) it is needed most, lowering costs for utilities and for all ratepayers. This is true of homeowners’ behind-the-meter storage units, and it’s also true of larger commercial and utility-scale units.”

Despite SolarCity's apparent goodwill toward power companies, the threat this technology poses to power companies is still strong.

All in the Family

SolarCity was co-founded by brothers Peter and Lyndon Rive, and they have a very important cousin: Elon Musk, CEO of Tesla Motors (NASDAQ: TSLA).

Together, the family is pushing for a battery-powered future.

In the automotive sector, batteries mean drivers do not have to rely upon costly gasoline to get around, and in the residential power sector, it means users don't have to rely upon energy monopolies.

The combined effect of two battery-crazy companies in different sectors is a massive economy of scale.

Tesla's so-called “gigafactory” is going to produce enough lithium-ion batteries at such a high volume that prices will drop. Both Tesla and SolarCity will reap the rewards.

The Gigafactory is not expected to be built until early 2017, and production ramping will not begin until 2020. It may be a long way off, but think of what can be done in the meantime.

SolarCity has only existed for eight years, and it has grown in explosions. In the third quarter of 2013, it grabbed a 32 percent share of the solar installation market, and it expected to grow its number of installations by more than 80 percent in 2014. This means it could deploy upwards of 525 Megawatts of photovoltaic cells this year alone.


Jeff Siegel is Editor of Energy and Capital, where this article was first published.

April 17, 2014

New Yingli Fund Evokes Shades Of Suntech

Doug Young

I wrote earlier this week about troublesome signs for the solar panel sector’s fledgling recovery after a revenue warning from Trina (NYSE: TSL), and now we’re seeing another worrisome signal with news that Yingli (NYSE: YGE) is launching a new fund to build solar power plants. This kind of scheme looks eerily similar to one that kicked off the downfall of former industry leader Suntech (NYSE: STPFQ), though there are also a few differences. Still, Yingli’s latest move signals that the industry may not have learned its lesson from the Suntech debacle.

Yingli’s decision to launch this new scheme also suggests that the hoped-for explosion of new solar plant construction in China isn’t coming as quickly as many had hoped, forcing panel makers to bridge the gap by helping to finance and build new projects. Most major players have used this kind of process before, building new plants using their own resources for eventual sale to long-term buyers.

But in most of those cases, probable buyers were already in place before plant construction began. This new plan by Yingli seems to depart from that model, and looks like it will involve the speculative construction of new solar plants first, and then identification of potential buyers later.

All that said, let’s look more closely at Yingli’s new scheme that has it teaming up with Chinese private equity firm Shanghai Sailing Capital to launch a renewable energy fund. (company announcement) The fund will initially have 1 billion yuan ($160 million) in capital, with Yingli holding a majority 51 percent and Sailing holding the remainder. Yingli will provide its roughly $80 million contribution in installments rather than immediately, reflecting the difficulty it faces in raising even this kind of modest amount of cash.

Not surprisingly, the fund will mostly build solar power plants in China using panels supplied by Yingli. If any industry watchers are getting a sense of deja vu after reading all this, it’s because the now-bankrupt Suntech did something quite similar back when it was still an industry leader.

In that instance, Suntech set up the Global Solar Fund (GSF), which became a major building of solar power plants, mostly in Italy. Like Yingli, Suntech was the controlling shareholder in GSF, and the fund used Suntech-supplied panels for most of its projects. That arrangement allowed Suntech to post billions of dollars in sales, even though others would later argue it was effectively selling its panels to itself.

Solar historians will know that Suntech ultimately had to publicly discuss its cozy relationship with GSF when the partnership soured over a financial issue. That disclosure, which came at the height of the solar sector’s recent downturn, set Suntech on a downward spiral that ultimately ended with its bankruptcy declaration last year and its current liquidation.

So, what, if anything, is different with this current Yingli scheme? From what I can see, the biggest difference is that the Yingli fund is far smaller than GSF, meaning its financial impact on Yingli’s sales could be much more limited. The other big difference is that Yingli’s fund is based in China, which has embarked on an aggressive plan to build new solar plants under a directive from Beijing.

That means that the new Yingli solar fund could find plenty of potential buyers for its plants in the form of state-run companies eager to help Beijing meet its ambitious solar plant construction goals. It’s probably still too early to get too worried about this new plan from Yingli, and we’ll have to see how it develops. But if I were an investor, I would certainly keep a watchful eye on this fund, which has the potential to create major headaches for the company down the road.

Bottom line: A new Yingli-invested fund to build solar power plants in China looks like a risky bet that could ultimately undermine the company if no buyers emerge for newly constructed plants.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

April 15, 2014

Trina Warning Foreshadows Solar Gloom

Doug Young


After watching their shares and prospects soar over the past year, solar stocks are suddenly hitting a cloudy patch as investors anxiously wait for most companies to return to the profit column following a 2 year sector downturn. That wait may have just gotten a lot longer, following a warning from Trina (NYSE: TSL) that it will fall far short of its previous sales forecasts for the just-ended first quarter.

Trina blames the problem on short-term factors, as it and other Chinese panel makers work to finalize an agreement to avoid the European Union’s previous threat of anti-dumping tariffs. But hidden in the optimism from Trina and its Chinese peers is the fact that the new agreement is likely to have many of the same effects as the original punitive tariffs. That means most of these Chinese companies will suddenly face resurgent new competition from western rivals in Europe once a deal is reached.

According to its newly issued warning, Trina said it now expects to report it shipped 540-570 megawatts worth of panels in the first quarter that just ended on March 31. (company announcement) That figure is down sharply — about 20 percent to be precise — from the 670-700 megawatts worth of panels that it previously forecast just 6 weeks ago. Trina blames the shortfall on failure to finalize an agreement with the EU, after the 2 sides last year reached a landmark deal that would see the Chinese panel makers voluntarily raise their prices to offset the effect of unfair subsidies from their home government. (previous post)

Most solar shares have rallied strongly over the last year over hopes that a 2 year sector downturn was in the past. But the stocks have given back a big chunk of those gains in the past month, in a needed correction as investors realize a turnaround may be slower in coming than many had hoped.

Trina shares dropped 3.8 percent after its warning, and are down nearly 40 percent since early March. Other panel makers are down by similar amounts, with Yingli (NYSE: YGE) down 42 percent over the same period, including a 6.5 percent drop after Trina’s warning. Even superstar Canadian Solar (NASD:CSIQ), one of the only major panel makers to return to profitability, has lost 34 percent since early March, including a 6.3 percent drop after Trina’s warning.

Some might argue that the current sell-off may be nearing an end, since a 40 percent correction is certainly quite large. But many optimists in the crowd are failing to realize that the new EU agreement will have virtually the same effect as punitive tariffs, since it will force Trina and its peers to raise their prices to levels similar to those from their US and European rivals. That means all the Chinese manufacturers will face stiff new competition under the new agreement in Europe, which has traditionally been their biggest market.

Meantime, the companies could also soon face similar competition in the US, which last year imposed its own anti-dumping tariffs to protest China’s unfair state support for the industry through policies like cheap loans and preferential taxes. The US is currently working to plug a loophole in its earlier decision that allowed the Chinese panel makers to avoid many of the extra tariffs. When that happens, the Chinese companies will also face renewed competition in that market. (previous post)

Two bright spots for the Chinese manufacturers will be their own home market and also Japan, where the governments and private companies have launched ambitious programs to rapidly build up solar power capacity. But those developments won’t be enough to offset the big obstacles in the US and Europe, meaning that Chinese solar panel makers are likely to see both their sales and stocks come under pressure for the rest of the year.

Bottom line: Trina’s sales warning hints at new obstacles for Chinese solar panel makers in the key EU market, putting pressure on their sales and shares for the rest of this year.

aDoug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

April 09, 2014

SolarCity's Second Solar Lease-Backed Bond Closes Thursday

SolarCity is on the road with a $70.2m, 8yr, BBB+ rooftop solar leases securitization; closes Thursday

SCTY residential solar.pngSean Kidney

US company SolarCity (NASD:SCTY) has priced a solar bond backed by cash flows from a pool of 6,596 mainly residential solar panel systems and power purchase agreements in California, Arizona, and Colorado. Expected bond figure is $70.2 million, but the bond doesn’t close until Thursday this week. Interest rate is 4.59%. Credit Suisse is structurer and sole bookrunner.

This is SolarCity’s second solar securitization in six months. Their previous (ground-breaking) bond was for $54.4 million with an interest rate of 4.8% – but 13 year tenor.

——— Sean Kidney is Chair of the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

April 08, 2014

It's Time to Buy SolarCity

By Jeff Siegel

Well, it was a record-breaking day for Texas last week.

On March 26, at 8:48 p.m., nearly 30% of the Lone Star State's electricity was generated by wind.

Most came from West Texas, and there wasn't a single issue regarding integration.

Despite the common refrain of “the grid can't handle all this intermittent power,” Texans had no problem turning on the lights with all those extra wind-powered electrons.

Of course, for those of you who rely on actual data instead of empty rhetoric, this should come as no surprise. In fact, a new study just published by PJM Interconnection indicates that large amounts of integrated solar and wind won't just be safe for the grid — they also won't cause energy prices to rise.

The 30% Solution

PJM Interconnection is a regional transmission organization that serves 13 states and the District of Columbia. It’s actually the biggest wholesale electricity market in the world, serving about 60 million people with nearly 60,000 miles of transmission lines across its service area.

So yes, any time we get new data analysis from PJM, we take it very seriously.

According to PJM, wind and solar could generate about 30% of all electricity for its territory by 2026 without any significant issues. This would be the equivalent of about 113,000 megawatts of installed wind and solar resources, powering 23.5 million homes annually.

Now, the entire report is about the size of a small novel, so I'll just break down a few of the key findings that analyst John Moore recently shared with Greentech Media.

Based on estimates of 30% penetration, we can see the following benefits:

  • Lower average energy prices across PJM's footprint because wind and solar would avoid $15.6 billion coal and natural gas fuel costs.
  • Very little additional power (only 1,500 megawatts) needed to support the minute-to-minute variability of the renewable power.
  • No additional operating reserves (spinning) needed for backup power.

Moore goes on to write:

“Getting all of this additional clean energy will require more transmission lines, which PJM’s study estimated would cost $8 billion. That is still far less the $15.6 billion in energy savings. But even that’s probably an exaggeration, since PJM’s study looked only at renewable energy expansion inside PJM. It didn’t consider, for example, the savings from importing some of the wind power from the Dakotas, Minnesota, Iowa, or other parts of the wind-rich Midwest and Great Plains. When you factor in those possibilities, the total transmission cost of achieving the 30 percent renewables integration could be lower than PJM’s predictions.

It’s clear that the grid can handle high levels of renewable power without compromising reliability. Of course, we already know this because the Midwest and Texas grids have seen wind energy constitute a significant portion of the power on the grid at a given time. The PJM study affirms that the grid can handle much higher power levels. It also provides a stepping stone to evaluating the impacts and savings of even more renewable power on the grid...”

Of course, folks still need to put this stuff into perspective.

Yes, the continued integration of renewable energy is a lock, but that doesn’t mean it’s going to send fossil fuels packing. In fact, natural gas will continue to provide the lion’s share of our power generation for decades to come. That being said, it's indicators like the one PJM just provided that further validate our long-term bullish stance on alternative energy.

The question is, if you're looking to take advantage of this continued integration of renewables, where can you get the most bang for your buck?

Sizing Solar

Based on PJM's report, here's how the breakdown looks for its territory:

Although wind makes up a sizable piece of the pie, there are few pure plays in this space. I do like Pattern Energy Group (NASDAQ: PEGI). I actually recommended it back in October when it was trading for $23. Here's how it's performed so far...

Pattern Energy Group is an independent power company that owns and operates eight wind power projects in Canada, the United States, and Chile. Total owned capacity is just over one gigawatt.

I particularly like the 4.5% dividend on this one, too.

However, looking at the chart, you can see solar's offering the biggest growth opportunity. And there are a number of ways to play this...

Personally, since the solar space absolutely crushed it last year, I'm getting a bit pickier about which solar stocks to own in 2014. But a couple of weeks ago, one solar stock in particular got hammered. And it didn't take long for me to buy a few cheap shares on the dip.

On March 19, SolarCity (NASDAQ: SCTY) took it on the chin after the company reported earnings and investors saw that guidance had fallen below expectations. The stock fell hard, and it is now oversold.

As of April 7th, you can pick up shares of SCTY for less than $55 a share.

The way I see it, this is a $75 stock that's offering a huge discount to bargain hunters. Even Goldman is maintaining its $85 price target, and Deutsche Bank is holding its $90 price target.

Bottom line: An overreaction to lowered guidance opened up an excellent buying opportunity.

To a new way of life and a new generation of wealth...

To a new way of life and a new generation of wealth...


Jeff Siegel is Editor of Energy and Capital, where this article was first published.

April 07, 2014

Ascent Solar: Grounded

By Brandon Qureshi

Recently, Ascent Solar Technologies (ASTI:  Nasdaq) , a publicly traded solar power company, received an additional $5.0 million from institutional investor Ironridge Technology, thereby completing a $10 million Series B Preferred Stock investment.  AST, based in Thornton, Colorado, has emerged as a leader in the development of flexible, thin, high-performance solar panels.

In order to examine AST within an industrial context, a profile of the solar power industry is necessary: According to sources such as Time and E&E Publishing, the industry has experienced record levels of popularity in the United States in the last few years. Indeed, a report published by the Solar Energy Industries Association and partner GTM Research demonstrates that the industry has grown by a whopping 41 percent in 2013 alone, citing record levels of installations in the utility sector. Moreover, solar electric installations continue to increase in value – from $8.6 billion in 2011 to $11.5 billion in 2012 to $13.7 billion in 2013.

What has driven this industrial surge? The report names decreasing prices spurred by technological advancements in the field of solar energy: the average price of a solar panel has declined by 60 percent in the past three years, and the national average photovoltaic installed system price declined by 15 percent in 2013 alone.

With this in mind, what role does AST play in the development of the solar power industry? AST uses substrate materials in its creation of photovoltaic modules, which causes them to be exceptionally flexible, thin, and affordable. These modules can then be implemented in the manufacture of traditional solar panels, building materials, and consumer electronics. Thus, AST is one of several solar power companies that, by decreasing the price of solar energy products, have contributed to their increasing availability, consumption, and production.

How does AST plan to use Ironridge Technology Co.’s investment? It seems that the funds will go largely to marketing efforts: aside from the proceeds that will be used to finance ongoing operations, the funds will be used to develop the Enerplex brand. Enerplex of one of AST’s projects, which involves the implementation of AST’s solar panel technology into everyday appliances including phone cases, chargers, and battery packs.

What does the future hold for the solar power industry? It’s hard to say. There is the obvious: the United States solar industry has experienced unprecedented growth in recent years and is currently the second-largest source of new electricity generating capacity in the nation; but is the situation really so simple? Every year, tax breaks for renewable energy expire – these expirations are bound to adversely impact the industry. The cost of solar power is hardly certain: because a significant portion of the diminishing costs of solar panel manufacture is due to imports from China – which installed of 12 gigawatts of solar capacity in 2013 alone – experts fear an upcoming “trade war” characterized by taxes and rising prices.  Clearly, the future of the solar power industry is no safe bet – or at least not as safe as current conditions suggest.

Is AST a reliable investment opportunity? There can be no doubt of the strength of the company’s product – indeed, its unique CIGS technology has been listed among the top inventions of 2010 and 2011 by both Time and R&D Magazines. Moreover, in the month since Ironridge Technology’s investment, investors have enjoyed a 13.85 percent return on their investments. Within a larger time frame, though, this positive return rate is misleadingly optimistic: since 2008, return rates have plummeted by almost 90 percent, and have barely changed between 2013 and 2014. Despite the obvious innovation of AST’s technology, the company itself doesn’t seem to be going anywhere fast – especially when one considers the uncertain future of the solar power industry.
Brandon Qureshi is a student at Columbia University, majoring in economics. He has a particular interest in alternative energy topics and has devoted some of his recent academic projects to the economics of new energy sources. 

This article first appeared on
Crystal Equity Research's Small Cap Strategist web log.

Neither the author, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

April 02, 2014

LDK Melts Down, Solar Default Signs Grow

Doug Young 

One of China’s 2 major meltdowns in the solar panel sector has taken a big step forward with word that trading in shares of LDK Solar (NYSE: LDK) has been suspended and the de-listing process formally begun as the company liquidates. Meantime, word of a missed interest payment by a building materials maker is sending the latest signal that China will let more companies in ailing sectors default on their debt rather than pay off their creditors. That’s an important signal for the solar sector, which relies heavily on such debt to finance its operations and where many smaller players are in danger of similar defaults.

Let’s start this solar summary with LDK, which together with former solar superstar Suntech (OTC: STPFQ) is in the process of liquidating amid a broader sector clean-up. But whereas Suntech has been liquidating under the supervision of a bankruptcy judge, LDK has chosen the stranger route of winding down without such protection. Perhaps that’s not too surprising since China is quite new at bankruptcy reorganizations, though it has created a strange process where LDK has been quietly talking with its creditors and selling off assets in a process that’s not too transparent.

The company gave an update last week on talks with its bondholders and an interim financing agreement (company announcement), and has just provided a further update on the imminent de-listing of its stock. (company announcement) According to the announcement, trading in shares of LDK has been formally suspended — something that should have happened long ago. LDK also said the New York Stock Exchange has begun a process of de-listing the company’s shares.

Suntech’s shares were de-listed from the New York Stock Exchange months ago and now trade over the counter, following the company’s bankruptcy declaration about a year ago. Such a de-listing didn’t happen for LDK because it never formally declared bankruptcy, which is why the stock exchange itself is finally taking an action that should have happened months ago.

According to its latest announcements, LDK is still talking with bond owners about terms for paying off its debt, offering 20 cents for every $1 of investment. The process still looks like it may take a while to complete, but I expect LDK to disappear as an independent company by the end of this year.

Meantime, let’s look at the other major news that sends the latest signal that more solar companies could soon default on their debt payments. That would accelerate a process that saw 1 company default on a bond interest payment last month and another move in a similar direction. The latest reports say that closely held building materials maker Xuzhou Zhongsen failed to make a 180 million yuan ($29 million) payment on some high-yield bonds that was due on March 28. (English article)

That particular story is related to the real estate sector, which is gearing up for its own much-needed correction following a housing bubble that has seen property prices soar to ridiculous levels over the last decade. But the more important message is that Beijing will let ailing companies default on their debt, and make investors more responsible for losses when they buy risky bonds. That would mark a sharp shift from the past, when government entities would almost always come to the rescue of state-run companies that were in danger of defaulting on their debt.

Last month saw a major milestone when mid-sized solar panel maker Chaori Solar missed a bond interest payment, becoming the first such corporate bond default in modern Chinese history. Not long after, trading in shares of Baoding Tianwei (Shanghai: 600550) was suspended as it too flirted with a debt default. (prevoious post) This latest default by Xuzhou Zhongsen shows that the flow of defaults is likely to pick up in the months ahead, hitting many mid-sized and smaller solar players and hurting the ability of larger players to raise new funds.

Bottom line: LDK’s liquidation is likely to be complete by year-end, while the latest market signals indicate more smaller solar companies will default on their debt in the months ahead.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 30, 2014

SolarCity: Overpriced or Opportunity?

Does SolarCity (SCTY) look like a good investment at current prices? The most recent financials released by SCTY fills out the picture of how this unique company performed for 2013. Do the numbers justify the outsized stock performance, which has risen 222% in the past 12 months, and 384% since its Initial Public Offering in December 2012? Or on the other hand, are recent filings more reflective of the 42% drop since the highs of a month ago? This article will follow the data to see where this distinctive energy stock stands now, and forecast where this dynamic solar company may go from here.


Figure 1. SolarCity Revenues.

SolarCity Revenues Are Climbing…

First the good news: sales have been steadily gaining for SCTY. Figure 1 shows that sales, or revenues, are up 29% from 2012 levels, and almost triple what they were in 2011. Revenues came in at the high end of projections made in November 2013. Gross profits, accounting costs of revenue such as operating leases, incentives and sales (but not expenses or other losses), have also been growing.

…But Profits Are Falling

Profits for the company, however, are a different story. Figure 2 shows that net losses have been growing, over double now what they were in 2011. Figure 1 points out that revenues are not the problem, it is the expense side of the ledger keeping the company in the red. This divergence between revenues and net income, can clearly be seen on a quarterly basis in Figure 3.


Figure 2. SolarCity Losses.


Figure 3. SolarCity quarterly revenue and income.

Classifying SolarCity Debt

It is always beneficial to look at debt when evaluating a company’s financial health. When debt ratios are compared to industry-wide levels, a clearer picture emerges of whether a company is successfully deploying debt, or if it is swimming in financial liabilities.

Figure 4. SolarCity total liabilities to total assets.

Figure 5. SolaCity current ratio.

This type of comparison poses a challenge for SolarCity, because it is a hard company to classify. Most financial websites mistakenly put SCTY in the semiconductor industry, since the majority of solar companies are in this business sector. The SEC classifies SolarCity in Construction Special Trade Contractors which is partially true, but does not fully cover its business model.

I see SolarCity more as a financial company, because of the way it interacts with its clients through financing, lease arrangements, notes, etc, and how those instruments appear on the liability side of its balance sheet. Additionally, looking at debt for financial companies is different from other sectors. In many ways, their business is debt. This is all the more reason why classifying SCTY correctly is important when making industry comparisons.

Figures 4 and 5 show how SCTY stacks up against debt levels of the industries mentioned above. The ratio of total liabilities/total assets has been consistent for SolarCity over the years, and came down slightly in 2013. Though SCTY is higher than semiconductors and construction services, it is well below the average for the financial sector.

The current ratio is a measure of a company’s shorter-term debt, and the higher the number the better. On this measure, SolarCity appears to be more of concern when compared to industry averages.


Figure 6. SolarCity client growth.

SolarCity Client Growth

Despite the difficulties outlined above, there is much that SolarCity has been doing right. Figure 6 shows how SCTY has been successfully executing its business plan by growing its customer base at an extremely rapid pace. Keeping up this growth is essential to becoming profitable, and SCTY shows no signs of slowing its expansion.

If you dig in to these numbers more deeply, however, a mixed story again emerges. As seen in Figure 7, total revenues per customer have been steadily declining. This is to be expected. As SolarCity moves more and more into home and small business installations, revenues per customer get diluted when compared to its larger utility-scale clients. So long as client growth continues at a decent pace, falling total revenues per customer is not a grave concern.


Figure 7. SolarCity client ratios.

Net revenues per customer have also been improving for SCTY. In a company’s early stages, net loss per customer should shrink as revenues grow. This has been the case, with levels in 2013 about 31% better than 2012. It is crucial that this ratio continue to improve if SCTY hopes to get in the black in a timely fashion.

A key way to see how this is progressing is to watch SolarCity’s acquisition cost per customer. This ratio has been shrinking, but not at the pace one would hope. In fact, in 2013 acquisition cost per customer seems to have stabilized at 2012 levels. I will be watching this number very closely to evaluate when, or whether, SCTY will be on track to turn a profit.

Overpriced or Opportunity?

Without having access to SolarCity’s inner cogs, my back of the envelope calculations show that the company may be many years out until it enters into positive earnings territory. If total revenues per customer levels out in the $1,500 range, and operating expenses stay at current levels, then SolarCity will need to double the +/-100,000 clients that it currently has before it turns a profit. Even at the current rapid rate of client growth, it would take SolarCity two years to get to the 200,000-client level.

SolarCity has a lot of moving parts, so it is surely possible that revenues could advance quicker than my estimates, and/or expenses could become much tamer. In addition, SolarCity’s business model is quickly evolving, so unknown developments may greatly change its financial landscape. SolarCity is likely priced to perfection at current levels, but I would not discount this company as a profitable long-term investment.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

March 26, 2014

China, EU Reach Solar Settlement But More Defaults Loom

Doug Young

China and the European Union have reached a new settlement that should formally end their ongoing dispute over solar panels, contrasting sharply from a more confrontational tack taken by the US in a similar spat. Meantime in other solar news, a looming new bond default by a mid-sized panel maker has become the latest sign that Beijing is prepared to let more of these smaller companies miss their debt payments. That approach will force these smaller firms to either leave the industry or sell their money-losing operations to larger peers, in a much-needed industry consolidation.

Let’s start with the latest China-EU settlement, which involves polysilicon, the main ingredient used to make solar panels. Beijing opened an anti-dumping investigation into EU polysilicon in late 2012, a move that many saw as retaliatory for an earlier EU probe that found Chinese solar panel makers were selling their products in Europe at unfairly low prices. The original dispute centered on complaints by both the US and Europe that Chinese solar panel makers were undercutting their western rivals after receiving unfair government support in the form of subsidies like low-cost land and cheap loans.

China and Europe settled their initial dispute over solar panels last year, in a landmark deal that saw Chinese manufacturers agree to raise their panel prices to a minimum level agreed to by both sides. (previous post) Now this latest agreement will see European polysilicon makers also agree to sell their products into China at a minimum price agreed to by both sides. (English article) The main beneficiary of this new deal is Germany’s Wacker Chemie, which is Europe’s main polysilicon seller to China.

The EU’s 2 settlements contrast sharply with the approach taken by the US, which conducted its own investigation and last year imposed anti-dumping tariffs on Chinese solar panels. As a result, China opened its own probe into US polysilicon, which ended this year with retaliatory anti-dumping tariffs against US-made polysilicon.

On the one hand, I should applaud the EU for its more reasonable and pragmatic approach to this matter, even though the setting of minimum prices has nearly the same effect as imposing punitive tariffs. But that said, I do also think the US approach sends a stronger message to Beijing that it needs to stop its practice of giving money to industries it wants to promote. Perhaps this mixed approach by the US and Europe is the best way to send the message to Beijing, providing both positive and negative incentives to change its behavior.

From that solar dispute, let’s look quickly at the latest looming bond default from smaller panel maker Baoding Tianwei (Shanghai: 600550). The company has announced that trading of 1.6 billion yuan ($260 million) worth of its bonds has been halted on the Shanghai Stock Exchange. (English article; company announcement) Tianwei has lost big money for the last 2 years, so it’s not a huge surprise that it might not be able to repay its debt. The bigger surprise is that it might be allowed to default on the bonds, since Beijing or local governments often come to the rescue of companies that risk debt defaults.

We saw something similar happen earlier this month when Chaori Solar (Shenzhen: 002506), another smaller player, failed to make an interest payment for some of its bonds, becoming the first corporate bond default in modern Chinese history. (previous post) This latest case involving Tianwei shows that Beijing is preparing to allow more such defaults on solar debt. That should ultimately force many of these smaller players to either shut down or sell their operations to larger players like Canadian Solar (Nasdaq: CSIQ) and Trina (NYSE: TSL), which are emerging as industry consolidators.

Bottom line: Europe’s latest solar settlement with Beijing will end their trade dispute in an amicable way, while a new looming bond default by Tianwei reflects China’s ongoing resolve to consolidate the sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 13, 2014

Nuclear and Solar From Down Under

by Debra Fiakas CFA

Last week the Aussies invaded New York City, bivouacking at a popular hotel and parading a string of Australia-based companies in front of investors.  Of course, there were the usual mining and minerals companies for which resource-rich Australia is so famous.  However, the Australia Stock Exchange  -  one of the event sponsors  -   has diversified with listings in communications, biotechnology and alternative energy.

One of the presenters, Silex Systems, Inc. (SLX:  ASX and SILXY:  OTCQX) is a talented little company with technologies for solar and nuclear power generation.  Silex has developed a laser for uranium enrichment.  The laser alternative presents a lower cost alternative to conventional centrifugal methods.  The company landed a sweet deal with GLE, the joint venture of General Electric and Hitachi, and began receiving payments in fiscal year 2013.  Silex has stepped into the solar industry with concentrating photovoltaic system for electric power utilities.  In June 2013, the company completed construction of Australia’s largest concentrating photovoltaic solar power facility.  Silex is also working on a demonstration concentrating solar power station in Saudi Arabia.

Silex is also dabbling in materials development.  The company is using rare earths for semiconductor substrates.  Applications are diverse:  photonics, solar and electronics.  A fourth revenue source is ChronoLogic, a producer of test and measurement products in which the Silex has a 90% interest.

In the fiscal year ending June 2013, Silex reported a profit of AU$850,544 on AU$23.7 million.  Milestone payments from GLE for laser enrichment technology tipped continuing operations into the black from a deep loss in the previous fiscal year.

Silex is recording revenue, but still has the character of a developmental stage company.  Its financial reports are noisy with events as the Silex moves ahead with construction projects and meets milestones in customer relationships.  While financial results are choppy, there appear to a number of anticipated events ahead that will serve as catalysts for the stock price.  The company expects to begin construction of another concentrating solar power facility in late 2014 and its GLE customer is expected to begin negotiations with the U.S. Department of Energy for enrichment of uranium tailings sometime in 2014.  What is more, Silex is able to bandy about the buzz words that get investors’ attention:  rare earths, alternative energy.

Investors have a choice between the Silex Systems listing on the ASX or the Over-the-Counter quotation of an ADR in the U.S.  The stock is trade in both case near 52-week lows.  The ADR trades infrequently and the Australia exchange sees only a little more activity.  Thus it seems to me the stock is best suited for a buy-and-hold strategy and makes sense only for those investors with thick enough skins to tolerate some price volatility.    

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  SUNE is included in the Solar Group of Crystal Equity Research’s The Atomics Index, composed of companies using the atom to create alternative energy sources.

March 10, 2014

China's Solar Panel Makers Set For A Correction

Doug Young

After a massive rally over the last year, shares of solar panel makers could be set for a few months of winter following a disappointing earnings announcement from superstar Canadian Solar (Nasdaq: CSIQ) and a debt default from second-tier player Chaori Solar (Shenzhen: 002506). Such a correction was almost inevitable after last year’s huge rally and shouldn’t be cause for concern among long-term buyers of shares in top players like Canadian Solar. But shareholders of second-tier firms like Chaori might think strongly about selling their stock, as these smaller companies could easily end up getting wiped out or sold for bargain prices in the sector’s ongoing consolidation as it emerges from a 2-year downturn.

Before we look more closely at Canadian Solar’s latest earnings and why they disappointed, it’s important that we first review just how much the company’s shares have soared over the last year. Canadian Solar’s stock traded as low as $2 as recently as late 2012, before embarking on a massive rally that saw it top the $40 level this year. Other solar panel makers also surged as their sector began to rebound, but Canadian Solar led the rally by becoming the first major player to return to profitability after most players reported 2 years of losses.

All that said, Canadian Solar’s latest earnings report looks respectable enough on the surface, but clearly wasn’t strong enough to support the huge expectations that it has created among investors. The company’s fourth-quarter shipments shot up 53 percent from a year earlier, easily beating its previous guidance, and revenue also jumped 76 percent. (results announcement) Canadian Solar also managed to stay profitable, though the profit was slightly below market forecasts.

But investors were clearly spooked by Canadian Solar’s outlook for the current quarter, in which it expects shipments to reach around 480 megawatts and revenue to hit about $425 million. Both of those figures are down significantly from the fourth quarter, when the company shipped 621 megawatts worth of panels and posted $520 million in revenue. That weak outlook, which Canadian Solar blamed partly on seasonal factors and severe weather in North America, sparked a sell-off in the company’s shares, which fell nearly 11 percent after it announced its results.

Meantime, the solar sector got some more bad news when Shenzhen-listed Chaori announced it would default on an interest payment for some of its domestic bonds. (English article) The amount of the default was relatively small, with Chaori saying it couldn’t fully make a payment of 89.8 million yuan ($14.7 million) due earlier this week. It added that it could only pay 4 million yuan of the interest payment.

The fact that Chaori couldn’t make such a relatively small payment reflects the fact that many solar panel makers currently have little or no access to new financing. Most lenders and investors are reluctant to give more funds to these money-losing companies right now, and that’s unlikely to change until they return to profitability. But many smaller companies like Chaori lack the scale and resources to compete, meaning they may never return to profitability and we could see more defaults from this group in the year ahead.

At the end of the day, I do expect that shares of the largest companies are likely to take a breather for the next 6 months, following their huge run-up in 2013. That doesn’t mean we may not see one or two rallies for individual companies, especially as others follow Canadian Solar in returning to profitability. Meantime, I wouldn’t hold out too much hope for smaller players like Chaori in the year ahead, as many could face similar cash crunches due to persisting losses and lack of access to new financing from banks and private investors.

Bottom line: Shares of major solar panel makers are set for a correction this year after a 2013 rally and as their growth slows, while smaller players are likely to face a growing cash crunch.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 03, 2014

New Suntech Rises From Ashes, Eyes UK

Doug Young 

Suntech. faces final sunset.

Opportunities for me to write about former solar pioneer Suntech (OTC: STPFQ) are growing fewer with each passing day, as its life as an independent company nears an end with the imminent finalization of its bankruptcy liquidation. That said, a company announcement saying that a new Suntech has emerged after the yearlong bankruptcy storm seems like a good opportunity to write about this company one last time before it and its stock permanently disappear. The announcement features a photo of Suntech’s youthful looking new CEO, Eric Luo, and says the company is preparing a new push into Europe, starting with Britain. (company announcement)

Before we go any further, I should point out this new announcement is coming from Wuxi Suntech, owner of the main production assets of the original Suntech Power Holdings, which was formally forced into bankruptcy about a year ago after defaulting on more than $500 million in debt. Wuxi Suntech was auctioned off as part of the bankruptcy liquidation process, and was purchased by Hong Kong-listed Shunfeng Photovolatic (HKEx: 1165) last year.

In its latest announcement, Wuxi Suntech says its sale to Shunfeng will close imminently, which means the parent Suntech’s bankruptcy liquidation plan is also close to finalization and will likely be approved by its creditors. I would expect all of that to happen sometime this month, at which time the original Suntech will formally be disbanded and become a chapter in future history books on solar energy.

To this day, stock buyers don’t seem to have a strong idea of how much their holdings in the original Suntech are worth, as reflected by the stock’s wild swings even as the final liquidation approaches. In the latest session alone, the stock rose 30 percent, recouping some of the losses from a 40 percent slide over the previous month. I expect we’ll see one or two more major swings before the final plan is approved, at which time investors will finally lose this popular betting vehicle.

The latest announcement says that Wuxi Suntech will remain as an independent entity after its sale to Shunfeng is complete, which means the brand will stay intact. The statement also implies that Suntech may become the flagship brand of the new Shunfeng, which isn’t a huge surprise due to Suntech’s status as one of the industry’s most recognized names. Luo says the new Suntech will also make some strategic acquisitions, and that it expects to ship a record 2.5 gigawatts worth of panels for this year, 20 percent higher than its previous peak in 2011.

While Suntech’s shares have swung wildly over the last year, Shunfeng’s have been on a more positive trend, rising from their previous level of about HK$1 as recently as last June to around HK$7 at present. I’ve previously said that Shunfeng could be a company to watch going forward, and do expect it should benefit strongly from Suntech’s strong brand, as well as its technology and sales networks. I wouldn’t be surprised if Shunfeng ultimately takes the Suntech name as its primary brand, though it will probably want to wait at least a year until the bankruptcy is well in the past.

I should close out this post with a final memorial to Suntech, whose biggest fault was probably hubris. Founder and former chief executive Shi Zhengrong will be remembered as a visionary for his early entry to the market, becoming the first solar panel maker to list in New York in 2005. But too much praise for his firm and his own self confidence led Shi to take unnecessary risks that ultimately led to Suntech’s downfall, ending a brief but turbulent life for this colorful but ill-fated sector pioneer.

Bottom line: Shunfeng could position Suntech as its leading brand after finalizing its purchase of the company’s main assets, and could use Suntech as a platform for future acquisitions.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

February 27, 2014

Why SunPower (SPWR) is a Solid Bet on Solar

By Jeff Siegel

I've been singing the praises of SolarCity (NASDAQ: SCTY) since the company first went public.

Even as renewable energy bears attacked anything with the word "solar" in the name, I stuck to my guns. And I'm glad I did.

Here's a quick look at how SCTY has performed since its debut:


Of course, at this point, SCTY is an easy ride. Even if the company's next earnings disappoint, the long view remains solid. So when the company delayed earnings this week, I didn't lose any sleep.

The fact is, those who took my advice and jumped in early can weather any potentially negative news along the way. We're just that far ahead of the curve.

For those who didn't, there's still plenty of opportunity in the solar space.

This is a Very Big Deal

It was one of the first major solar players to capitalize on the solar bull market back in 2006.

Launching from an IPO price of $28.00 to $164.00 in just two years, many thought SunPower Corporation (NASDAQ: SPWR) couldn't be stopped. That is, until the market imploded in 2008.

By 2009, SPWR was trading between $25 and $30 a share. And over the next four years, it sunk even further, hitting a low of $3.71.

Of course, it was around late 2012 or early 2013 when we saw the global solar market begin to pick up speed. And while SPWR isn't trading anywhere close to its all-time high of $164.00, had you picked some up at the start of 2013, you would've more than quadrupled your money! That's no joke.

Now here's the interesting thing about SunPower...

Many initially wrote the company off, as it couldn't compete on price with the Chinese. But upon a closer look, you would see that today, the price gap isn't as wide as it once was. In fact, last week, the company announced it had been able to reduce manufacturing costs by 20% last year. That came on the heels of a 25% reduction in balance-of-system costs in 2012.

On the surface, this may not seem like a huge deal. But it is. You see, with this 20% reduction comes the realization that margins are finally competitive.

As Giles Parkinson from RenewEconomy recently wrote, "...the company can lift its margins from slightly negative to nearly 20 percent and deliver a solid return to shareholders. Further cost cuts means it will either improve its margins, and therefore its returns to shareholders, or be able to meet price drops in the consumer space if another surge in capacity emerges."

I agree 100% with that statement and remain bullish on SPWR going forward, with a price target of $38.

To a new way of life and a new generation of wealth...


Jeff Siegel is Editor of Energy and Capital, where this article was first published.

February 21, 2014

SunEdison Launches Yieldco; Trend Will Be Transformative For Solar

James Montgomery
Sunedison Logo.png
SunEdison proposes Yieldco IPO

The proposed initial public offering (IPO) of common stock for a new yieldco vehicle, with terms yet to be determined, was announced hours before the company's quarterly and year-ending financials. Reports over the past couple of months have suggested a SunEdison (SUNE) yieldco could generate a $300 million payday. Later this month (Feb. 24) the company will hold its Capital Markets Day with a more extensive analysis of its business strategies, and surely this will be a big topic of conversation.

Here's why SunEdison and the rest of the industry is so keen to pursue new finance options. Back in its 3Q13 financial results SunEdison calculated its current business model of building and selling solar projects yields about $0.74/Watt -- but those assets' true value could jump as high as $1.97/W if the company can find ways to enumerate and apply various methods: lower the cost of capital, apply various underwriting assumptions, and factor in residual value in power purchase agreements. That's a startling 2.6× increase in potential value creation that SunEdison thinks it can unlock, and creating a yieldco structure to attract interest from the broader investor community is a big part of the answer.

In its 4Q results SunEdison puts more numbers to that value-creation equation: in the fourth quarter it captured an additional $158 million by retaining projects vs. simply selling them off. And by applying most of the 127-MW on its balance sheet with an estimated $257 million in "retained value" to this yieldco, the company says it has sufficient scale to unlock the true value of those solar assets.

In the past year several yieldcos have come to the forefront. Last summer NRG Energy launched NRG Yield (NYLD) with a 1.3-GW portfolio of energy generation assets, though fewer than half of them were renewables (solar and wind); earlier this month NRG Yield proposed to raise another $300 million. Pattern Energy (PEGI) issued its IPO in the fall backed by a number of wind farms. Other recent yieldco examples include Brookfield Renewable Energy Partners (BEP) and Hannon Armstrong (HASI).

More directly from the solar sector, SunPower (SPWR) recently talked about doing a yieldco maybe in late 2015, likely to feature its 135-MW Quinto project and possibly its 120-MW Henrietta project. Others eyeing the yieldco model reportedly include Canadian Solar (CSIQ), Jinko Solar (JKS), and First Solar (FSLR).

"This trend is transformative for the solar industry" because of how it can unlock so much more value and thus returns, explained Patrick Jobin, Clean Technology Equity Research analyst with Credit Suisse. (Disclosure: SunEdison is one of his top picks specifically for that reason.) "We're probably in the first or second inning of the public capital markets appreciating what this does for the industry."

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

February 18, 2014

Trina Drives Consolidation As Solar Trade War Flares Up

Doug Young 

As if the solar trade war between the US and China wasn’t bad enough, tensions just got worse with a preliminary ruling in Washington aimed at closing a loophole to a previous ruling imposing anti-dumping tariffs on Chinese solar panels. I’ll admit I was a bit surprised by the preliminary ruling just announced by the US International Trade Commission (ITC), as I’d previously predicted this latest action in the Sino-US solar trade dispute would quickly fizzle. Meantime, industry consolidation is continuing in China, where more than half the world’s solar panels are currently made, with word that Trina (NYSE: TSL) is buying a controlling stake in another smaller rival.

I said above that the ITC’s latest move surprised me a bit, but what certainly hasn’t surprised me has been China’s defiant protest at this latest development. I obviously don’t know what’s happening behind the scenes, but at least on the surface it appears that Beijing has done little or nothing to try and address western concerns underlying this 2-year-old trade war. Those concerns center on allegations by the US and Europe that China unfairly supports its solar panel makers by providing a wide range of government subsidies ranging from low-interest bank loans to cheap land for building new factories.

Rather than try to find a solution that would satisfy these western governments, Beijing is embarking on its own building spree for new power plants that could raise further complaints of unfair government support. Meantime, this new purchase by Trina should be a welcome development, but could also raise new tensions since the company is probably paying little or nothing for its controlling stake in Hubei Hongyan, which itself is most likely a state-run enterprise.

All that said, let’s take a look at the latest development in Washington that saw the ITC make a preliminary determination that Chinese-made solar panels that use Taiwanese components may violate fair trade principles. (English article) That determination means the case can go forward, and a final ruling could come later this year. Washington last year imposed punitive tariffs on Chinese-made solar panels after the ITC determined that Chinese producers received unfair government support. But China-made products using key components from Taiwan were exempted from the ruling — a loophole that the US arm of German producer SolarWorld (OTC: SRWRF) is now trying to close.

SolarWorld was predictably pleased at the initial ruling (company statement), but others were less thrilled. A group representing US installers of solar panels, the Coalition for Affordable Solar Energy, said that closing the loophole would drive up prices for everyone, since China produces so much of the world’s supply. Beijing has yet to formally react to this latest development, but late last month called on Washington to stop the probe and said it has “serious concerns.”

Meantime in the day’s other solar news, Trina has announced it will acquire 51 percent of solar panel maker Hubei Hongyan from its parent, Shenzhen S.C. New Energy Technology. (company announcement) No financial terms were given, which means that Trina is probably paying very little for the stake, or possibly even getting it for free. That wouldn’t come as a huge surprise, since the company has relatively modest manufacturing capacity of 50 megawatts per year, and is probably losing lots of money.

I’ve had a look at Shenzhen S.C.’s website, and there’s no indication of whether it’s a state-owned company. But I would be willing to bet it is, though its parent is probably making the sale out of commercial pressure rather than pressure from Beijing. Still, a foreign buyer almost certainly would never have been considered for this sale, and Beijing in general has shown no signs of encouraging a more open and commercial-oriented approach for the market. Until that changes, look for tensions to continue to simmer, slowing development of this important sector that will be critical for the world’s future energy security.

Bottom line: A new preliminary ruling from the US will boost tensions between Beijing in a long-running trade dispute over solar panels, benefiting nobody.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

February 10, 2014

End Draws Near for Suntech

Doug Young 

Sunset looms for Suntech. Photo by Tom Konrad

The month of February could mark the final sunset for solar panel maker Suntech (OTC: STPFQ), with 2 major events on the calendar that look like the swansong for this former solar energy pioneer. If the ending does indeed come, it would be almost a year after Suntech first was forced into bankruptcy in a Chinese court in its home city of Wuxi, kicking off a contentious process that saw many of its top executives and board members leave and rival Shunfeng Photovoltaic (HKEx: 1165) purchase most of its China-based assets. One of the biggest remaining questions will be how much, if anything, holders of the company’s stock get for their shares.

Suntech announced the first important date on its calendar last month, when it said it would hold a creditors meeting on February 12, or next Wednesday, in the Caymen Islands where it is technically based. (company announcement) Items on the agenda for that meeting include election of a liquidation committee, hinting that a final plan was finally near.

A newer hint that the end was finally coming came over the just-ended Lunar New Year holiday, when Suntech announced it had reached a settlement with a group of creditors trying to force it into bankruptcy in a New York court. (company announcement) Under that settlement, the creditors agreed to temporarily halt their bid if Suntech could provide a liquidation plan agreeable to everyone by February 21.

That agreement hints that the creditors behind the New York petition have gotten a look at terms they are likely to get under the final liquidation plan, and are satisfied with what they’ve seen. That means we could potentially see a final plan announced at the February 12 meeting, which could be followed by a vote and finalization of the plan by February 21. If the plan is approved, which looks increasingly likely, Suntech could cease to exist as an independent entity by the end of this month and its shares could finally be de-listed from the over-the-counter market.

The question of how much those shares will be worth is still a big one, as reflected by a 22 percent drop in Suntech shares to 40 cents during the last trading session, valuing the company at about $72 million. Before the sell-off, the company’s shares had been relatively stable since December, trading in the 50-60 cent range. That sudden volatility probably represents shareholders’ realization that the end is drawing near, prompting some to sell at any price while they can still get money for their stock.

One research house told me as recently as early January that Suntech should be valued at around $130 million based on the latest price of its debt at that time. The price of the debt has probably dropped sharply since then, resulting in the current market value. I suspect the share price could creep down further still as we approach the February 12 meeting, though I don’t have enough information to make an educated guess about where it will finally bottom out.

When the end comes, Suntech will formally become the biggest victim of a painful period of restructuring for the solar energy sector. The company was one of the first to tap a boom in solar energy plant construction, but its heavy debt caused it to collapse when the sector got hit by oversupply after a massive build-up of new capacity in China. The company’s formal departure signifies an end to this painful chapter in the sector’s brief history, though we’re still likely to see 1 or 2 other major failures before the consolidation is finally complete.

Bottom line: Suntech could formally be dissolved by the end of this month, and its shares are likely to creep downward before final terms of its liquidation are announced in the next 1-2 weeks.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

February 09, 2014

Solar Micro FiT 3.0 as an Investment

Brian Kennelly

I am asked this question over and over again and I can answer quite emphatically, YES! Most think I answer that way because I’m a nut about renewable energy and sustainability and my business also sells solar arrays. These are valid points but I still maintain that the OPA FiT program is one of the best, secure and environmentally friendly investments you will ever make!

Most people that know me probably are not aware that I was educated and began my career in finance and accounting. A very satisfying time, but alas my entrepreneurial urges got the better of me and I left the profession many years ago. The background and experience in that field have served me well over the years by keeping my various business interests on a stable financial track. It has certainly helped these past five years as we have grown our renewable energy business throughout the ups and downs of the Ontario solar marketplace.

Now, I am also able to draw on my financial background as I help to demonstrate to our clients the financial benefits of green energy technology. In this article I will hopefully clearly demonstrate to the reader the financial benefits of investing in a solar array. I will focus specifically on the Ontario Feed-In-Tariff (FiT or Micro FiT) and how an investment in solar panels outperforms any fixed income investment available today. I don’t presume to be an expert on investments so I encourage you to do your own investigations – and I challenge you to come up with a different conclusion.

First lets quickly go over the FiT program for those that are unfamiliar with it. In Ontario, the Ontario Power Authority (OPA) will sign a twenty-year contract to buy electricity from renewable energy systems (wind, solar, biogas and hydro) installed by you. The rates for each kWh sold vary by type and size of system and can be found on the OPA web site. For this article we will focus on a solar roof mounted system at 10 kW’s in size. For this type of system, under the new FiT 3.0 rules, the OPA will pay you $0.396 per kWh. Two years ago the rate was $0.802 per kWh. Unfortunately, this rate was too good to be true and could not last, but if you were one of the lucky ones to get a contract at that rate and then waited until PV prices dropped then you did quite well. So, is it too late? Absolutely not! The cost of a solar array back then was about 3 times what it cost today so the program is still very attractive, which we will demonstrate for you here.

micro fit

Now lets consider a typical 10kW solar array, roof mounted with a southern exposure. In today’s market you would pay about $30,000 for this system, installed. Factors affecting pricing include type of inverter (micro or string), roof type (metal, slate, asphalt), access to roof (steep or low pitch) and location, but $30k is a good estimate. When I am working with a client I usually present a range of estimated annual energy production numbers for the array based on several estimating tools including Homer and PVWatts. I also refer back to our installed projects that have monitoring and reporting capabilities in order to provide a fairly conservative production and revenue projection for anyone contemplating this investment. For this example, and under the new FiT3.0 rules on array and inverter sizing, I would conservatively estimate that for each installed kW, the system would generate 1,289 kWh’s per annum/ installed kW or 12,890 kWh’s for a 10 kW array.

At a rate of $0.396 per kWh, that would result in an annual payment of $5,104 from the OPA. Now, there are costs involved that need to be taken into consideration as well as the fact that the panels will degrade slightly over the 20-year contract, but these are minor adjustments. For arguments sake, I’m going to use a 20-year average of $4,620 in net revenue (before income taxes). You will note that I am not including HST in any of the calculations. If you do decide to invest in a solar array under the FiT program I highly recommend you speak with your accountant about the various tax strategies but it is beneficial to voluntarily set yourself up under the HST program and claim back the HST on the initial investment and remit the HST on the payments from the program.

Using my trusty HP12C financial calculator (that I’ve used for the past 30 years), or a PVOA table, you can easily calculate that the rate of return on this investment is greater than 14%. Now compare that to a similar investment with a 20-year locked in rate, with a quasi Government credit rating and you would be hard pressed to find anything paying close to 4 or 5% on your money. Some arguments I have heard are that the Government will renege on the contracts (massive law suits, many, many angry voters, therefore very unlikely) or that the energy production and revenue are dependent on the amount of sun. Well, if in some crazy world the OPA does void contracts, your array still has value in its ability to offset your homes energy consumption, and given rate increases over the next 20 years, this is still a better than breakeven scenario. Solar irradiance data (sun intensity) has been reliably predicting the amount of sun for a given area for over 40 years so the production estimates used will hold true. Now if the sun does stop shining, we all have more important things to worry about than our investments!

Absent from this calculation is any consideration for the useful life of your array. Realistically, your array will provide 30 – 35 years of energy so after the contract is up with the OPA, you can easily have your local electrician reconfigure the wiring so that the solar energy is consumed by your house first, and any extra will turn the meter backwards saving you on your electrical bill. Its called Net Metering.

In conclusion, the FiT program here in Ontario is one of the best investments of its type (fixed income) and should be seriously considered by anyone with a roof and available investment capital living in Ontario. It is also a great way to invest in the future of our planet, as every kW generated by your solar array is one less kW generated by a fossil fuel source. We think that’s important and that’s why we do what we do. If anyone is interested in the financial aspect of such an investment we have copies of a very comprehensive spreadsheet that takes into account taxes, insurance and borrowing costs to name a few and we would be happy to forward a copy to you to do your own comparative analysis. Just send a note to

Brian Kennelly is the President and owner of Daisy Energy, a renewable energy systems provider located in Hamilton, ON. Daisy Energy installed one of the first renewable energy FiT projects for a local school board in 2009 and has been helping clients embrace renewable energy ever since.

January 29, 2014

EBODF Owns Over $22 Per Share Of Solar Developer Goldpoly,Trades Under $7

by Shawn Kravetz

In ten years of solar investing, we have never encountered an opportunity as obscure and potentially lucrative as Renewable Energy Trade Board Corporation (OTCPK:EBODF).  Disclosure: I am long EBODF.

Before walking through the long thesis, we must caution potential investors that EBODF "went dark" with the SEC in March 2013. However, we have conducted rigorous due diligence on the ground in Asia and through the Hong Kong Stock Exchange filings of Goldpoly New Energy Holdings (0686.HK) - EBODF's sister company sharing the same parent/leading shareholder - China Merchants New Energy Group (part of massive Chinese State-Owned-Enterprise China Merchants Group). Further reinforcing our view, EBODF engaged in several publicly disclosed transactions in December 2013 ( and Given its tremendous unappreciated value and recent activities, we suspect EBODF will not remain "dark" for much longer.

So what excites us about an anonymous, tiny solar company?

  • Simply stated, EBODF owns a sizeable stake in its sister company Goldpoly New Energy Holdings - the premier, Chinese solar independent power producer (IPP) listed in Hong Kong with a $1.3B market capitalization
  • Those shares of 686 HK alone are worth ~4.0X EBODF's current market capitalization or ~$22 per share
  • While we believe that several other intriguing catalysts/options could drive EBODF to even greater heights, we believe that the 686 HK position alone holds tremendous value not reflected in EBODF's share price.

Goldpoly (0686.HK)

US investors covet exposure to downstream solar economics as evidenced by oversubscribed capital raises from US-listed, downstream solar companies in the past few months:

  1. Jinko Solar (JKS) just raised ~$260M in January 2014 by marketing the deal as a means to gain exposure to Chinese downstream projects
  2. SunEdison (SUNE) raised $1.2B through 2 convertible bonds in December 2013 to finance 2014 downstream solar plans
  3. SolarCity (SCTY) raised ~$400M in October 2013 to finance its rapidly growing downstream business

While US investors have flocked to companies offering exposure to downstream solar projects, they likely have gazed right past the best positioned downstream solar opportunity, Goldpoly. We believe that owning EBODF offers a massively discounted method to invest in Goldpoly shares.

Goldpoly is the leading solar power plant investor and operator in China and one of the largest in the world

  • Whereas SolarCity manages ~460 megawatts (MW) of solar projects, Goldpoly operates ~530 megawatts of grid-connected solar projects in China
  • In addition, Goldpoly has ensured years of future growth having harvested a robust 7 gigawatts (GW) project pipeline through strategic alliances with powerful state-owned enterprises like State Grid Corporation (controls China's electric network) and China Guodian (massive Chinese power company) as well as major solar players like GCL (3800.HK), Yingli (YGE), and Zhongli Talesun Solar (002309 CH)
  • Unlike its US-listed peers, Goldpoly enjoys strong sponsorship from its leading shareholder and state-owned enterprise China Merchants Group
  • Despite an operating portfolio and pipeline that every US-listed solar company would envy coupled with a unique platform and strategic alliances, Goldpoly trades a steep discount to its US-listed peers
  • While downstream solar models differ from company to company, we think a simple comparison between Goldpoly and its US-listed peers reveals this discrepancy:

686 HK Valuation.png

686 HK Portfolio.png

We believe this discount will evaporate as Goldpoly continues to deliver on its lucrative pipeline and is recognized as the leading global, solar downstream player. However, rather than wait for that discount to fade, we prefer to exploit this arbitrage opportunity and express our view on Goldpoly through EBODF today.

EBODF Stake in Goldpoly (686 HK)

  • EBODF acquired its stake in Goldpoly through a series of transactions involving the sale of various assets in exchange for 686 HK shares back in May and November 2012
  • As a result of these transactions, EBODF beneficially owns ~42.2M shares of Goldpoly and another ~160M underlying shares from an in-the-money convertible bond
    • EBODF also may have received another 23M shares of Goldpoly in consideration for some other asset sales, but Goldpoly's most recent filings cannot verify these incremental shares
      • As such, we do not include these 23M shares worth ~40-50% of EBODF's current market cap in our valuation of EBODF
    • Details of the transactions available here (pages 17-18)
  • Interestingly, EBODF acquired another 1M shares on the open market on December 9, 2013 - EBODF's first acquisition of Goldpoly shares since 2012
  • To further buttress our view, Goldpoly's Hong Kong Stock Exchange filings and further validated that EBODF still retains their Goldpoly stake via a November 2013 proxy statement (pages 34-35)

686 HK Ownership Structure_11.2013 Proxy.png 686 HK Ownership Structure EBODF Footnote_11.2013

Confident that EBODF still owns a major stake in Goldpoly, we value that stake at nearly $50M or ~$22 per share. This valuation EXCLUDES the incremental but unverifiable 23M shares of Goldpoly noted above which are worth ~$2.25 per share.

EBODF Valuation of 686 HK Stake.png

Since EBODF has not filed a balance sheet since the June 30, 2012 period, we EXCLUDE the $5/share in net cash & equivalents reported for that period. For conservatism, we ascribe no value to the non-Goldpoly net assets which totaled $2.64 per share as of last filing. However, including these items leads to a valuation closer to $30 per share for EBODF.

Free Options/Catalysts

Our diligence also suggests that EBODF may be pursuing a truly unique downstream solar strategy to complement 686 HK which entails:

  1. Acquiring distressed and underperforming Chinese solar projects and re-selling the rehabilitated assets (likely to 686 HK on a right of first refusal basis)
  2. Brokering solar project transactions - connecting buyers and sellers for a fee
  3. Arranging financing/structuring such as sale-leasebacks and collateralized loans for solar projects

Finally, we hypothesize that the leading shareholder of 686 HK and EBODF, China Merchants New Energy Group, may be taking notice of US investors' insatiable appetite for downstream solar exposure as noted above and could seek to capitalize through its US-listed entity - EBODF. In December 2013, EBODF co-invested in a sizeable solar project with 686 HK, and while we admit no special insight on this topic, we find the timing peculiar given the capital market activities by other downstream players. We speculate that China Merchants could transform EBODF into a US-listed version of HK-listed Goldpoly thereby unleashing the first US-listed, Chinese solar yield vehicle offering US investors' exposure to downstream solar economics in China.

We ascribe no value to either option above; however, should either of these scenarios materialize, we believe EBODF is worth many multiples of the 686 HK stake.


With a $22-$30 per share of conservative intrinsic value plus the free option of a potential first mover, US-listed solar yield generating vehicle, we believe EBODF will quickly emerge from the dark.

Shawn Kravetz 2013 crop.jpg Shawn W. Kravetz is President of Esplanade Capital LLC, a Boston-based investment management company.   Esplanade Capital manages two private investment partnerships.   Esplanade Capital Partners I LLC, launched in 2000, is focused on a handful of sectors, including: retail, consumer products, casino gaming, business services, education, and solar power.   Esplanade Capital Electron Partners LP, launched in 2009, intends to be the world’s premier private investment fund dedicated to public securities in solar energy and those sectors impacted by its emergence.  

January 27, 2014

US-China Solar Wars Enter Second Round

Doug Young

Trade War
Trade War. photo via Bigstock

Just days after China finalized anti-dumping tariffs on US makers of polysilicon, the main ingredient used to make solar panels, the US has announced it is opening a new anti-dumping investigation into solar panels imported from China. The close timing of this latest round of developments in a solar trade dispute between the US and China may look worrisome on the surface, especially if they had come a year ago. But in this case the solar signals seem less confrontational to me, as both Washington and Beijing finally realize the sector is too important for the world’s energy security to jeopardize with more trade wars.

All that said, it’s still important to look at these 2 latest solar signs and what they might mean. To quickly recap, the dispute began about 2 years ago when the US accused China of providing unfair state support to its solar panel makers, and ultimately imposed anti-dumping duties on Chinese-made products last year. China retaliated by opening its own anti-dumping investigation into US-manufactured polysilicon, the main ingredient used to make solar panels. All of this was happening as the sector underwent a major downturn that is only now beginning to ease.

Against that backdrop, China announced this week it would impose punitive anti-dumping tarrifs against US-manufactured polysilicon, finalizing an earlier decision and bringing its investigation to close. (English article) The duties were rather high, ranging from 53 to 57 percent, and will undoubtedly price many US makers out of the market. But the move was largely expected and didn’t contain any major surprises, after the US levied its tariffs on Chinese-made panels last year.

Meantime, a newly announced investigation by the US seeks to close a loophole in the first round of anti-dumping tariffs imposed last year. That loophole allowed Chinese companies to avoid the US tariffs if other countries supplied them with solar cells, the central component used to make finished solar panels. The US arm of German panel maker SolarWorld (SRWRF) said earlier this month it was petitioning Washington to close the loophole (previous post), and now the US Department of Commerce and International Trade Commission (ITC) have said they are launching a new investigation. (English article)

The ITC will announce its findings by February 14. If it determines that the Chinese companies are still receiving unfair state report, the Commerce Department could issue preliminary decisions on the matter in March and June this year. A new round of tariffs would deal a blow not only to the Chinese manufacturers, but also to Taiwanese companies that have become one of the main suppliers of solar cells being used in the finished Chinese panels to avoid US tariffs.

So, why am I cautiously hopeful that this latest investigation won’t be as contentious as previous ones? Most importantly, I have to believe that the ITC and Department of Commerce knew about this loophole when they made their initial decision last year. Thus they must have felt at the time that panels made with cells from Taiwan and other countries weren’t receiving unfair support from Beijing.

Secondarily, I also believe that Washington may be tiring of this current trade war with Beijing, especially as both sides realize the importance of solar power to their future energy security. China has recently embarked on its own major campaign to build up its solar power sector, and the US has been trying to boost solar power now for several years. A continuation of this trade dispute won’t benefit either side, and would probably hurt the chances of western solar panel makers to win big contracts in the Chinese solar build-up. Accordingly, I’m cautiously hopeful that the ITC will return a negative finding next month in this latest investigation, which would send a positive signal that Washington wants to quietly end this ongoing solar spat.

Bottom line: A negative finding by the US in its latest anti-dumping investigation into Chinese solar panels would help to bring its clash with Beijing to a close and promote development of the important sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

January 09, 2014

Solar Trends in 2014 and Beyond

Benefits, Barriers, and Chances

Paula Mints

Time is the primary difference between a fad and a trend. Fads are fleeting. Trends develop over time altering behavior in some relatively permanent fashion. The adverb relatively is used as permanence has become, over time, far less permanent. Fads ebb and flow more quickly than trends. The best way to tell the difference, unfortunately, is in hindsight.

For example, the European feed-in tariff (FIT) model is responsible for jump starting the utility scale (or multi-megawatt) application for solar technologies.  The initial highly profitable FITs attracted investors who, forever in pursuit of the holy grail of safe investments, encouraged demand and supply side solar participants to build ever larger installations.  Initially, many long time solar participants believed that demand for multi-megawatt installations (particularly for PV) would reach a peak and decline, likely along with the profitable FITs. Instead this trend appears to be here to stay – for better or worse, or, for profit or not-so-profitable.  Another example, turnkey equipment sales, appears to have been a fad that faded away relatively quickly – that is, in solar years.  Just as dog years are longer than human years and often used as a metaphor for the slow passing of time, solar years are also longer than human years.  To gauge the length of a solar year observe announcements and the accompanying timeline creep from announcement, re-announcement and fruition. 

Turn the page to see five potential trends and the likelihood of continuation or cessation:

Potential Trend 1: Merchant systems:  These systems may or may not be multi-megawatt and are sold without a PPA or tender and potentially without an incentive.

Why this may not become a trend:  The high upfront cost of installation, no matter how low component prices go, is a roadblock to many potential system buyers.  Moreover, in many countries it is illegal to set up an independent utility from which electricity is sold.  For merchant systems to become a trend, laws would have to change and/or deep pocket customers must be found and cultivated. 

Why this may become a trend:  Utilities understand the efficiency of owning the means of production. Once they become more comfortable with solar in terms of the variability of its resource it will make sense to control it because of a) its free fuel b) low maintenance c) positive PR afforded the utility and d) return of control over profit.  Mining concerns are often remote and require reliable power; solar is a long-term investment that when combined with storage (yes too expensive still) or another power source (hybrid) offers a long-term answer to energy requirements.  Finally, should laws change the lure of becoming an independent utility; though this is in-and-of-itself probably a fad should encourage system ownership.

Benefits of this trend: Solar (PV, CSP, CPV) is ideal for this potential trend as once installed it is low maintenance (though not zero maintenance), reliable and works well as part of a hybrid installation. 

Odds of this becomming a full-fledged trend: 40% this potential trend will get a lot of press in 2014, but to become a true trend (something that brings with it relatively permanent change) more than announcements are needed. The laws of some countries will need to change and the initial gold rush atmosphere (which will bring with it saviors and shysters) must subside. The likely timeframe for development of this trend is five years, but ten years to mature.

Potential Trend 2: Residential Lease Model:  Removes the onus of educating energy consumers about owning the means of production and encourages more rapid adoption of PV.

Why this may not become a trend:  Currently a U.S. phenomenon, there is no standardization of lease vehicles, little understanding of solar among energy consumers, not everyone owns his or her roof. Its also possible that even when potential solar lessees do own a roof that is young enough in its lifetime to support solar that they will find that once the math is done, a low interest loan that supports buying the system outright makes better economic sense. Other drawbacks include what happens should the lessee want the system removed, or sells the house, or abandons the house.  Should there be expensive and well publicized roadblocks to system removal this potential trend would end.

Why this may become a trend:  Particularly in the U.S., independence (from practically any interference in anything) is a closely held value.  Many energy consumers would like to control energy costs but cannot afford to buy a PV system, plus, the lure of free solar (a promise in many ads for solar leases) is compelling to many.  The lease concept is familiar, even though many may find the details confusing.  Finally, the concept of owning the means of electricity production has proven stubbornly difficult to get across or to encourage excitement about – the solar lease hops over the need to educate and still may lead to more residential PV system ownership. 

Benefits of this trend: More solar is the obvious benefit of the solar lease. The assumption is that seeing more solar in neighborhoods will encourage people to explore owning or leasing a system.  There is also the potential of expanding this trend to apartment complexes, wherein (similar to the merchant system) the apartment house owner would sell electricity from the solar installation to apartment dwellers (a group is pursuing this model in France). 

Odds of this becomming a full-fledged trend: 67% for better or worse and love it or hate it, the solar lease trend is likely real and will hopefully mature into a vehicle with costs (including escalation) that more closely resemble the true costs of owning a solar system.  Escalation charges based on assumed utility rate increases need to be rethought.  

Potential Trend 3: Community solar, solar gardens or group-owned solar:  Call it whatever you like, typically this model allows people to buy shares in solar installations that serve the community.  The installations can be ground-mounted or on roofs on or near community centers or schools and also on reclaimed land (among other areas). 

Why this may not become a trend:  The initial installation remains costly and community buy-in must be encouraged in order for this to make economic sense. That is, enough people need to buy shares and agree to whatever the terms are or the cost would likely appear prohibitive even though the benefits such as cleaner air and controlled costs in the long term are clear.  

 Why this may become a trend:  The off-grid solar community has much to teach the grid-connected solar community in terms of educating populations, gaining enthusiastic buy-in and finally deployment of a concept that is decades old.  In the developing world this concept is not a trend, it is established.  Communities with group owned installations are enthusiastic about being a part of an energy generating asset, their participation in ameliorating climate change as well as the educational aspects. 

Benefits of this trend: Educating the community about solar technologies, climate change and energy independence is one of the most significant benefits of this trend.  Participation in community solar projects and plans also encourages utilities (in the U.S. there is slowly growing utility participation in this model) and energy consumers to work more closely together as well as share ideas and, well, energy.   

Odds of this becomming a full-fledged trend: 63% this trend is building slowly in the U.S. and the model can be co-opted by other countries and regions around the world.  Studying village grid (micro grid) models in the developing world would offer insight as to how community members learn to work together towards the success of these installations.

Potential Trend 4: Storage:  Storage technology is, on its own, not a trend (its R&D is decades old), nor is it necessarily crucial to future grid connected solar deployment. Interest in storage technology for grid-connected deployment is currently high, but interest alone does not a trend make. Storage is crucial for successful off-grid solar deployment and is mature in this regard through the use of lead acid battery technology. 

Why this may not become a trend:  Storage is expensive and its value, essentially independence from the utility grid, has not been established. The true costs of storage are currently obscured, that is, current prices do not reflect costs.  Unfortunately, it may not be possible to increase the price to one that provides enough cushion in the margin for quality control, R&D and profit.  As with other technologies, unfortunately, many may enter with potentially viable technologies and many may fail because they could not price product appropriately.  Finally, disconnecting from the grid and becoming self-sufficient requires a willingness to conserve, which is rarely popular.

Why this may become a trend:  Utilities are showing concern about the growing size of residential and small to medium commercial installations that are sized to cover 100% of the energy needs of the building and its inhabitants. This cuts into utility profits. The only way for utilities to control this is to a) own more solar installations (the means of production) and sell the electricity from these utility-owned assets; b) develop utility solar lease models for their rate payers where the utility installs solar on the roof and charges the roof owner a set rate; and finally c) charge a monthly fee for grid access as back up, among other reasons.

Benefits of this trend: Self consumption and the use of solar encourage a more pragmatic attitude towards energy also encouraging conservation. Storage could allow for true energy independence from escalating energy costs.

Odds of this becomming a full-fledged trend: 31% Storage is still too expensive and a sudden miraculous technological breakthrough is unlikely.  Instead, options that do not reflect the true cost and thus teach nothing about the true value of the technology are currently being deployed.  This potential trend likely needs ten years and a lot of investment to begin approaching viability. 

Potential Trend 5: Solar Deployment in Latin America:  Solar technologies are not new to the countries in Latin America. Deployment of off-grid applications in the region is well established.  Tender bidding is the preferred vehicle for large commercial installations and there is potential among mining concerns for merchant system sales.  

Why this may not become a trend:  High import duties in many countries, unstable economies, significant reserves of oil, potential reserves of natural gas (fracking), unwelcoming topographies and low tenders are a few of the risks in the region that indicate the hoped for level of deployment may not come to pass.

Why this may become a trend:  The need for reliable energy generating options is strong among the countries in this region and though affordability is not strong, there are entities willing to invest in merchant installations (mining concerns) as well as almost monthly tenders for energy generation in the countries of Central America, South America and the Caribbean.  Deployment has begun on a fraction of the multi-gigawatts of potential. 

Benefits of this trend: As solar deployment increases and should it begin to tiptoe near the promised multi-gigawatt level, this region is likely to invest in domestic manufacturing, which hopefully would mean cell technology development as well as module assembly. Given the high cost of Greenfield manufacturing, module assembly appears more likely.  Nonetheless, the construction (demand) sector would provide necessary jobs and the supply (cell, thin film and module assemble) would provide necessary jobs. Deployment of reliable, clean solar energy technologies could be a stabilizing factor of future energy costs. 

Odds of this becomming a full-fledged trend: 44% Though deployment has begun and queues of solar projects in many countries are long, taxes are high and actual deployment is moving at a snail’s pace. A regional economic shock could derail many projects. Tenders are, in most cases, too low to support profitable installations. The highest likelihood is that deployment will continue resulting in a percentage of the expected gigawatts but certainly above past levels of annual installations.

Paula Mints is founder of SPV Market Research, a global solar market research practice: All Solar All of the Time.
This article was originally published on, and is republished with permission.

January 08, 2014

Two More Mega Solar Deals In China

Doug Young 

Renesola logoMore bright signs are emerging in the solar panel sector with word of 2 major new tie-ups, one involving ReneSola (NYSE: SOL) in Japan and the other Yingli (NYSE: YGE) in China. In the first, ReneSola has signed a massive deal to sell panels to a Japanese solar power plant developer. The latter case looks similar, with Yingli in its own deal for a major joint venture to co-develop new solar power plants with one of China’s top nuclear power companies.

The deals point to the huge potential from the China and Japan markets for solar panel makers in the next 2 years. Up until now, neither market has been a major player for the sector, with the lion’s share of sales going to the US and Europe. But that is starting to change, following Beijing’s roll-out of an aggressive plan to build up its solar power generation capacity and Japan’s efforts to diversify its power generation base after the Fukushima nuclear disaster of 2011. The rise of the Chinese and Japanese markets is a welcome development for China’s solar panel makers, who are seeing their access limited to US and European markets due to allegations of unfair state-subsidies from Beijing.

Let’s start with ReneSola, whose tie-up will see it supply panels for up to 420 megawatts of generating capacity for more than 10 new power plants in Japan. (company announcement) ReneSola didn’t give the Japanese developer’s name, but said it will construct the plants over the next 2 years. The amount is quite sizable for a company like ReneSola, whose panel shipments totaled 851 megawatts in its latest reporting quarter. It’s also one of the largest single deals I’ve seen in 3 years of writing about the sector. ReneSola shares didn’t move too much on the news, though it’s worth noting they are up 22 percent since the start of the year.

The case was different for Yingli, whose shares jumped 8 percent after it announced a new joint venture with China National Nuclear Corp. (company announcement) Following that rally, Yingli’s shares are up a hefty 40 percent in just the first week of 2014, a year that promises to see most of the sector’s major surviving players finally return to profitability after 2 years of losses during a prolonged downturn.

Under its tie-up, Yingli will form the joint venture with China Rich Energy Corp, a subsidiary of China National Nuclear. The deal will see Yingli supply panels for 500 megawatts of new generating capacity, with at least 200 megawatts of that to come from sites supplied by China National Nuclear Corp. No time frame was given for the supply deal, though presumably most deliveries will occur over the next 2 years as state-owned plant operators race to meet Beijing’s ambitious goal of 35 gigawatts of capacity by the end of next year.

Yingli logoAnnouncement of its new tie-up comes less than a week after Yingli announced another joint venture with Datong Coal Mining Group for new solar plant construction. (previous post) I commented that the tie-up looked smart because Datong is one of China’s top coal producers and thus has experience in the energy sector. Equally important, Datong also has strong cash flow to pay for new plant construction.

Yingli’s latest joint venture follows a similar trend, though I suspect that China National Nuclear Corp has far less cash flow and thus could run into potential financing problems as construction accelerates. The new ReneSola plan looks more solid, even though it’s slightly strange that it didn’t include the name of its partner in the tie-up announcement. Despite those potential issues, investors are clearly growing bullish on the sector after 2 years of bearishness, and I expect we could see some more upside in the stocks during the first half of this year.

Bottom line: New solar plant construction tie-ups by ReneSola and Yingli point to a boom in demand from Japan and China in 2014, providing potential upside for solar panel maker stocks.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

January 04, 2014

China Solar Tariffs Round II, Yingli's Smart JV

Doug Young 

The new year has just begun, and already we’re getting signals that 2014 will be full of new twists and surprises for the solar panel sector as it struggles to emerge from its downturn dating back nearly 3 years. A clash involving Chinese panel makers accused by western rivals of receiving unfair state support looks set to enter a new phase, based on an announcement of new action in the US by SolarWorld (Frankfurt: SWV, OTC: SRWRF), the German panel maker that has led the charge against the Chinese companies. Yingli logoMeantime, a separate new joint venture announcement from Yingli Green Energy (NYSE: YGE) looks smart, and reflects the new reality that China will become a major driver of solar plant construction in 2014.

The solar sector’s prolonged downturn is the result of massive oversupply, following a build-up in China that has the nation now producing more than half of the world’s solar panels. That build-up has led to resentment from western panel makers, who say the Chinese build-up was largely the result of unfair state support via incentives ranging from tax breaks to cheap bank loans. Both the US and European Union conducted probes into the matter, and the US imposed punitive tariffs against the Chinese manufacturers last year after determining the claims were true.

Now SolarWorld, which made the original complaint in the US, is saying it will file a new complaint with the US International Trade Commission (ITC) to close a loophole that has allowed many Chinese panel makers to avoid the punitive tariffs. (company announcement) The loophole allows Chinese-made modules to avoid the tariffs if they contain solar cells made in countries outside China. Solar cells are the key component used to make modules, which are the finished product used to generate solar power.

This particular loophole was widely discussed when the US first announced its tariffs last year, and many of China’s solar panel makers said they would be able to avoid the punishment by using solar cells manufactured offshore. I find it difficult to believe the US was unaware of this loophole when it announced the original sanctions, since it was so widely discussed at the time. Accordingly, I doubt SolarWorld’s new complaint will result in any new action by the ITC. Still, the issue is likely to make headlines during the year, and there’s a small chance we could see some new punitive tariffs to close the loophole.

Moving on, Yingli’s newly announced joint venture with Datong Coal Mine Group is much less controversial and looks like a smart business model as China gets set to embark on an ambitious construction program to build solar power plants with 35 gigawatts of capacity by 2015. We’ve already seen a number of major new projects announced recently by other panel makers, including Trina (NYSE: TSL) and ReneSola (NYSE: SOL).

But unlike most of the previous tie-ups that involve partners with little or no experience in the energy sector, this new venture looks a bit smarter because Datong is China’s third largest coal producer and thus should have quite a bit of experience in the sector. (company announcement) Equally important, Datong’s status as a company with a real business means it should have a strong cash flow to pay for new projects. That contrasts with many other new project developers, which look mostly like special entities set up by state-run organizations to execute Beijing’s ambitious solar construction program.

For all those reasons, this new tie-up looks like a smart move that could serve as a template for other panel makers to follow. I’ve previously said there’s a real danger that many of these new projects could run into difficulties because plant developers may lack financial resources and operating expertise needed to succeed. But on the surface at least, this new Yingli partnership looks like it should have a good chance of success and could lead to a major new source of reliable business for Yingli.

Bottom line: A new anti-dumping complaint by SolarWorld in the US is unlikely to succeed, while Yingli’s new joint venture looks like a smart template for new solar plant construction in China.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

December 31, 2013

Two Mega-Deals Illustrate China's Massive Solar Building Plans

Doug Young


A couple of year-end announcements from solar majors Trina (NYSE: TSL) and ReneSola (NYSE: SOL) are pointing to a coming flood of new orders for the entire solar panel sector next year, fueled by huge new demand from their home China market. I fully expect we’ll see a steady stream of similar announcements throughout next year and even into 2015, providing a flow of good news for rebounding solar stocks after a 3-year sector downturn. But amid the bright news, potential downside lurks in the risk that payments for some of these mega-orders could be slow to come, as many solar plant operators are big state-owned entities that may lack the funds and skills to pay for and operate all of their ambitious new projects.

I certainly don’t want to throw too much cold water on this nascent rebound for China’s solar panel makers, who along with their global peers have suffered through a prolonged downturn dating back to early 2011 due to massive overcapacity. Much of the older, less efficient capacity has now been shut down through a series of facility closures and bankruptcies, putting most remaining players on track to return to profitability in 2014. Aiding the rebound is an extremely aggressive build-up plan by Beijing to have 35 gigawatts of installed solar power generating capacity by 2015, compared with virtually nothing just 2 years ago. (previous post)

Achieving such a grand target will be tough, but big state-run companies are showing they will embark on a major new building spree to help Beijing reach the goal. As part of that, Trina announced has just signed a new framework agreement to build 1 gigawatt of generating capacity through a new tie-up in the far western Xinjiang area. (company announcement) Investors cheered the news, bidding up Trina’s shares by more around 7 percent in early trade after the announcement.

The tie-up will see Trina team team with the local government in the Turpan region in a series of projects over a 4 year period starting from next year. The first 2 phases are designed to have 300 megawatts of capacity and be connected to China’s national grid by the end of 2014. In a noteworthy disclaimer, Trina says that each new phase of the project will require approval from local governments and China’s national grid operator before work can begin.

Meantime, ReneSola has announced its own similar deal involving 3 solar plants also in western China, with a more modest capacity of 60 megawatts. (company announcement) Under the deal, ReneSola is building the plants and will sell them upon completion to the longer-term owner, a company based in eastern Jiangsu province. ReneSola stock also got a nice boost from the news, rising nearly 5 percent in early New York trading.

Such “build-and-transfer” arrangements are becoming relatively common, and Canadian Solar (Nasdaq: CSIQ) has become particularly adept at the business model. The new projects for Trina and ReneSola follow Canadian Solar’s own announcement of 3 separate China-based deals over the last 2 months, which will see it supply solar modules with total capacity of 232 megawatts. (previous post)

While all this news certainly looks good, one big cloud looming on the horizon is the element of payments for all these projects. Big state-owned companies are famous for rushing to comply with Beijing’s wishes, even when such firms may lack the financial resources and other expertise for such projects. One of my sources has told me some panel makers have already begun building projects for such clients, even though they have yet to receive any payments. I do expect that most panel makers will get paid for their goods eventually. But I also suspect that many problems will emerge as this building spree runs into a wide range of issues, resulting in delays and even the scrapping of some less well-conceived projects midway through construction.

Bottom line: New deals from Trina and ReneSola mark the start of a massive building spree for new solar plants in China, though some new projects could run into delays and financing problems.

Related posts:

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

December 26, 2013

When Will Solar Microinverters Reach Commercial Scale?

James Montgomery

Back in mid-August, Vine Fresh Produce in Ontario unveiled a 2.3-MW solar rooftop array on its greenhouse, the largest commercial rooftop project under the province's feed-in tariff (FIT). This system notably incorporates a technology that's been more familiar in the U.S. residential solar market: microinverters. (The devices, made in Enphase Energy's [ENPH] Ontario plant, helped the project qualify for that FIT.) Weeks ago Enphase followed that up with another large-sized project using microinverters, 3.1-MW of distributed solar across 125 buildings for the San Diego Unified School District.

Vine Fresh solar

Vine Fresh Produce’s 2.3-MW (2-MW AC) solar project in Ontario, Canada. Credit: Enphase.

Those announcements were meant as stakes in the ground. "We've proven [microinverter technology] in residential, we're proving ourselves in small commercial... but our ambitions are much bigger than that," said Raghu Belur, Enphase co-founder and VP of products and strategic initiatives. "We're seeing people deploy [microinverters] in significantly larger systems."

The technology is rapidly gaining traction, according to Cormac Gilligan, IHS senior PV market analyst. Microinverter shipments will reach 580 MW this year, with sales topping $283 million, and average global prices sinking 16 percent to $0.49/Watt, he projects. By 2017 he sees shipments soaring to 2.1 GW with revenues of about $700 million, and expansion beyond the U.S. into several regional markets, especially those in early stages of development that might be more open to newer technologies: Australia, France, the U.K., Switzerland, and even Hawaii. Japan's big residential solar market is especially attractive, but poses certification challenges and strong domestic competition.

But as those two Enphase projects illustrate, there's another growth area for microinverters that's emerging alongside regional expansion — up into commercial-sized rooftop solar installations. The same reasons residential customers like microinverters apply to small-scale commercial projects as well: offset partial shading, more precise monitoring at the individual module level, provide a more holistic readout of what the system is producing, and improve safety because they typically use a lot lower voltage. Just nine percent of microinverter shipments in 2012 were to commercial-scale use, noted Gilligan — but he sees those surging to nearly a third of shipments by 2017.

Who’s Making Microinverters

The microinverter space is getting crowded (see table below), if not yet a model of parity. Enphase continues to dominate with more than half of the sector's revenues in 2012, four million units cumulatively shipped and four product generations. "We are a high-tech company that happens to be in the solar sector," Belur explained. Compared with what he called the "big iron, big copper guys" who are now broadening their inverter portfolios with microinverters, "we're all about semiconductors, communications, and software." The company designs its own chips for its microinverters, and outsources manufacturing to Flextronics.

SMA got its entry into the game with the 2009 acquisition of Dutch firm OKE. "In the residential market it became clear to us that customers were interested in the microinverter architecture," said Bates Marshall, VP of SMA America's medium-power solutions group. SMA also sells the string inverters that have gained favor over big centralized inverters, so SMA's simply broadening its portfolio. With the emergence of the U.S. solar end-market, SMA is more willing to push some R&D and product development over here; "we get to drive the bus to a greater extent," he said. SMA recently started shipping microinverters to the U.S. from its German inventories, but a production line is now being qualified at the company's Denver facility.

Similarly to SMA, Power-One (recently bought by ABB) aims to supply whatever type of power conversion capability customers need, noted Chavonne Yee, Power-One's director of product management for North America. So far demand for microinverters has come in the U.S. residential market, offering high granularity and maximum power point tracking (MPPT), but she sees most of the commercial-scale demand switching from traditional central inverters to three-phase string inverters, not microinverters.

Module supplier ReneSola sells a standalone microinverter, touting the typical features with some higher (208-240) voltage options for small light commercial, but at a 15-20 percent lower price point, explained Brian Armentrout, marketing director for ReneSola America. "We are seeing some demand" in small light commercial applications ranging from 50-kW up to 500-kW at which points there's "the breaking point where string inverters make more sense."  Down the road the company wants to take the end-around route of integrating microinverters directly onto panels; its gen-2 microinverter should be available in the spring of 2014. Armentrout projects ReneSola will be "in the top three" next year for microinverter sales, while simultaneously aiming high for the top spot in module shipments.

Others are looking to integrate microinverters directly into the modules. SolarBridge has worked closely with SunPower and BenQ to design its microinverters to eliminate several components that typically fail, notably the electrolytic capacitors and opto-isolators, explained Craig Lawrence, VP of marketing. They also minimize other typical costs such as cabling, grounding wires and even tailoring the microinverter for a specific module type to optimize the microinverter's firmware, he explained. He sees the trend to bring microinverters into the commercial-scale environment, particularly with SolarBridge's more recent second-generation microinverters in the past year or so.

Microinverters vs. String Inverters 

In general, installers are making a choice between microinverters and string inverters, comparing functionalities and costs. Both sides make a case for reliability: microinverters use fewer components and represent lower cost when something does fail; string inverter vendors point out microinverters have only been on the market for a few years and can't make substantial claims about reliability. IHS's Gilligan noted the sheer number of microinverter devices in the field potentially requiring repair/replacement could be daunting.

UCSD solar installation

Solar panels on a building for the San Diego Unified School District. Credit: Enphase.

SolarBridge's Lawrence argues in favor of microinverters on an operations & maintenance basis. Central inverters account for half of an operations & maintenance budget and it's the single highest failure component in a solar PV system; that's why there's been a shift from those to string inverters on commercial-scale solar. "All the reasons you'd do that, are the exact same reasons to go from string inverters to microinverters," he said. "You want as much redundancy and granularity as you can possibly get, to maximize your rooftop utilization and simplify your O&M." Factoring in replacement costs, labor savings in not having work with high-voltage DC, "for most of our customers that alone is enough to justify the additional [price] premium." With a microinverter you'll know when (and which) one panel is underperforming, and it might be tolerable to just leave it alone; on a string inverter you might not know where the problem is while you lose power over the entire string, he pointed out.

Scott Wiater, president of installer Standard Solar, acknowledges that microinverter technologies and reliability have improved over the past couple of years, but he's not convinced this is an argument in their favor vs. string inverters. "I have concerns over the long term," he said. "If you truly believe you're going to get 25 years out of a microinverter with no maintenance, that might hold true, but we haven't had that experience." In fact he advises that any residential or commercial system should plan to replace whatever inverter it uses at least once over a 20-year lifetime. 

Commercial-Scale Adoption: Yes or No?

microinverter industry playersTalking with both inverter vendors and solar installers, the choice of microinverters vs. string inverters for commercial solar settings is making some initial inroads into light commercial applications, but might not be quite ready to move up in scale at that commercial level.

"For projects under 50kW, we have found that microinverters can be positive for the project LCOE on an 'all-in' basis," explained Jeremy Jones, CTO of SoCore Energy, an early adopter of microinverters, including commercial solar projects into the hundreds of kilowatts in size. In general the technology's "high granularity of real time data is very useful in the ongoing asset management," and SoCore's projects with microinverters "have consistently outperformed our other string inverter and central inverter sites." The technology stacks up favorably to central and string inverters (especially for three-phase 208-volt systems) in terms of added costs, he said: warranty extensions, third-party monitoring, and other balance-of-systems costs. Microinverters' performance and low-cost warranties also benefit longer-term finance deals, he added.

However, above 50kW "we have had a harder time making microinverters 'pencil' on typical projects," Jones added. Until costs come down, those larger-sized projects where microinverters can make sense tend to be unique cases where there's a higher value per kilowatt-hour (higher electric rates or SREC values), or sites that can maximize kWh per kW due to high balance-of-systems costs, such as parking canopies, he explained.

SMA's Marshall is "bullish on the commercial market, that's where the volume will be" for inverters in general, but he doesn't see it as a big boon for microinverters because of what he calculates as a 25-30 cents/Watt cost delta from residential string inverters. In the residential space there are ways to knock prices down to mitigate that difference, but in the commercial space that gap is too big for the average buyer, he said. "As a mainstream option? We don't see it today." Microinverters may have a play for "some unique projects" such as campuses or municipalities spanning multiple buildings, but the big growth in commercial solar will be in large retailers, "big flat open roofs, and big flat structures like carports," he said, and there a three-phase inverter "blows the door off in terms of raw economics." 

SolarBridge's Lawrence is "seeing a lot of activity" in smaller commercial settings (100-kw or less), tallying to 15-20 percent of the company's product installations. But while the company is bidding into projects ranging up to 1-MW, it's "harder to make the case above 250-kW," he acknowledged; "those don't pencil out for us right now."

"Anything below around 1 megawatt, we are shifting from a central to more of a string inverter, but we're certainly not going to the microinverter level yet -- nor do we think we will anytime soon," said Standard Solar's Wiater. "The economics behind the projects and having it pencil out, microinverters just can't compete with string or central inverters on a larger scale." While microinverters can help on some rooftop applications where shading might be an issue (close to elevator shafts, vents, HVAC units), a more tightly-designed system with an efficient string inverter "can have a much better return for the customer," he said.

Jeff Jankiewicz, project/logistics manager at Renewable Energy Corporation in Maryland, "definitely considers" microinverters as part of a system design; "we like the performance and efficiency they provide." But for his company it's really only for residential and small commercial projects; the largest they've done is a 20-kW system out in Maryland's horse country. Any bigger than that and it's a case-by-case comparison, specifically looking at shading and energy conversion.

Microinverters and the Grid: The Solar Industry’s Next Battle

Everyone we talked with about microinverters agreed on one thing, however: there's a trend coming that will incorporate more advanced grid management capabilities, such as reactive power and low-voltage ride-throughs, to give utilities more control and the ability to reach in and curtail availability to support grid reliability. California's Rule 21 proceedings is the first such example, seeking to mandate control functions in distributed generators. Those grid-management capabilities are already coming and "very, very soon," Lawrence urged, pointing to new requirements being codified in Australia and the U.S. probably following within a year or so.

SMA Solar Technology [S92.DE] is becoming very vocal about this topic. Its microinverter architecture incorporates a multigate feature with wired Ethernet that allows for a single point of interface into the array, which he emphasized is important for modern grid codes and providing grid management services, Marshall emphasized. Power-One's [PWER] Yee, ReneSola's [SOL] Armentrout, and SolarBridge's Lawrence echoed the concern over regulations and requirements coming down the road that will necessitate microinverters becoming more grid-friendly. They also questioned whether all microinverter architectures are suited for such site-level controls -- specifically market-leading Enphase, which they said is limited in its architecture and topology.

Enphase's Belur responds strongly to this debate. "We 100 percent support the need for advanced grid functions, and we are absolutely capable of providing those," he replied, calling those criticisms an "oversimplification of the problem." Enphase, he said, is "the most proactive company" pushing for those grid-management requirements — but is seeking to do it judiciously through standards bodies and with proper certification and testing bodies, "and you cannot ignore the policy on top of that," he said. "It needs to be done; let's do it properly," he said.

Integration of energy storage, which also recently got a California state mandate, is another looming question as it relates to inverters. Standard Solar's Wiater thinks that's a bigger challenge for inverter functionality than grid-friendly controls, to more directly address the issue of buffering solar energy's intermittency. Some inverters are being designed to interact with energy storage, he noted, but he questions how that would work for a microinverter because it "defeats the purpose" to switch from DC to AC on a roof, then convert back to DC again. Power-One's Yee, meanwhile, sees more distributed solar combined with battery storage as a tipping point in favor of multi-port string inverters being a more cost-effective approach.

Wiater agrees that grid management features are coming, and that the bigger inverter technologies have been out in front of some of these requirements, e.g. to curtail output. On the installer side, SoCore's Jones isn't seeing customers or utilities push strongly for such capabilities yet, but "spec'ing these features in now will allow us to future proof our designs and open up possible future revenue streams."

This issue might have bigger ramifications than just competitiveness between inverter suppliers. Once distributed solar generation gets enough penetration into the grid, utilities will say they can't support it without stronger control capabilities, Lawrence warned. That's likely going to be hashed out as a negotiation between the solar industry and utilities and implemented via codes and standards applicable to everyone, and the industry needs to get out in front of that resolution, he pointed out. "The solar industry is going to have to participate, or utilities will have a good case why they can limit the penetration of solar PV," he said. He cited discussions with a large U.S. solar developer who listed these smart-grid control capabilities as one of their top-four priorities for the coming year: "They believe it's coming," he confirmed. Getting the solar industry working together to help these speed these capabilities along "will help head off utility objections to more and more solar."

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

December 13, 2013

Canadian Solar Caps 2013 With Mega-Deals

Doug Young

Santa Hat
Canadian Solar "caps" 2013 with big solar deals

The year 2013 will go down as a major turning point for China’s solar panel makers, with some names emerging as new sector leaders after a prolonged downturn while others quietly disappeared. The latter category saw former leader Suntech (OTC: STPFQ) go bankrupt and LDK (NYSE: LDK) quietly sell off many of its assets, while the former category has seen Canadian Solar (Nasdaq: CSIQ) and Shunfeng (HKEx: 1165) emerge as names to watch in the future. Canadian Solar in particular has been coming back strong in the second half of this year with a steady stream of good news, including its latest mega-deal to sell panels in China.

Sensing the end of a nearly 3-year-old downturn is finally in sight, investors have sharply bid up shares of many healthier solar panel makers this year. Canadian Solar’s shares have posted some of the biggest gains, rising from about $3 at the beginning of the year to their current $28. For anyone too lazy to do the math, that means anyone smart enough to buy the shares in January would have received a 9-fold return on their investment. The rally has helped Canadian Solar shares to regain most of the value they previously held at their peak in 2010 when bullishness towards the solar panel sector was at its height.

All that said, let’s take a look at Canadian Solar’s latest mega-deal, which will see it sell 100 megawatts worth of modules to Chinese power plant developer Zhenfa New Energy to build 3 new plants in Gansu province and one in Inner Mongolia. (company announcement) Normally I don’t write about individual deals, since companies frequently make such announcements. But in this case the size of the deal is quite large, especially when one considers the amount is more than a fifth of Canadian Solar’s total sales for its latest reporting quarter.

This deal also caught my attention because it followed another 100 megawatt deal for the company announced last month with 3 Gorges New Energy, a company associated with the massive 3 Gorges Dam project in interior China. Canadian Solar also announced another big China deal in November to sell 32 megawatts of modules to China Perfect Machinery Industry Corp. That means in the last 2 months alone, Canadian Solar has signed deals for 232 megawatts of modules in China.

Canadian Solar LogoIndustry followers will note that this series of deals comes as China embarks on an ambitious campaign to build up its solar power generating capacity. Despite producing more than half of the world’s solar panels, China historically wasn’t a strong buyer of those panels. But that has rapidly changed in the last year, as Beijing has steadily raised its targets for an ambitious plan to build new solar plants throughout the country.

In the latest adjustment to its plans, reports last month said Beijing aims to have 12 gigawatts of solar power capacity installed by the end of next year, up from a previous goal of 10 gigawatts. (previous post) It plans to triple that figure to 35 gigawatts by the end of 2015. That means that if Beijing really follows its plan, these orders we’re seeing now from Canadian Solar should be just the beginning of an ordering frenzy likely to accelerate in 2014.

I fully expect such a buying binge to materialize, as state-owned power plant builders and other local entities will be anxious to carry out Beijing’s plan. That should be great news for the panel makers, and should help propel most back to profitability next year. The binge could be more problematic for China’s grid operator as it tries to connect all these new facilities to the national grid. But that’s a problem for Beijing and not the panel makers.

Bottom line: A recent series of mega deals for Canadian Solar augers a buying binge in 2014 by solar plant builders, as they rush to fulfill Beijing’s ambitious solar energy targets.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

December 04, 2013

Your Solar Panels Aren't Facing the Wrong Way

Tom Konrad CFA

Dilemma Compass photo via Bigstock

Contrary to some confused bloggers, solar panels produce the most electricity over the course of a year when pointed south, not west.

A recent report from the Pecan Street Research Institute started a chain of articles with increasingly inaccurate conclusions.

The lemmings at QuartzGizmodo, and Grist, followed each other off the cliff of delusion saying that homeowners could produce more power by pointing their solar panels west, rather than south.  (UPDATE: Now even USA Today is jumping off.)  The title of an article “Are Solar Panels Facing the Wrong Direction?” on Greentech Media seems to have started the lemmings rushing cliff-ward, even though the article itself got the facts right.

It simply ain’t so.  The study found that the average house in a sample of 14 houses with west-facing solar arrays produced more electricity than the average of 24 houses with south facing arrays in Austin, Texas during the three months from June 1 to August 31st, 2013.

The study (which I obtained from Pecan Street) specifically says “Over the course of a full year, a south-facing orientation produces more total energy than other orientations.”   In addition, Brewster McCracken, the president and CEO of Pecan Street, told me that he did not expect that the finding that the west facing arrays produced more energy even during that three month period was statistically significant, given the small sample size.

pecan street net grid impact.pngPoint It West

That said, the study concluded that there were significant benefits to pointing solar panels west.  While the highest annual electricity production will be produced with south facing panels, west-facing arrays are much better at reducing peak loads in climates with air-conditioning driven peak demand, such as Austin.

According to the study, a equal sized west facing system would have produced 49% more electricity during the peak demand hours of the summer months than a south facing system.  Only 58% of electricity from south facing systems was used in the home, with 42 percent being sent back to the utility grid.  Fully 75% of electricity from west facing systems was used in the home, with only 25% sent back to the grid (see charts.)

Because they help more to reduce peak load, and put less strain on electricity distribution systems, west-facing PV systems may have more value to the grid than do south-facing systems, despite producing less total energy over the course of a year.


More solar arrays should be pointed west, but not because they produce more power that way.  They should be pointed west because, in many cases, the power they produce is more valuable.  Utilities and governments should structure their incentives accordingly.

McCracken told me that some of the utilities in his area don’t even offer incentives for west facing solar arrays because “they don’t produce enough energy.”  Those utilities are just as confused as the media lemmings who think you get more energy by pointing solar panels west.

This article was first published on the author's blog, Green Stocks on November 22nd.

December 02, 2013

Solar Christmas: Coal for LDK, JV for Trina

Doug Young 

Warren Christmas.jpg
Photo by Tom Konrad

I thought I’d get into the Christmas spirit in this first work day after Thanksgiving in the US, so let’s take a look at what solar panel makers LDK (NYSE: LDK) and Trina (NYSE: TSL) are getting in their holiday stockings with the latest company news reports. It seems the struggling LDK won’t be getting much, with word that a Chinese court has added further delays to a case where it is owed $40 million in a business dispute with rival Canadian Solar (Nasdaq: CSIQ). The news looks a bit better for Trina, whose Christmas stocking is filled with another smaller solar company that it is acquiring as the industry consolidates.

Let’s start with LDK, which I previously said is in real danger of being forced into bankruptcy next week when a deadline will come for it to reach agreement with bondholders who are waiting for an interest payment that was due in August. (previous post) Now Canadian Solar has announced that a court has agreed to a new hearing in a dispute between itself and LDK that was ruled in LDK’s favor last year. (company announcement)

The dispute centers on Canadian Solar’s termination of an agreement to buy materials from LDK after the industry entered its current downturn. An arbitrator ruled a year ago that Canadian Solar owed LDK about 250 million yuan ($40 million) as a result of the contract termination. A court in Canadian Solar’s home province of Jiangsu refused LDK’s request to force Canadian Solar to pay the award in May, but now a higher court is ordering that case be re-heard.

It’s hard to comment too definitively in this matter without knowing more detail; but at least some level of local politics seems to be involved in this case. Chinese courts often favor companies in their home areas, reflecting the high degree of politic influence in China’s judiciary. Thus I wouldn’t be surprised if the court’s May decision to refuse to enforce the $40 million award for LDK came after Canadian Solar applied pressure on the judicial system through its local political connections. So perhaps this latest decision by a higher court represents a slightly positive development for LDK.

But whatever the case, the most obvious outcome in all this is that LDK won’t be getting its $40 million anytime soon, if it ever gets it at all. That’s quite a negative piece of news, as LDK was probably hoping to collect the funds sooner rather than later to help it through its financial difficulties. LDK shares didn’t react much to the news in light trade after Thanksgiving, but I suspect the stock could come under pressure as people return to work this week.

Meantime, let’s take a quick look at the news from Trina, which has announced it is forming a joint venture with smaller player Yabang Group. (company announcement) The joint venture’s main production assets will consist of Changzhou NESL Solartech, a Yabang unit that makes solar modules. Trina will hold 51 percent of the venture, which has a modest investment of $45 million and production capacity of 500 megawatts of solar modules.

Anyone reading between the lines will see that this is simply a case of Trina buying out Yabang’s assets, as part of a much needed broader industry consolidation. PC maker Lenovo (HKEx: 992) formed a similar joint venture with Japan’s NEC (Tokyo: 6701) in 2011, allowing the former to take over the latter’s PC assets. The news looks positive for Trina, indicating it will become one of the main consolidators in the ongoing overhaul of China’s solar panel sector. Look for more similar deals in 2014, as the sector slowly rebounds and the strongest players return to profitability after 2 years of losses.

Bottom line: LDK won’t be able to collect $40 million owed by Canadian Solar for at least 6 months, while Trina’s new joint venture indicates it will be a consolidator in the China’s solar sector overhaul.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

November 28, 2013

Lights Dim At LDK As Deadline Looms

Doug Young 

dim lightbulb.jpg
Dim lightbulb photo via BigStock

I haven’t written about LDK Solar (NYSE: LDK) for a while, so it seems like the release of its latest quarterly results might be a good chance for a final look before the lights go off permanently at this struggling solar panel maker. Somewhat appropriately, LDK announced its results on the same day it also said it continues to negotiate with international investors who are still waiting for an overdue payment on their bonds. (company announcement) The bondholders have just agreed to extend their talks for another 2 weeks, but there’s always the very real danger that they could force LDK into bankruptcy when this new deadline expires on December 10.

I’ll return to the possibility of bankruptcy shortly, but first let’s take a look at the latest results that show just how much LDK has shrunk over the last 2 years. LDK and the higher-profile Suntech (NYSE: STPFQ) have been the biggest victims of the painful restructuring taking place in China’s solar panel sector. But while Suntech’s slow dismantling in a Chinese bankruptcy court has received lots of media attention, LDK’s overhaul has received much less scrutiny because it was never a very strong company even when the industry was booming.

The most notable element in LDK’s latest results is its shrinking top line. The company reported just $157 million in third-quarter sales, and a net loss of $127 million. (results announcement) Anyone looking at those latest figures would probably be most alarmed by the fact that the company’s net loss was nearly as big as its total sales, which is reflected in the fact that LDK’s operating margin for the quarter was negative 50 percent.

A look at the company’s quarterly results just 2 years earlier provides plenty more reason for alarm. LDK’s sales in the third quarter of 2011 totaled $472 million, meaning its sales have shrunk by about two-thirds over the last 2 years. The company’s customers are undoubtedly flocking to more stable rivals like Trina (NYSE: TSL) and Canadian Solar (Nasdaq: CSIQ), which are more likely to still be in business a year or two from now.

LDK has managed to avoid bankruptcy over the last year by selling off assets and taking on new investors, resulting in a painfully slow downward spiral that has resulted in the huge sales drop. That strategy has worked to placate the company’s state-run stakeholders, many of which are connected to government entities in LDK’s home province of Jiangxi. But international bondholders aren’t really interested in such face-saving moves, and simply want their money back.

Those bondholders were supposed to receive an interest payment on August 28, meaning the money is now 3 months overdue. I suspect this latest extension of talks could be one of the last, and that the bondholders will finally tire of playing games with LDK and force the company into a foreign bankruptcy court as early as next month. Some holders of defaulted Suntech bonds used a similar strategy last month, forcing the company into bankruptcy in a New York court, potentially delaying its overall restructuring. (previous post)

One thing I find amusing in all this is that LDK’s New York-listed shares have managed to stay at about the $1.60 level through this entire period of turbulence. Suntech’s stock also stayed relatively high throughout most of its bankruptcy, but suddenly tanked when shareholders finally realized they would lose all their money after the company announced its formal liquidation and its stock was de-listed. I suspect the same fate will come soon for LDK, with shares likely to tumble when bondholders finally tire of playing games and force the company into bankruptcy.

Bottom line: LDK bondholders are likely to force the company into bankruptcy as early as next month, in the first step before a final liquidation and share de-listing.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

November 22, 2013

SunTech's Sunset Illuminates State Ties

Doug Young 

Sunset for Suntech. Photo by Tom Konrad

As the sun rapidly sets on former solar pioneer Suntech (OTC: STPFQ), I thought I’d take a look at the latest reports that show just how closely the company relied on state support. At the same time, another major development has seen Suntech’s shares finally de-list from New York, where they have traded since its 2005 IPO. The de-listing is something that should have happened long ago, even though investors continued to bet that Beijing would rescue Suntech ever since the company was forced into bankruptcy back in March.

I’m suddenly feeling a bit nostalgic while writing this, as I suspect it will be one of the last chances I have to write about Suntech before the company officially ceases to exist. But I also suspect we’ll probably see at least 1 or 2 more flare-ups before the curtain drops, providing an appropriate final burst for this former solar pioneer that later became a poster child for creative accounting that is relatively common among US-listed Chinese companies.

Let’s start with a look at a new report that shows just how closely Suntech was tied to state support. Such strong support was one of the main factors for the sector’s build-up over the last decade, which resulted in massive oversupply that sparked a downturn that began more than 2 years ago and is only finally starting to subside now. That downturn claimed numerous victims in the US and Europe, and Suntech is the biggest victim in China.

According to the latest report, Suntech’s 2 largest creditors were both big state-run lenders, which often make their decisions based on orders from the central and local governments and provide loans at rates well below market levels. The largest of Suntech’s creditors was China Development Bank, one of Beijing’s main policy lenders, which held about 2.4 billion yuan ($393 million) in Suntech debt, or about a quarter of the company’s total debt of 9.5 billion yuan. (English article) The second biggest creditor was the Bank of China’s (HKEx: 3988; Shanghai: 601988) branch in the city of Wuxi, Suntech’s hometown, with nearly 2 billion yuan in debt.

Some quick math will show that these 2 banks alone account for nearly half of Suntech’s debt, though it’s unclear to me if the 9.5 billion yuan figure also includes the company’s international bonds. But regardless, the fact that 2 big state-owned banks lent $720 million to Suntech looks like strong evidence to support foreign competitors’ claims that Beijing provides unfair support to its solar panel makers. Those claims led to anti-dumping investigations by the US and EU, both of which found that China did indeed provide unfair support to its solar panel makers.

From there, let’s look quickly at the other major development, which saw Suntech’s shares officially moved to the over-the-counter market earlier this week from their former listing on the New York Stock Exchange. The NYSE officially cited uncertainty over Suntech’s ability to file its annual report on time for the de-listing. (English article) But I suspect that stock exchange officials also felt guilty for not pressing harder to de-list Suntech shares earlier, as most companies are usually instantly de-listed when they enter bankruptcy reorganization.

Investors continued to value Suntech at more than $100 million throughout the bankruptcy process, with its shares trading above the minimum required $1 level for most of that time. They finally began to sink last week after it became clear the company was being liquidated, though they suddenly rallied 40 percent in over-the-counter trade in the latest session. Personally speaking, I’ll be happy when the shares finally stop trading completely, formally ending Suntech’s life as a listed company.

Bottom line: The latest reports on Suntech’s debt highlight its strong government support, even as its New York-listed shares loom closer to becoming worthless.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

November 20, 2013

SolarCity – Crisis or Opportunity?

By Harris Roen

The latest earnings numbers released by SolarCity (NASD:SCTY) show a mixed bag of results. Total revenues have been rising for the past 4 quarters, and the number of customers SolarCity is signing up continues to soar. All is not rosy, though, as operating expenses relative to net loss continue to increase. This article dives into the reported numbers, looks at important customer trends, and asks whether SolarCity is still a stock worth investing in.


Revenues: Not a record, but steady growth

Revenues for the third quarter came in strong for SolarCity, at $48.6 million. This is a 52% increase in revenues over the same quarter last year, though it is still far below the record set in June 2012. Still, income has been rising in a straight-line direction for the past four quarters, and fourth quarter revenues are projected to be steady or rising.

Net income, on the other hand, has not fared so well. The first three quarters of 2013 have shown large losses. SolarCity reveals that in the most recent quarter it hemorrhaged $34.6 million. Total current assets have remained steady for the company since the last quarter at around $312 million. However, the cash portion of those assets dropped 17% to $133 million. So while it looks like SolarCity can sustain losses for a few more years on its current tack, this trend of negative net income must turn around in order for the company to remain viable for the long-term.

Revenues projected to rise

Revenues are projected to continue a steady increase for SolarCity on an annual basis. According to the company’s latest guidance, money coming in from leases and sales are expected to grow to between $157 million to $163 million for all of 2013. That means about a 25% increase over 2012 revenues, and about five times the revenues of just three years ago.
  SCTY Revs

Expenses continue to increase

Since the revenue side of the equation is solid for SolarCity, high expenses are the cause of continued losses for the company. Total operating expenses deepened for each quarter of 2013, now at $46.2 million. So far for 2013, expenses are greater than for all of 2012.

SCTY losses 30123q3

Know your customer

In order to understand when a mass-market company like SolarCity is likely to become profitable, one must understand the nature of its customer base. Questions to be answered include how fast is the customer base growing, how much does it cost to get a new customer, and how much money does each customer generate.

SCTY Clients

Customers have been added at a steady clip the past three quarters. In fact, the third quarter of 2013 added almost twice as many clients as were added in the first quarter of the year. Already year-to-date, SolarCity has added almost as many customers as it did in the banner year of 2012.

Revenues per customer, however, have remained flat, at around $600 per customer per quarter. (Note that revenues per customer look much larger for the annual data on the chart, but those numbers account for a full four quarters of income. When revenues per customer are projected out for all of 2013, it lands in the $2,500 range).

It is a bit hard to tell from the chart, but net loss per customer has been shrinking in 2013. It is down 30% since the first quarter, from a loss of $601 per customer to a loss of $421 in the third quarter. Likewise the acquisition cost per customer is dropping, down 29% from the first quarter to just under $2,000. These are both positive trends, and if they continue, will play an important role in bringing about profitability.

Is SolarCity still a good investment?

Though it is in the solar business, SolarCity is essentially a finance company. It uses billions of dollars of variable interest entity (VIE) investments, long and short-term debt, tax credits and stockholder equity to create leases, notes and other equities to generate income. As I have stated before, SolarCity as an energy stock is a speculative investment any way you slice it. It has yet to turn a profit, and consensus estimates are betting that it will still have negative earnings in 2014 and 2015. Because earnings results were good but not stellar, the stock has given up about 15% of its value from its high a week ago.

Having said that, there is no doubt that SolarCity is a well-positioned company in the growing field of solar installs. Last quarter alone it deployed 78 megawatts of photovoltaics. That is greater than what was installed in all of 2011, and about 70% of all megawatts SolarCity installed in 2012. If acquisition cost per customer drops below the $1,000 range, and if the company continues to grow its bottom line to swing net revenues per customer in a positive direction, then current prices for SolarCity will likely be justified. As such, I see SolarCity as a long-term hold for the investor that can stomach volatility, rather than a traders stock.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC owned or controlled shares of TSL. It is also possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

November 18, 2013

Solar Rooftop Lease Securitization A Ground-Breaking Success

SCTY residential solar.pngSean Kidney

Last week we blogged that  SolarCity (SCTY) and Credit Suisse were about to issue a new $54.4 million, climate bond – a rooftop solar lease securitization. It’s out: BBB+, 4.8%, 13 years. The long tenor is interesting – and great. And S&P’s BBB+ rating suggest those credit analysts may be beginning to understand solar.

This bond has been long-awaited by the green finance sector, who are hoping it’s the harbinger of things to come.

I did get the chance to look at the S&P opinion. Their rating reflected, as they put it, their views on over-collateralization (62% leverage; that’s how companies do credit enhancement), SolarCity's track record and the credit quality of the household borrowers.

They also noted that “because this asset class has a limited operating history, we expect the rating to be constrained to low investment-grade for the near future”. Presumably that means we can expect better ratings five years away.

The asset-backed securities will be paid for with the cash flow from the SolarCity‘s rooftop solar leases. This allows SolarCity to raise fresh cash to do the next wave of deals; we think of this as supporting velocity in working capital.

I’m mentioning this because folks from the policy and carbon world sometimes feel a bit queasy about climate bonds backed by existing assets. “Shouldn’t we be focusing on new project finance”, they ask. No.

In the project space, as Citi’s Mike Eckhart is fond of reminding us, bonds only make up 5% of debt financing globally. Banks provide the rest – and that’s unlikely to change much.

The critical task for climate bonds is to re-finance – to provide an exit strategy for those folks who best understand project development risk: equity investors, energy corporates, and bank lenders. Once that project development risk has gone, climate bonds become the means to re-finance among the pension and insurance fund sector, whose risk appetite is much lower.

This is important for energy companies, allowing them to effectively offload “mature” assets (solar panels in place, leases signed, revenue flowing) and so quickly recycling capital into new projects.

It’s also vital for banks, struggling with recapitalisation pressures post-crash. If they can securitize their loan portfolios it will allow them to do more with their now reduced allocations to project lending.

It opens up a critical new financing option for companies, helping them grow faster. And boy do we need them to grow: if we’re to have a chance of avoiding climate change tipping points we need every low-carbon industry to grow at maximum rates.

SolarCity installs rooftop solar panels, typically at little or no cost to customers. The company owns the systems and its residential and commercial clients sign long-term agreements to buy the power.

Interestingly SolarCity‘s share price jumped 4.3% when the bond came out, making the largest US solar company by market cap. Confidence building? [Ed. Note: It should not be surprising that when a company gets access to a cheap new form of finance, it helps the stock.]

——— Sean Kidney is Chair of the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

November 15, 2013

Is The Largest Solar Manufacturer a Bargain?

by Debra Fiakas CFA
Yingli logoIn the previous post on Canadian Solar (CSIQ:  Nasdaq) I suggested a multiple of 10 times the consensus estimate for earnings in 2014 might be a compelling value for the solar module producer.  Putting a value on is competitor Yingli Green Energy Holding (YGE:  NYSE) is not so easy given the string of losses reported by Yingli.  The usual price to earnings multiple cannot be used to value a company swimming in red ink.  That leaves the multiple of price to sales.  Yingli trades at 0.5 times sales compared to the one-to-one multiple that is the average for the solar industry. Call that difference the ‘red ink’ discount.

Yingli should have profits.  It lays claim to being the world’s largest producer of photovoltaic cells and modules.  The company shipped 2,300 megawatts of solar modules in the year 2012.  First Solar (FSLR:  Nasdaq) was a distance second.   The installed base of Yingli solar panels exceeds seven gigawatts and has spread over forty countries around the world.  Sales in the most recently reported twelve months were $1.8 billion, down from $2.3 billion in the year 2011, when prices were higher.

As depressing as are continued reported losses, the really bad news for Yingli is its spotty record in generating cash flow from operations.  There is an unsteady flow of inventory levels and collections on accounts receivable appear to run in fits and starts.  The results are a dwindling supply of cash resources, mushrooming current liabilities and rising long-term debt.

All this gloom and doom took its toll on the YGE price, with the stock setting a long-term low of $1.25 a year ago.  Since then the stock has been a dramatic ascent, rising by five times over in the last year.  As the solar industry re-establishes itself at a lower, more cost-efficient production capacity, more than just a few competitors are likely to wash out.  Indeed, there have been a number of acquisitions and bankruptcies in the sector over the past three years.  Suntech Power Holdings (STP:  NYSE) is the most recent casualty to a Chapter 7 bankruptcy filing by bond holders and the assets of Twin Creeks Technologies have now been tucked into GT Advanced Technologies (GTAT:  Nasdaq).

Nonetheless, Yingli is expected to be among the survivors.  That makes the stock worth looking at even though it is no longer trading at a bargain basement price.  Indeed, a review of historic trading patterns in YGE suggests the pullback in recent weeks might have left the stock in oversold territory  -  at least in the near-term.  It is a compelling opportunity for investors with long-term investment horizons and a bullish interest in the solar sector.
Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

November 12, 2013

SolarCity Rooftop Solar Lease Securitization Advances

by Sean Kidney
SolarCity logo

US firm SolarCity (SCTY) announced last week that it was seeking to make a private placement of a $54.4 million, 13 year bond backed by cash flows from rooftop solar leases. SolarCity is the second-largest U.S. solar company by market capitalization.

Lead manager Credit Suisse (CS) has been working on this deal for some time now, which will now only be eligible to be sold to big, qualified investors. It’s been a race this year between them and a US bank to get the first solar rooftop loan securitization our the door. Looks like the Swiss may win; we’re hoping they will start a trend (these are dinky-di climate bonds, after all).

The Financial Times is calling it the world’s first “sunshine-backed bond”. Very amusing, although not quite correct; SunPower’s (SPWR) 2010 Italian Andromeda bond has that tag.

According to the Financial Times story, Credit Suisse had a tough time convincing rating agencies to evaluate the bonds because of the lack of historical data; Standard & Poor’s have apparently given it a reasonable rating in the end – details still to be released.

Sean Kidney is Chair of the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

November 08, 2013

Sunset for Suntech as China Solar Target Rises

Doug Young 

Sunset for Suntech. Photo by Tom Konrad

More good news is coming for the rebounding solar sector with word that Beijing is accelerating its build-up of solar power plants in a bid to help the industry and also improve China’s dismal air quality. But that news is coming too late for rapidly disappearing sector pioneer Suntech (NYSE: STP), which has just announced it has formally launched a liquidation process that will end its life as an independent company. Suntech’s downbeat news isn’t really unexpected, and comes amid a much broader flurry of positive signs for a solar panel sector that is finally emerging from a downturn that has lasted nearly 3 years.

The latest piece of upbeat news from the corporate sector came just a day ago, when Trina (NYSE: TSL), one of the largest players, raised its shipment guidance for the third quarter by 20 percent, and said margins would also be significantly better than previously forecast. (company announcement) Trina’s news came after Canadian Solar (Nasdaq: CSIQ) gave a similarly upbeat update on its third-quarter results, including a return to profitability for the period. (previous post)

The latest good news for the sector comes from Beijing, which has raised an already aggressive target for new solar power plant construction even higher to help the industry. According to the latest reports, Beijing has raised the target by 20 percent, with an aim for 12 gigawatts of solar power capacity nationwide by 2014, up from a previous target of 10 gigawatts. (English article)

Beijing was always an aggressive supporter of the solar panel sector, offering generous incentives that led to a huge build up in manufacturing capacity. That resulted in massive oversupply that sparked the recent downturn. But while it supported a build up of manufacturing capacity, Beijing didn’t support a parallel build-up of domestic solar power plants, with the result that manufacturers like Trina, Canadian Solar and Suntech relied completely on Europe and the US for most of their sales.

Now Beijing is trying to rectify that imbalance with an aggressive build-up of solar plants, with an aim of 35 megawatts of capacity by 2015. That target looks a bit unrealistic to me based on the 12 megawatt target for 2014. But then again, perhaps we’ll see a sudden massive construction binge in response to Beijing’s recent calls to clean up China’s highly polluted air, and also the government’s determination to support solar panel makers.

That rapid domestic build-up may be good news for relatively healthy companies like Trina, Canadian Solar and Yingli (NYSE: YGE), but it comes too late for bankrupt Suntech, which has just filed an application for provisional liquidation in the Caymen Islands where it is technically based. (company announcement) This application looks like sunset may be imminent for the company, whose main manufacturing assets are being purchased by Hong Kong-listed Shunfeng (HKEx: 1165) for 3 billion yuan. ($500 million) (previous post)

There’s not much new to say about this latest development, except that it’s coming a bit faster than I had expected. I had previously said that Suntech’s bankruptcy reorganization could be delayed by litigation in New York and Italy; but now it appears the Chinese court hearing the case wants to go ahead and liquidate Suntech sooner rather than later.

One interesting footnote as the end draws near is what’s happened to Suntech’s stock. This kind of bankruptcy filing usually causes a company’s stock to become nearly worthless, since shareholders seldom recovery anything from such reorganizations. But in this case Suntech’s stock held its value, and was trading as high as $1.58 just 2 days ago. Now that the end is finally near, shareholders finally seem to realize they may not get anything. Suntech’s shares plunged 16 percent in Wednesday trade, and were down another 11 percent at $1.12 after hours. Look for the downward plunge to continue, until the shares hit the nearly worthless level where they should have been throughout the bankruptcy process.

Bottom line: Newly raised power plant targets will help China’s rebounding solar panel sector, but Suntech shares are likely to soon become worthless as the company liquidates.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

November 06, 2013

Canadian Solar Bags Another Module Sale

by Debra Fiakas CFA
Canadian Solar Logo
Last week Canadian Solar (CSIQ:  Nasdaq) bagged another solar module supply agreement  -  this time on the home turf of some of its staunches competitors.  Of course, the company has its own manufacturing foothold in China.  Canadian Solar is to supply its solar modules to China Three Gorges New Energy Company to a 100 megawatt solar power project in Guazhou County in Gansu Province.  The modules shipments will be complete by the end of the December 2013, suggesting all the sales will end up recorded yet in the current fiscal year.

The Three Gorges sales is not an isolated good news story.  Last month Canadian Solar started work on a 100 megawatt utility-scale solar farm in Ontario for Samsung RenewableEnergy.  The company also won a contract to supply solar modules for a solar power project in Saudi Arabia being built by Saudi ARAMCO, one of the world’s largest crude oil producers.

The trio of analysts who have published estimates for Canadian Solar already through the company could deliver $2.0 billion in sales and $0.47 in non-GAAP earnings per share in the current fiscal year.  This represents a bit over 50% growth over the prior year.  This not a bad feat in a sector that was at one point nearly written off as competition from low-price photovoltaic modules from China threatened to put North American and European producers out of business.

To be sure, Canadian Solar experienced a sharp drop in sales in the last year and even the first quarter of 2013.  However, this year beginning in the June quarter the company turned things around, registering the first year-over-year increase in quarterly sales in three years.  It now appears possible for the company to get back to set a record in sales value.

Profits have been improving as well  -  at least the net loss has been getting smaller with each reported quarter.  The company has reported strong cash generation in the past as well as net profits.  Investments in new solar projects are reported in operating cash flows.  Because of the size and long-term nature of some solar development projects, operating cash flow can be dramatically impacted.  In 2012, a solar project under development took a $300.7 million bite out of cash flow from operations.

Even if profits spark investor interest in CSIQ, they will need to temper their enthusiasm, at least in the short-term.  A review of historic trading patterns in CSIQ suggests the stock has recently risen to over-bought territory.  It would be prudent to wait for a period of trading weakness to take on long positions in the stock.  Still at the current price level the stock is trading at 10.0 times the 2014 consensus estimate.  While this is above the company’s current growth rate it is still an attractive valuation.  For an investor with a long-term investment horizon the current price level justifiable.
Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

Clouds Lift For Canadian Solar And Suntech

Doug Young 

sunset breaking
through clouds.jpg
Sun breaking through clouds photo by Tom Konrad

Spring is most definitely in the air this week for embattled solar panel makers, with Canadian Solar (Nasdaq: CSIQ) and Shunfeng Photovoltaic (HKEx: 1165) emerging as new sector leaders with different pieces of upbeat news. From my perspective the Canadian Solar news is the most exciting, even though some may say it doesn’t come as a big surprise. The company announced it will post a net profit for the third quarter, becoming the first major solar firm to return to the black after 2 years of losses. Meantime, Shunfeng has announced details of its highly anticipated deal to buy the main assets of bankrupt former solar pioneer Suntech (NYSE: STP), marking a major step forward in the industry’s restructuring.

Investors welcomed both pieces of news, sharply bidding up shares of all 3 companies. Canadian Solar’s American Depositary Shares (ADSs) jumped 12 percent to $28.65, taking them to levels not seen for 3 years. Anyone smart enough to buy the stock a year ago at its low of about $2 would be getting quite a nice return on that gamble. Shunfeng shares shot up 20 percent on its news, as trading in the stock resumed after a one week suspension. Suntech shares also rallied 17 percent, indicating its stockholders believe their shares will still be worth something when the company finally emerges from its bankruptcy.

Let’s start off with Canadian Solar, which issued a third-quarter results preview that looked quite sharp all around. (company announcement) The company raised its outlook for shipments by about 18 percent, saying it now expects to ship 460-480 megawatts of panels during the quarter. But more impressive was a huge upward revision to its gross margins, which are now expected to come in at 18-20 percent, up sharply from previous outlook for 10-12 percent.

That sudden surge in margins was likely a major factor behind the company’s forecast that it would post not only a net profit for the third quarter, but also for the first 9 months of the year. Canadian Solar had posted losses in this year’s first 2 quarters, but repeatedly stuck by its forecast to be profitable for the year. I’ve said before that Canadian Solar’s model of constructing and then selling solar plants looks like a good one, and its emergence as the first major company to return to profitability also looks like a strong sign that it will emerge as a future sector leader.

From Canadian Solar let’s move on to Shunfeng, which announced it will pay 3 billion yuan, or nearly $500 million, to acquire most of Suntech’s main assets in its hometown of Wuxi. (company announcement) Upon completion of the investment, Suntech’s main manufacturing unit will become a wholly owned Shunfeng subsidiary. It looks like a big chunk of Shunfeng’s new investment will go to repay some of Suntech’s many creditors, including ones holding more than $500 million in bonds that Suntech defaulted on earlier this year, forcing it into bankruptcy.

This new cash infusion follows Suntech’s announcement of another $150 million investment last week from Wuxi Guolian, a fund linked to Suntech’s hometown government. (previous post) It’s interesting to note that this combined cash infusion of some $650 million is significantly larger than Suntech’s current market value, which still only stands at $280 million even after the strong rally on news of the Shunfeng investment.

I previously predicted Suntech’s emergence from bankruptcy could still be 7 or 8 months away, due to a seizure of company assets in Italy and an involuntary bankruptcy against the company in New York. But this latest rally in Suntech’s stock seems to imply that its shareholders believe they will get at least some money for their stock, which could either be allowed to continue trading on Wall Street or possibly swapped for Shunfeng shares later.

Bottom line: Canadian Solar’s return to profitability and Shunfeng’s $500 million investment in Suntech indicate an overhaul of the solar sector is accelerating, as some producers start to return to profits.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

November 03, 2013

Suntech Has A Friend In Wuxi But Foes In NY

Doug YoungSuntech logo]

Former solar energy pioneer Suntech (NYSE: STP) is getting caught in an increasingly complex web of global forces as it tries to emerge from bankruptcy, with the latest coming from its hometown of Wuxi and from a bankruptcy court in New York. While such tugs-of-war probably aren’t uncommon in such a complex case, Suntech’s strong international connections mean its reorganization could take longer than many previously expected. The case also highlights the unusual risks associated with companies that do so much trans-border business. The latest developments have seen Suntech’s hometown of Wuxi emerge as a major new investor in the company, and a group of debtors force it into a US bankruptcy court.

Company watchers will know that Suntech has many international connections. Its headquarters is in China, while its shares trade on the New York Stock Exchange. Its largest market is Europe, where it controls the Global Solar Fund that builds solar energy plants. Finally, the company also has billions of dollars in debt held by institutional investors from around the world, and billions more in outstanding loans from major banks in China.

Given that complex background, it’s not too surprising to see everyone trying to get a piece of Suntech as the company struggles to get back on its feet after being forced into bankruptcy earlier this year in a court in its hometown of Wuxi. At least some of Suntech’s overseas bond holders don’t seem to think they will get a good deal from the Wuxi court, which could be true since the judge may favor the company’s China-based stakeholders over foreign investors.

Those concerns have led a group of foreign bondholders to petition to have Suntech forced into a US bankruptcy court in the state of New York, a move that Suntech strongly opposes. (company announcement) I’m no expert on bankruptcy law, but the investors behind this move most likely believe the New York court will accept the case because Suntech’s shares are traded in New York. Suntech points out that the bond holders behind this move are a very small group, though I doubt that fact will persuade the New York judge to dismiss the case.

Meantime, Suntech has also announced that Wuxi Guolian, a fund presumably controlled by its hometown government, has signed a letter of intent to invest $150 million or more in the company as part of its reorganization. Wuxi Guolian is making the commitment even though the bankruptcy court hearing the case has already selected another firm, Shunfeng Photovoltaic (HKEx: 1165), to become Suntech’s strategic investor going forward. (previous post)

This new investment by Wuxi Guolian, if it happens, looks like a power play by the Wuxi government to ensure that Shunfeng doesn’t take control of Suntech and then close down all of its Wuxi operations. Such a limitation could seriously hamper Shunfeng’s efforts to reorganize Suntech’s main operations in Wuxi, forcing Shunfeng to keep operating facilities that it might otherwise want to close or relocate.

At the same time, Suntech is also grappling with some of its European assets, which were built by Global Solar Fund and have now been seized by a court in Italy for possible regulatory and other violations. On the whole, this story is certainly getting quite messy due to Suntech’s complex web of global connections. I do think the China-based groups will ultimately win the battle for control of the company, but it could be another 7 or 8 months now before Suntech can finally complete its reorganization and emerge from bankruptcy.

Bottom line: Suntech’s reorganization will take longer than expected due to a growing number of international claims against the firm, including a new bankruptcy petition in New York.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

October 20, 2013

SolarCity: The Amazon of Solar?

By Harris Roen

SolarCity (NASD:SCTY) has become a sort of proxy for the future of solar in this country. This tremendously successful company is coming up on a one year anniversary of its IPO in December. Several developments at SolarCity warrant a closer look into this dynamic company trying to stay ahead of the curve in a growing, competitive solar installation environment.


Despite skeptics, SolarCity’s stock is strong

There was much skepticism among investors when SolarCity was preparing for its IPO in 2012. Solar stocks had been badly beaten up in recent years – the Ardour Solar Energy Index (SOLRX) had fallen fully 97% from its highs at the beginning of 2008 to its lows in November 2012. The reality for SolarCity, though, turned out to be much different.

Since SolarCity issued its stock on December 13, 2012, it has gained 466%! For the month of October alone SolarCity is up over 50%. Volume has steadily increased also. The one-month rolling average is at its highest level ever, and is double what it was just this past September.

 Solid third-quarter numbers, even better guidance

Last Friday SolarCity announced that it had deployed 78 megawatts of photovoltaics in the third quarter of 2013. That is greater than what was installed in all of 2011, and about 70% of all megawatts SolarCity installed in 2012. As well, the number of customers has more than doubled, from about 40,000 in 2012 to over 82,000 as of September 30. Not surprisingly, the stock jumped 23% in one day on the news.

SolarCity expects the number of megawatts installed to be 278 for 2013, and almost doubling to between 475 and 525 megawatts for 2014. Third quarter revenues will be announced on November 6, so look for my report on SolarCity’s financial results around that time.

 $345 million to be raised through stock offering and convertible note

On Tuesday, SolarCity rolled out a plan to raise hundreds of millions of dollars in new capital. Four large investment firms will be underwriting 3.4 million shares of common stock at $46.54/share. Additionally, SolarCity will offer over $200 million in convertible senior notes. The net proceeds from both are expected to reach $344.8 million, which is about 8% of its current market cap. If SolarCity can continue to use this capital to efficiently grow the company through marketing and finance options, then I see this as a very positive development.

Corporate acquisitions

Since September, SolarCity has made two large, strategic acquisitions. Earlier this month it acquired Zep Solar, a California-based photovoltaic mounting company. Zep Solar has been a component supplier to SolarCity, and its innovative “rail-free” panels makes for affordable and adaptable installs. This $158 million deal should add efficiencies to SolarCity’s bottom line.

In September, SolarCity closed on another significant deal, acquiring Paramount Solar for $120 million. Paramount Solar, formerly part of a highly regarded sales and marketing firm, should help put a professional edge on SolarCity’s public face. Since SolarCity is essentially trying to sell a complex material and financial product to a mass market, this will be a critical step to their ultimate success.

scty_cust_20131018[1].jpg What does it all mean?

There is no doubt that SolarCity is a speculative investment any way you slice it. It has yet to turn a profit, and consensus estimates are betting that it will still have negative earnings in 2014 and 2015. Given that, some of the most important numbers to watch are revenue per customer, and acquisition costs per customer.

Revenue per customer have become somewhat compressed since 2012, though are holding steady from the last quarter. Acquisition costs per customer, on the other hand, keep improving. It will be important to see at year’s end how the annual numbers compare with 2012 and 2011. This will say much about when SolarCity will hit scale and become a profitable company. In the mean time, the third quarter earnings report should be very revealing as to how these trends are starting to play out.

I feel SolarCity is in a similar position that Amazon was in about 10 years ago (despite the fact that they are extremely different companies at their core). Amazon had a CEO that frequently made the press, negative earnings as far as the eye could see, and a strange business model that seemed to only be interested in market share at any cost. Many skeptics (including myself at the time) could not justify Amazon as a viable investment. Those who did invest 10 years ago, though, made a handsome 18% annualized return on Amazon stock. I would not be surprised at all if 10 years from now SolarCity skeptics will also be proven wrong.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC owned or controlled shares of TSL. It is also possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

October 19, 2013

Price Pressure Will Squeeze Solar Inverter Revenues

James Montgomery

SMA Solar inverter photo by Claus Ableiter

In a new report, IHS says worldwide solar inverter unit shipments will rise 7 percent this year, but PV inverter revenues are heading the opposite way, a 9 percent decline this year to $6.4 billion, worse than the firm's earlier prediction of a 5 percent drop. (2014 will see a 9 percent rebound in revenues back to around $7.0 billion, while shipments will surge 19 percent to more than 41 GW.) That's because overall inverter prices are sinking fast, sliding to $0.18/W this year vs. $0.22/W in 2012. It's especially painful for big utility-scale projects; IHS says these will make up a third of global demand this year, up from 29 percent last year, but global prices for large central inverters will decrease 16 percent to $0.12/W.

One reason for the divergence is that solar PV technologies further up the supply chain — silicon, cells, and modules — have been bearing the brunt of the market's relentless cost-cutting demands, but now those pressures are moving further down the chain into the balance-of-system technologies, explained Cormac Gilligan, senior PV market analyst at IHS. Meanwhile, some of the larger established solar markets, especially in Europe, are slowing down dramatically, so an increasingly crowded market of inverter suppliers is fighting for less business. Favorite markets such as Germany and Italy also are reducing or eliminating subsidies, he pointed out, so project developers are submitting tenders at rock-bottom prices to win the business, which means they'll have to squeeze out even more costs.

Ironically, some of the emerging global solar markets are also ones where utility-scale solar is taking off, such as China, India, South America, and South Africa — and it's in these markets where pricing pressure can be most severe, with inverter prices as low as $0.06/W in China, India, and Thailand, IHS noted.

Gilligan said that makers of central inverters are trying to answer the market pressures by offering features that translate to some savings on the operations and maintenance side, such as higher input voltages (>1,000 V) and liquid cooling. Some inverter companies also are broadening their portfolios to include smaller three-phase inverters targeting more commercial-scale opportunities. China's still a relatively unique case where several domestic utility-scale inverter companies have held their turf, and western inverter suppliers are trying to get into the market, creating massive price pressure.

However, price pressures also are being felt for smaller three-phase inverters (20-35 kW) in utility and commercial applications, Gilligan pointed out. Some European markets will see prices for those lower-power inverters sinking 20 percent to $0.14/W. This is a growing sector in the U.S. for these types of inverters, he noted, predicting more than 200 MW of shipments this year, and pricing is still relatively higher than in Europe. But there's increasing competition too (he pointed to SMA Solar (SMTGF) and Power-One (PWER)) so look for prices to start declining as they have in Europe.

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

October 17, 2013

Shunfeng Could Be China's New Major Solar Player

Doug Young

China’s solar retrenchment has taken a big step forward with word that a bankruptcy court has chosen Hong Kong-listed Shunfeng Photovoltaic (HKEx: 1165) from a field of bidders vying to invest in reorganizing former solar pioneer Suntech (NYSE: STP). The decision is interesting both because of who the bankruptcy court selected, and also because of who lost the bidding. The selection of Shunfeng looks particularly significant, as it could mark the emergence of a new major player as the battered solar panel sector finally starts to emerge from its 2-year-old downturn.

The latest reports don’t contain too much information beyond the fact that Shunfeng was formally selected earlier this week to provide Suntech some of the key funding it will need to emerge from bankruptcy. (English article) Others who made it to the final round of bidding included GCL Poly-Energy (HKEx: 3800) and Wuxi Guolian, according to the reports. Earlier reports had indicated that 2 New York-listed Chinese manufacturers, Yingli (NYSE: YGE) and Trina (NYSE: TSL), were also interested in the bidding at one point..

Shunfeng’s Hong Kong-listed shares rallied nearly 50 percent in the 2 trading days this week after rumors first emerged that it was named as Suntech’s investor, though they gave back some of those gains in the latest session. Even after the rally, the company’s market value remains relatively small, at just under $1 billion. Rivals like Trina and Yingli were once worth much more at the height of enthusiasm about the future of solar power 3 years ago, but most are now valued at similar levels.

Shungfeng’s selection looks particularly noteworthy because the company is also part of a group that previously purchased 20 percent of LDK (NYSE: LDK), China’s other major struggling solar player, according to one of my sources. Whereas Suntech was formally forced into bankruptcy earlier this year after defaulting on more than $500 million in bonds, LDK has been slowly reorganizing outside bankruptcy court by selling off assets and selling shares to new investors.

Many solar shares have started to rally in the last few months as the sector’s outlook starts to improve, but Suntech and LDK shares have performed less well due to uncertainty surrounding the pair. A strong possibility is that shares for both companies could become worthless, or more likely that existing shareholders will be strongly diluted when each company issues more stock to new investors.

Shunfeng’s selection to invest in Suntech, combined with its existing investments in LDK, certainly make the company an interesting one to watch as the sector reorganizes. Prior to the downturn, Suntech was once China’s leading solar panel maker. Creative accounting and overly aggressive debt issuing ultimately led to its downfall, but the company still holds good manufacturing assets that could be quite valuable to a buyer. LDK faced similar issues with an overly heavy debt load, and is currently in talks with some of its bond holders after missing a recent interest payment. (company announcement)

All that said, this latest development looks potentially positive for Shunfeng, which could emerge as quite a strong player if it can take control of Suntech’s and LDK’s assets without the huge debt load held by each of those companies. Shunfeng could also face integration issues, as local governments would almost certainly resist any more major layoffs or facility closures at Suntech’s and LDK’s main facilities. At the end of the day, I would probably give Shunfeng a 50-50 chance of success if it can successfully take control of Suntech’s and LDK’s assets, producing a new big name to watch in the recovering sector.

Bottom line: Shunfeng could emerge as a major new player in China’s solar sector if it can successfully take control of and turn around assets from Suntech and LDK.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

October 15, 2013

The Ghost of Solyndra Haunts Chinese Solar Stocks

Doug Young

The solar sector’s slow recovery is receiving some new setbacks in the form of lawsuits by 2 bankrupt US companies against Yingli (NYSE: YGE), Trina (NYSE: TSL) and Suntech (NYSE: STP), the last of which is also in bankruptcy reorganization. Adding to the mess, Suntech has just disclosed that more of its European assets have been seized by the Italian courts, throwing yet another new complication into its ongoing reorganization. This growing tide of litigation is somewhat expected, as investors try to recover whatever money they can following the sector’s spectacular crash over the last two years. But such actions will only slow the sector’s broader recovery, and in some cases could remain as troublesome liabilities for companies for years to come.

Let’s start off this solar litigation roundup with a look at a series of lawsuits filed against Trina, Suntech and Yingli by 2 US companies, Solyndra and Energy Conversion Devices. (English article) Both Solyndra and Energy Conversion went bust during the sector’s 2-year-old downturn, and these new lawsuits are attempts by their creditors to recover whatever money they can. Both Trina and Yingli issued statements saying they believe the claims are groundless, and that the suits represent attempts by Solyndra and Energy Conversion Devices to to blame others for their own failures. (Yingli statement; Trina statement)

It’s impossible for me to give an informed view about the merit of the lawsuits since I’m unfamiliar with the technology involved. But I can say with certainty that these lawsuits will add unwanted legal costs and pose the threat of penalties over the next few years for Yingli, Trina and Suntech. That’s the last thing these companies need as they try to return to profitability after 2 years of big losses.

This isn’t the first time that Solyndra has caused headaches for the Chinese manufacturers. Industry watchers will recall that the US company’s original bankruptcy was the first event in a chain that ultimately ended with Washington slapping anti-dumping tariffs on Chinese-made solar panels earlier this year. So perhaps it’s appropriate that the ghost of Solyndra is coming back just one more time to cause headaches for these firms.

From these new lawsuits, let’s look quickly at the latest news from Suntech, which says courts in Italy have seized another 10 solar power plants owned by Global Solar Fund (GSF), a solar power plant builder controller by Suntech. Suntech reported last month that the Italian courts had seized 37 of GSF’s solar plants (previous post), and now the number has grown to 47. (company announcement) These new seizures mean GSF has now lost control of 27 percent of its assets, which prosecutors suspect of violating various environmental and authorization rules.

GSF was once one of the biggest buyers of Suntech’s panels, and has an enterprise value of about $800 million. Suntech creditors were hoping to sell GSF’s assets as part of Suntech’s reorganization, in a bid to get back some of their money. But the seizure of so many GSF assets, combined with the potential threat of additional seizures, means that GSF may be a difficult asset to liquidate anytime soon.

I’d previously guessed that a sale of all of GSF’s assets could have generated around $200 million in cash, far less than the company’s enterprise value, since many of its plants were built at the height of the solar boom when panels were still quite expensive. But these latest seizures mean that Suntech’s creditors won’t be able to recover any money from the sale of GSF assets anytime soon. That means negotiations for Suntech’s reorganization may have to be re-opened, further delaying its emergence from bankruptcy.

Bottom line: New US lawsuits against Chinese solar panel makers and the Italian court’s seizure of more Suntech assets reflect growing solar litigation likely to delay the sector’s recovery.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

October 13, 2013

Canadian Solar Sells Four Plants, Looks Set to Return to Profitability

Doug Young

As the solar panel sector continues its painful overhaul, signals are emerging about who will survive the downturn and thrive when the industry returns to health. Canadian Solar (Nasdaq: CSIQ) certainly seems to be one of the strongest players coming out of the retrenchment, with word that the company has sold 4 more plants that it constructed to private buyers. Canadian Solar is quickly emerging as a strong executor of this particular strategy, which sees it construct power plants using its own solar cells and then eventually selling those plants to private sector buyers. Rival Suntech (NYSE: STP) also tried such a strategy, but poor execution made it backfire and dragged the company into bankruptcy.

All that said, we still do need to be slightly skeptical of Canadian Solar, which is showing a tendency to make multiple announcements that sometimes repeat previously disclosed information. Canadian Solar’s success in the build-and-sell strategy does also seem to be limited so far to plant construction in Canada, so we’ll have to see if it can replicate the model in other markets where it may not have such strong connections.

According to the first of 2 separate announcements issued by the company last week, Canadian Solar sold 2 plants with a combined 16 megawatts of capacity and valued at about $100 million to TransCanada (Toronto: TRP). (company announcement) Canadian Solar doesn’t say how much TransCanada actually paid for the plants, which seems to imply it may have sold them at a discount to their actual value. The deal was part of a previously announced plan to sell 9 plants to TransCanada for nearly $500 million, and marks the second and third sales in that bigger deal.

The second of the announcements looks similar, but is more interesting because it involves the sale of 2 other self-built plants to a fund managed by BlackRock (NYSE: BLK), a top US fund house. (company announcement) No price was given, but the announcement says the plants with combined capacity of 20 megawatts in the Ontario area were sold at a price comparable to similar recent sales in the area. From my perspective, the most encouraging element of this piece of news is the fact that BlackRock was the buyer, as this demonstrates that Canadian Solar knows how to build plants that will appeal to true financial-sector investors.

Stock buyers seem to like the Canadian Solar story, bidding up the company’s shares sharply in recent weeks. The company’s stock is up more than 50 percent since the beginning of September, and has risen nearly 6-fold for anyone who was foresighted enough to buy the shares at the beginning of the year. Canadian Solar has also been notable as one of the only major players to forecast a return to profitability this year, with the company recently reiterating its aim to be profitable for the full year 2013.

Other players that look set to survive the nearly 3-year-old downturn have also rallied sharply this year, with shares of Trina (NYSE: TSL) and Yingli (NYSE: YGE) both more than tripling since the start of the year. Both companies have reportedly been bidding to buy major assets from Suntech, which is hoping to soon emerge from a bankruptcy reorganization that will most likely mark the end of its life as an independent company.

All of these latest developments, combined with China’s recent pledges to strictly limit construction of new panel plants, look like they could finally lift the industry out of its doldrums. If the current trends continue we could see Canadian Solar become the first of the major players to return to profitability in its upcoming third quarter report, with other major players gradually returning to the black over the next few quarters.

Bottom line: Canadian Solar’s sale of 2 power plants to a BlackRock managed fund reflect strong prospects for its business model, boosting its chances to return to profitability this year.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

October 11, 2013

SolarCity Buys Zep: Behold The Power of Vertical Integration

To win the U.S. solar installation game, SolarCity (SCTY) continues to go vertical and thin its margin stack... so what'll be next?

James Montgomery

SolarCity (SCTY) is acquiring Zep Solar and its rackless mounting design in a $158 million stock deal, illustrating the growing importance of improving costs and complexity in residential solar.

Much of the cost-cutting in solar PV has been shouldered by the upstream manufacturing side, but half the costs or more in a residential solar PV system come from the softer side, and they'll have to keep coming down dramatically to support widespread deployment of distributed solar PV. For its part, Zep Solar has planted its flag in the installation innovation field with interlocking frames and specialized components that simplify solar array installations, and its licensees include more than a dozen prominent PV module manufacturers and component/inverter makers.

Last November SolarCity signed up too, and since then the company's crews have doubled their daily pace of residential installations, averaging 4-5 hours instead of a day or two, according to Tanguy Serra, SolarCity's executive VP of operations. That means lower costs, and better service because of less tromping around on customer's roofs. Today "the overwhelming majority of our systems use Zep," he said. And so, as the old story goes, they liked it so much they decided to buy the company.

It's likely no accident that the two largest U.S. solar installers, SolarCity and Vivint, have vertically integrated business models. To get scale and costs down in the U.S. market "you need to be vertically integrated," explained Serra. That means "we want to avoid margin stacking; we take it out everywhere we can." To that end, barely a month ago the company acquired sales channel partner Paramount Solar, underscoring the importance of solar customer acquisition. Snapping up Zep similarly will take a slice out of SolarCity's cost structure for components.

Owning Zep also gives SolarCity access to future technology in the pipeline. Serra was particularly enthusiastic about Zep's development in two areas: non-penetrating commercial roofs, which he emphasized "is a big, big deal for us" as they go after large-scale commercial retail clients like Wal-Mart and BJ's; and carports, which for retailers provide a guaranteed cost of power and shade for customers. Current carport products on the market are too expensive and complicated, he said, and cracking this market is "a phenomenal opportunity."

SolarCity will honor all existing Zep customer contracts to their end, and then will manage partnership requests on a case-by-case basis, Serra explained. (Vivint's also a Zep customer, at least for now.) Ultimately "the vast majority of resources" will be directed to international growth, he said, from Germany to Australia to Japan to the U.K. Residential solar is picking up in Japan, where there's a strong emphasis on aesthetics for any product, and that's Zep's forte -- Zep's sleek black skirt "looks great on Japanese slate," the most common roofing material there, Serra noted. The idea is that Zep also can help pull SolarCity into these markets, but SolarCity won't sell power in international markets "just yet," he said, so it won't compete directly with those regional installers.

So where else in this vertically-integrated solar installation cost stack is ripe for trimming? " If you've got to pay margins to a marketing company, an installation company, a financing company -- that's three or four layers of margin, that ultimately gets borne by the end consumer," not to mention a complex coordination of partners, Serra said. He wouldn't say, of course, citing corporate quiet-period rules, whether that means SolarCity's next M&A target is a financing company, only hinting that "as opportunities come up we will consider them."

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

October 05, 2013

First Solar Keeps Buying Solar Projects To Keep Pipeline Full

James Montgomery

First solar logoFirst Solar (FSLR) has added another mega-scale project to its pipeline, helping ensure there's enough to feed its thin-film solar PV manufacturing machine.
Rock formations in Clark County, NV. Photo by John Fowler

The 250-MW Moapa project being developed by K Road in Clark County, Nevada, about 30 miles north of Las Vegas, was given a green light last summer, making it the first major U.S. solar project approved on tribal land. Construction has been pushed back roughly a year from the original timeline, with First Solar now saying it could start by the end of this year and be finished by the end of 2015. Swinerton is the EPC contractor. The project has a 25-year PPA with the Los Angeles Department of Water and Power (LADWP), at an average price of $0.094 per kWh (tied together with a PPA with Sempra's Copper Mountain 3).

The Moapa Band of Paiutes has very big plans for renewable energy. Weeks ago they announced plans to develop up to 1.5 GW of renewable energy across their 70,000 acres of tribal lands. They are particularly keen on renewables since a nearby 550-MW coal-fired plant is slated to shut down over the next couple of years.

First Solar has consistently had to restuff its pipeline to feed its PV manufacturing machine, as it finishes projects in record numbers. As of its most recent quarter the company's project pipeline was roughly 1.5-GW of mid- to late-stage projects and about 6.6 GW of projects in a 1-2 year development cycle. The need to keep feeding that pipeline is increasingly important as projects become scarcer, competition for them ratchets up, and their economics continue to compress. In August the company bought a 1.5-GW portfolio of solar projects from Element Power, and inked a partnership with Belectric to target smaller sub-20-MW projects in the U.S.

K Road, on the other hand, recently abandoned its ~300-MW Calico Solar Project after many changes and resubmissions, from scaling it down to switching from concentrating solar to PV. Its sole solar power project now appears to be the 25.8-MW (AC), McHenry Solar Project, in Stanislaus County, CA's Modesto Irrigation District, which it acquired from SunPower (SPWR) last spring.

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

October 02, 2013

Italian Courts Seize GSF Solar Plants Complicating Suntech Bankruptcy

Doug Young

Asset seizure casts new clouds over Suntech retrench

Someone should write a book about solar panel superstar Suntech (NYSE: STP), whose the incredible rise and spectacular fall has taken yet another intriguing twist with word that some of its major assets have been seized by a court in Italy. The Italian angle is just the latest turn in this international story of a company founded by an Australian-educated Chinese engineer, which once look set to revolutionize the solar energy sector, only to be forced into bankruptcy when the sector plunged into a massive downturn. From a more practical perspective, I suspect this latest development will prolong Suntech’s bankruptcy reorganization, since its creditors may have been hoping to liquidate these Italian assets to repay some of the company’s massive debt.

The assets in question are all owned by Global Solar Fund (GSF), a company that was building solar plants in Europe, including Italy. In many ways, GSF has been one of Suntech’s biggest Achilles heels and continues to haunt the company with this latest development. The fund was set up by Suntech founder and former CEO Shi Zhengrong, who wanted to use the company to build and operate solar power plants in Europe using solar panels supplied by Suntech.

The only problem was that Shi declined to disclose the close financial relationship between his firm and GSF, even as Suntech sold millions of dollars worth of solar panels to GSF and recorded those sales as revenue. Such sales were technically legal, though many would later argue this kind of relationship was questionable because Suntech was basically selling its panels to a company it controlled. Suntech was finally forced to disclose the relationship last summer due to an issue involving a loan guarantee, kicking off a downward spiral that ultimately ended with its bankruptcy declaration in March.

Reports shortly after the bankruptcy declaration said that Suntech was looking to sell its stake in GSF to repay investors and recapitalize as part of its reorganization. (previous post) Those reports said GSF had an enterprise value of $800 million, though its real value was probably far less since many of its plants were built before the industry’s current downturn that has seen panel prices tumble by more than half over the last 2 years.

Suntech’s latest disclosure indicates that a sale of its GSF stake may be difficult or impossible in the near term, since many of GSF’s assets now remain in limbo following their seizure by Italy’s courts. (company announcement) According to the announcement, Italian courts have now seized some 37 solar plants owned by GSF, accounting for about one-fifth of GSF’s total power-generation capacity.

The reasons for seizure look largely unrelated to Suntech’s own woes, and are more due to local issues including improper authorizations and pollution. Still, the seizure of these assets is the last thing that Suntech needs as it tries to reorganize and emerge from bankruptcy. Creditors who were hoping to get any money from a GSF sale will now have to probably put those plans on hold, potentially for years, as GSF’s case plays out in the Italian courts.

Reports earlier this month indicated that Suntech was nearing the end of its bankruptcy reorganization, as it reached deals with its major bondholders and worked to find new investors for its major China-based assets. (previous post) I suspect the creditors were counting on at least some funds from a sale of GSF, perhaps hoping to get $200 million or more. This latest seizure of GSF assets could slow the reorganization process, meaning we may have to wait until next year to see Suntech finally emerge from bankruptcy.

Bottom line: The seizure of Suntech-controlled assets by an Italian court could set back its bankruptcy reorganization by several months.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

September 23, 2013

China Boosts Solar With Construction Ban

Doug Young

China halts
construction of new solar manufacturing plants

Beijing took an important step towards rejuvenating the global solar panel sector last week when it announced new steps that will strictly limit new plant construction. This kind of government-led approach is a good short-term solution, as it will halt the introduction of new supply, which in turn will allow prices to stabilize after more than 2 years of steep declines caused by massive overcapacity.

But over the longer term, China needs to address the problem at its root by changing the mindset of state-owned enterprises that own many smaller plants which contributed to the current crisis. It can do that by teaching them to make their decisions based on commercial factors and not simply in blind response to government objectives.

The rapid build-up of China’s solar panel-making sector is a typical pattern seen in China during the reform era, when government objectives often lead to massive build-ups in areas targeted for growth. Previous cycles have seen the addition of massive new capacity in a wide range of sectors, ranging from steel to cars, televisions and microchips.

Such build-ups often end with big-scale closures due to major excess capacity, wreaking havoc on not only Chinese but also global markets and resulting in billions of dollars in lost investment.

The solar sector was one such typical case, taking off after Beijing provided incentives such as cheap loans and favorable tax policies. As a result, Chinese solar panel makers came to dominate the sector over the last 5 years, overtaking western rivals to currently control up to 80 percent of the world market.

At the height of the boom, China boasted some 400 companies engaged in various aspects of panel production, as the nation’s capacity rose 10-fold over the last 5 years, according to various estimates. That rapid build-up caused prices to plunge by more than half since the downturn began in 2011, including a 20 percent decline in the last year alone.

Many western firms became insolvent in the crisis, and former Chinese leader Suntech (NYSE: STP) joined the group earlier this year when it was forced into bankruptcy. While the big names have grabbed headlines, many more smaller firms have also left the market, with one executive estimating the number of Chinese players has now fallen to 150 from the former 400.

To set the sector on a longer-term track for sustainable growth, the Ministry of Industry and Information Technology (MIIT) late last week published rules that will halt any new construction based on current technologies. (English article) This kind of restriction would never be necessary in market-oriented countries, since no company would ever enter a field where the fundamentals were still quite weak.

But in China such commercial factors are often a secondary to politics, with state-owned enterprises often building new factories with little or no chance for success in response to government priorities and directives. Beijing should be commended for issuing its latest order, which will halt new factory construction and allow the sector to finally stabilize. But over the longer term, the central government needs to teach these state-owned enterprises to only join government programs when doing so makes commercial sense, and to leave political factors out of their decisions.

Bottom line: China’s ban on new solar panel plant construction is a good first step to rejuvinating the sector, and should be followed by a re-education campaign for state-run plant owners.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

September 18, 2013

Solar Stocks Will Continue to Outperform But Remain Volatile

By Harris Roen

The market is starting to notice that solar investing has been extremely profitable in 2013. As of the middle of September, the average solar stock is up over 50% in the past year, and over 15% in three months (that’s over 60% annualized!).solar returns

These returns are taken from a broad list of about 60 publically traded companies in the solar industry (see chart above). Though all are involved in solar, solar may not be the primary business of many of these companies. For example, Panasonic (PCRFY) produces photovoltaics, but it is only a small part of the company’s much larger consumer product focus.

To get a better sense of what is occurring in the mainstay of solar stocks, 16 companies whose primary business is solar were analyzed. In order to weed out the most speculative players, only companies with over $50 million in annual sales were included.

soalr returns 20130918
As can be seen in the chart above, these pure play solar stocks have performed spectacularly. On average they are up 164% for the year, and 41% for the past three months (SolarCity (SCTY) has only been trading since December 2012, so annual gains are shown from that time). JinkoSolar (JKS), SunPower (SPWR) and Canadian Solar Inc. (CSIQ) have by far outperformed the rest. STR Holdings (STRI), a Connecticut-based company that provides encapsulants used in the production of solar panels, is the one down stock in the group.

By comparison, the S&P 500 is up 16% over the same annual period, and gained only 3% in the past three months. The tech heavy NASDAQ did a bit better, up 18% for the year and 8% in three months. These returns still pale in comparison to solar.

Why the outsized solar stock gains? The chart below shows net income for the top three solar stock performers, and the average for all solar pure play stocks. Clearly, net income improved markedly over the past four quarters. The three companies had extremely negative earnings at the end of 2012, but all have rebounded nicely, with JKS and SPWR solidly in positive territory. When all solar companies are graphed, as shown by the blue line, it clearly shows that the carnage in the solar started to correct itself in late 2012.

net income

This next chart gets a bit complicated, but is instructive in telling the story of recent solar gains. The chart below shows earnings per share (EPS) estimates for solar companies for the next three years. These are the consensus assessments, averaging projections from firms who cover these companies. The dark blue shows estimates for fiscal year 2014, the medium blue FY 2015, and the light blue FY 2016.

eps est

The company with the most consistent, and most promising earnings estimates, is First Solar (FSLR). EPS are projected to remain high for FSLR over the next three years. CSIQ shows the greatest improvement, much of the reason why the forward-looking stock market has generated huge gains for this China-based solar cell and module company.

Even the companies that have negative earnings show marked improvement in their EPS projections. While some of these may be good long-term investments, companies projected to have negative consensus earnings three years out look quite speculative.

Overall, I believe solar as a sector will continue to outperform in the medium to long term. Positive developments include:

The sector will probably remain volatile, though, due to the following limitations:

I believe the best strategy moving forward is to vary investments through the sector in as many ways as possible. The mix should be done through a range of company sizes, locations, technologies employed and the like. Diversified investors who are in solar for the long haul will should benefit greatly from their patience.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC owned or controlled shares of TSL. It is also possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

September 16, 2013

Five Pioneers Mining the Sun for Income

by Jared Wiedmeyer

For the past few years, solar industry stakeholders have imagined a future where the general public has the ability to invest in pure-play renewable energy real estate investment trusts (REITs) that finance and construct both utility-scale and distributed photovoltaic (PV) projects in the United States. While these stakeholders wait for this reality to come to fruition, existing REITs already have several options to own or develop solar projects that still allow them to comply with the IRS's asset and income tests.  This past May, Chadbourne & Park's Kelly Kogan and Scott Bank moderated a roundtable with representatives from several REITs who discussed the options available to REITs to invest in PV systems [1]. I've summarized these options here and provided some additional background information on how these strategies comply with existing IRS regulations.

Option 1 — Utilize a taxable REIT subsidiary (TRS) to own PV projects

A TRS is a subsidiary of an existing REIT that provides services (anything in addition to customary real estate services) to the REIT's tenants without jeopardizing its status as a REIT [2]. Unlike its parent REIT, a TRS pays corporate income tax because the income derived from these services is not considered "good" income by the IRS. Generally speaking, good income is income derived in some way from real property [3]. According to Will Teichman from Kimco Realty, a REIT can utilize its TRS to develop, secure financing for, and own rooftop PV systems [1]. The TRS can pass the benefits from the ITC or 1603 cash grant to the project's investors. The TRS can also sell the power generated to the building's tenants, and it can manage all aspects of the project, including systems operations, customer billing, and securing contracts for the sale of solar renewable energy certificates. The TRS must pay taxes on this income, but it can potentially distribute some of its after-tax income to the REIT in the form of a dividend.

  • Example: Kimco Realty (KIM) owns and operates 874 neighborhood and community shopping centers in 44 states with 128 million ft2 of rooftop space [4].
  • Results: Kimco's TRS has developed and assumed ownership of 3 MW of PV projects, mostly located in New Jersey.

Option 2 — Utilize a TRS to develop and construct PV projects

A REIT can utilize a TRS to develop and construct PV projects, but instead of owning the project after construction, the TRS can sell its ownership interest to an investor or utility. Electricity generated by the project is retained by the utility or is sold to an offtaker under the conditions of a long-term power purchase agreement (PPA). In this case, the TRS only acts as a construction contractor, and the parent REIT collects rent for leasing the rooftop space to the project owner, which is considered good income by the IRS [1].

  • Example: Prologis (PLD) — One of the largest industrial REITs in the world, Prologis owns and operates industrial warehouses and distribution centers around the world with 550 million square feet of rooftop space [5].
  • Results: Prologis hosts about 100 MW of solar that its TRS developed and sold. These systems are mostly located in southern California, but it has also developed systems in Europe and Japan [1].

Option 3 — Lease space to solar developers and project owners

In this case, a REIT owns rooftop space or land but does not form a TRS to construct or develop the PV project. Instead, the REIT will lease the rooftop or land to a PV project developer, which will pay the REIT monthly rent. This rental income is considered good income by the IRS [1].

  • Example: Power REIT (PW) is an infrastructure REIT whose primary asset is its ownership of the land under the Pittsburgh and West Virginia Railroad.
  • Results: PW has recently expanded its scope to owning and renting land under PV projects and has purchased the land under a 5.7-MW PV facility in Massachusetts and rented it to the project owner. The company has also entered into a term sheet to acquire 100 acres of land in California that will host 20 MW of PV projects currently in development [6].

Option 4 — Implement a diversified approach to sustainability/energy efficiency/renewable energy financing

In this case, a mortgage REIT utilizes a diversified approach to "green" investing but focuses most of its efforts on lending for energy efficiency (EE) investments and other building structural improvements, such as efficient HVAC systems. These improvements are permanently affixed to buildings and integrated into its systems so they are classified as good assets, and any interest income on loans secured by these systems is considered good income by the IRS [7]. When such a REIT builds up a large enough portfolio of these EE assets, it can choose to diversify its lending practices into other sectors that may not qualify as good assets or good income—such as utility-scale renewable energy projects—as long as the characteristics of these loans do not exceed the IRS's asset and income tests, which are discussed on [8].

  • Example: Hannon Armstrong Infrastructure Capital (HASI) is a project finance firm with more than 30 years of experience in EE and renewable energy finance with $1.6 billion of assets under management.
  • Results: HASI raised over $150 million in an April initial public offering and plans to invest in additional EE and renewable energy projects. The company holds many EE-related assets on its balance sheet, allowing it to make a significant amount of loans to renewable energy projects and still meet the asset and income test thresholds [9].

Option 5 (potential) — Form a Canadian income trust

Instead of pursuing a private-letter ruling to classify renewable energy as "real property," or conforming to existing U.S. limitations, a company could choose to form a Canadian income trust. This entity is a pass-through entity, similar to a REIT, and it trades on the Canadian stock exchange. Unlike IRS regulations, Canadian tax laws do not prohibit the types of assets this company can own, but the trust's property cannot be used to conduct business in Canada [1]. This stipulation makes such a trust a potential option for owning PV projects in the United States. At the time of this writing, this option was actively being pursued, but to my knowledge there is not yet a Canadian income trust specializing in renewable energy projects on the Canadian stock exchange.

  • Example: CleanREIT is an early-stage REIT engaged with investment bankers whose goal is to issue an initial public offering on the Canadian stock exchange.
  • Results: To be determined, but it should be noted that non-Canadian investors face an additional 15% tax to repatriate any dividend income they receive [10].

Table 1 below presents some selected market characteristics of the companies discussed earlier. As you can see, the types of REITs actively investing in PV projects vary widely, suggesting that investing in PV is more dependent on a REIT's corporate mission rather than its organizational structure. For example, Prologis is a large-cap REIT with $45 billion of assets under management, while PW is a small-cap REIT with only $10 million of assets under management, yet both have made significant investments in PV projects.

Table 1 — REITs Investing in Solar: Facts & Figures
Name Share Price 9/16/13 52-week range Market Cap Total AUM Gross Leasable Area Location MW of PV Developed
Sector Focus Renewable Energy Investment Vehicle
Kimco (KIM) 20.65 18.11-25.09 $9.13 billion $8.46billion 131.3 million ft2 North and South America 3 MW
Retail and shopping centers TRS develops, owns, and operates PV system
Prologis (PLD)
37.59 32.31 - 45.52 $18.74 billion $45 billion 554 million ft2 Global 100 MW
Industrial warehouses and distribution centers TRS develops and constructs project, but sells project to third party once operational and collects rooftop rent payments from new owner
Power REIT (PW)
8.36 6.98-11.41 $14.01 million $12.3 million 2.35 million ft2 (4.36 million ft2 pending) United States 25.7 MW
Railroads, renewable energy projects Owns land under PV project
Hannon Armstrong Infrastructure Capital (HASI) 11.85 9.15 – 12.51 $187.11 million $1.6 billion N/A (mortgage REIT) United States N/A
EE, renewable energy, sustainable infrastructure Provides loan syndication services for renewable energy projects, lends to building owners that construct renewable energy systems that are integrated into the buildings they own
  • CleanREIT's IPO is currently in the planning stages, and no market data is available for the company.
  • All stock price information gathered from Yahoo! Finance on September 16, 2013.

Despite the many obstacles standing in the way of pure-play solar REITs, the REIT pioneers discussed here have found ways to work within the existing IRS rules to develop a significant amount of PV projects. Each company offers a unique way to mine good income from the sun, and the efforts of each REIT have worked to bring more clarification as to what the future of solar REITs could look like.

Jared Wiedmeyer is a Research Program Participant with the National Renewable Energy Lab’s Project Finance Team. His work at NREL includes studies in geothermal permitting and its effects on levelized cost of energy, community solar finance, and capital markets-based risk management strategies for renewable energy projects. Jared holds a B.S. in Cartography and Geographic Information Systems from the University of Wisconsin, and an MBA in Finance from the Leeds School of Business at the University of Colorado at Boulder.

This article wasfirst published on NREL's Renewable Energy Project Finance blog, and is reprinted with permission.


[1] Bank, S.; Kogan, K. (June 2013). "How REITs Are Already Investing in Renewables." Project Finance NewsWire. New York, NY: Chadbourne & Parke LLP. Accessed August 12, 2013:

[2] Matheson, T. (2001). "Taxable REIT Subsidiaries: Analysis of the First Year's Returns, Tax Year 2001."Internal Revenue Service. Accessed August 12, 2013:

[3] (2013). "The Basics of REITs."Accessed June 19,2013:

[4] Kimco Realty. (August 2013). "Current Investor Presentation." Accessed August 12, 2013:

[5] Prologis. (2012). 2012 Annual Report. Accessed August 12, 2013:

[6] Power REIT. (2013). "Power REIT Securities and Exchange Commission Form 10-Q." Accessed August 12, 2013:

[7] Kogan, K. (2013). "Is the IRS Considering Solar REITs?" Renewable Energy World.  Accessed June 18, 2013:

[8] (2013). "Forming a Real Estate Investment Trust." Accessed June 19, 2013:

[9] Hannon Armstrong. (2013). "Investor Relations Presentation: June 2013." Accessed August 12, 2013:

[10] Investopedia. (2009). "An Introduction to Canadian Income Trusts." Accessed June 18, 2013:

September 11, 2013

Coupled Solar and Energy Storage Market to Grow

David Appleyard

The symbiotic match between the solar and energy storage sectors shows significant market promise and could see the sector yielding a US $2.8 billion market over the next five years,

Combined market for intergrated solar and storage

Assessing the emerging market for combined solar and energy storage, Lux Research analysts found that residential applications dominate through 2018. As lithium-ion (Li-ion) batteries and overall storage arrays fall in price, residential systems will gain the most, growing to 382 MW in 2018, the report suggests. Meanwhile, the light commercial segment will increase to 220 MW although heavy commercial/industrial systems will lag, growing only to 73.3 MW.

The off-grid market enjoys higher profit margins, but the much larger market for grid-tied systems means they dominate the solar and energy storage market. Grid-tied solar installations will comprise 675 MW, or nearly 95 percent of the combined 711 MW market, while off-grid applications including telecom power claim the remaining 5 percent, the report, ‘Batteries Included: Guarging Near-Term Prospect for Solar/Energy Storage Systems’, states.

Dominated by grid installations, this market segment will be a boon to energy storage producers but have only a modest impact on the solar market, Lux Research says.

“Developers are pushing packaged solar and storage systems in order to stand out as value-adding leaders, but not all benefit equally,” said Steven Minnihan, Lux Research Senior Analyst and a co-author of the report.

He added: “Residential energy storage will see a boost [in] adoption due to solar, but the addition of storage will barely move the needle for solar players, driving a paltry 1 percent increase in global PV sales.”

Considering geographical differences, Lux consider Japan as the worldwide market leader. Hit by high electricity prices and seeking alternative energy after the nuclear woes, Japan will install 381 MW of solar coupled with storage by 2018, leading all other markets by a wide margin, the analysis suggests. Germany will come in second at 94 MW, while the U.S. will be third at 75 MW.

In addition, Lux argues that policies may dramatically increase the market for energy storage technologies. This year, Germany set aside $67 million to subsidize solar-tied energy storage and the U.S. Senate introduced a program that could fund $7.5 billion worth of new storage projects, or about 7.5 GWh of capacity, the analysis notes.

Image: The combined maket for integrated solar and storage, via Lux Research
This article was first published at Renewable Energy World, and is reprinted with permission.

David Appleyard is Chief Editor of Renewable Energy World. He also currently holds the position of Chief Editor for sister publication Hydro Review Worldwide. A journalist and photographer, he graduated with a degree in Applied Environmental Science.

September 09, 2013

Residential Solar in the Ontario microFIT Project: Three Families' Experiences

Michael Smele

Solar Home with sunflower photo via Bigstock
The Ontario microFIT program was launched in 2009 as part of Ontario’s provincial government’s efforts to increase the production of renewable energy. The program provides participants with the opportunity to develop a “micro” renewable electricity generation project on their privately owned property that uses solar photovoltaic (PV), wind, waterpower, or bioenergy (biogas, biomass, landfill gas). I have asked three families who navigated the process of microFIT solar installations to share their experience by answering some questions.

Industry has seized the opportunity to capitalize on the revenue generated by the fixed return of twenty year contracts with the government’s power regulator. Individuals have also participated although the hurdle of coming up with thirty to forty thousand for purchase and finding the right service provider for the components and installation has created some unique challenges and opportunities.

The efforts put forth by individual investors in these projects have a story all their own. Those who have had success utilized several methods with varying degrees of difficulty. The questions posed to the three Ontario families who used solar installations to participate in the MicroFIT program were as follows:

1) What attracted you to the Ontario microFIT program?

Family 1: Our initial interest was environmental and quickly turned to see if it there was a reasonable profitability and if the math/projections would prove true.

Family 2: It started years ago with alternative energy awareness. When the MicroFIT program started a friend had participated and our interest was piqued. Then the project itself caught our attention and we became quite excited about the potential.

Family 3: To save the environment – any financial considerations were secondary. If the project were revenue neutral I would have still moved ahead.

2) What was your capital investment for the project? What was your expected payback period of the investment? Did your actual payback period match your expected payback?

Family 1: Thirty Three Thousand however it is notable that the provincial taxes are rebated within the first year. Our expected payback period was five to six years however with the adjusted annualized distributions from the power authority – it will be well below the five year mark.

Family 2: Forty Thousand. The expected payback period is six to seven years. We believe we are on track to meet that timeline.

Family 3: Thirty Three Thousand. From my calculations, the expected payback period is going to be seven years however with the directional placement of the panels and the winter months it may take between seven to eight years to recoup our initial outlay.

3) How did you finance the project?

Family 1: A personal line of credit that carries at a very low interest rate as it is secured against the property on which the MicroFIT project is operating on. The interest charged on the capital that was borrowed to invest is a tax write off as well.

Family 2: We cashed in some non-registered liquid assets to finance our project.

Family 3: We secured a home equity line of credit.

4) Are there any cautions to be made aware of or advice/tips to make the process smoother?

Family 1: In hindsight – the greatest concern would be to make sure you are comfortable with the service provider whether a full service company that provides the components and installation or otherwise. Another tip would be to ensure if you are completing a rooftop installation – that you consider the quality and duration of the roofing that will lie under the panels as the cost to replace doubles with a remounting of the system already installed.

Family 2: My best advice is to beware of the misinformation that is being shared. I have heard some tall tales from not being able to get insurance on your home to the fire department not being able to service the home in an emergency. Doing your own homework and getting a lot of questions answered will make the process much smoother.

Family 3: I would have to say that involvement in every aspect of the project is key. Work with your service provider/installer to ensure that they are completing the work to your satisfaction. Also, gathering as much information as possible beforehand was very helpful so as to understand what will happen once you commit to your project.

5) Would you suggest this method to others looking at this avenue and why?

Family 1: Yes, I am an advocate and have suggested the program to neighbor and family. The benefits are many fold from gaining a positive revenue stream, the tax write offs, to getting paid as an energy producer. I like to think of it like have the income of a tenant that doesn’t exist.

Family 2: Absolutely, this is a great investment in your home, your future, and your finances.

Family 3: Yes, we have a responsibility to those who will come after us to ensure that there is a healthy environment and everyone should be doing their part to help out.


As the Ontario MicroFIT program evolves over time, what will remain the same is that there are those who are committed to making a contribution to the future health of the planet by becoming part of the answer to our energy needs. From profitability to being a good steward of the planet – these families have clearly shown that there are many great reasons to investigate and participate in initiatives that will lead to a better future for everyone.

Michael Smele is an Ontario resident who provides finance and mortgage options for those looking to participate in the MicroFIT program. You can find him at Mortgage Truth.

September 08, 2013

Which Chinese Solar Companies Will Survive The Coming Shakeout?

Tildy Bayar

Lux Research’s report, The Great Shakeout: China’s Path to a Rational Solar Industry, outlines the challenges Chinese solar companies will face during the anticipated consolidation, and suggests likely strategies for survival and success in a post-shakeout solar market. While many smaller companies will go under, the nation’s top-tier companies will survive and thrive in an eventual balanced global solar landscape, the report predicts.

Policy Measures

China’s government will continue to support its solar sector, upping its domestic capacity target in order to boost local demand and reduce its dependence on foreign markets. But Zhun Ma, Lux Research analyst and the report’s lead author, said the government’s plan to install 35 GW of new solar capacity by 2015 is the upper limit rather than a fixed target. “The 35 GW target is what the government wants to achieve, but it may not be compulsory,” he said. “If the government wants to reach this target, then in the following three years each year’s installation should be about 10 GW, and this is really too high. So the most likely conservative target will be about 25-30 GW.”

In addition to boosting domestic demand, the government is also taking steps to reduce overcapacity by setting module efficiency standards; below-standard solar products will not be able to secure bank loans or government support, thus eliminating a large amount of current capacity. And the government aims to expand the range of solar technologies on the domestic market, currently dominated by crystalline silicon (c-Si), by promoting technology innovation and boosting the growth of thin-film technologies such as cadmium telluride (CdTe) and copper indium gallium selenide (CIGs).

Survival Strategies

New technologies throughout the value chain like metal wrap-through, selective emitters, fluid bed reactors and diamond wire saws will be adopted in newly built Chinese facilities, the report predicted.

“Because the government is promoting and supporting technology innovation,” Ma said, “Chinese manufacturers are actively looking for innovative technologies, not only from local research projects but also from PV technology developers globally.” This represents an opportunity for global technology developers, who can license their technology to Chinese companies.

Since Tier One Chinese companies have already built strong research collaborations with local and foreign research organisations, they can leverage these existing networks to further improve technologies and production processes, Ma said, “but relatively small companies are also interested in innovative technology development outside China.” For a smaller company, winning government support through technology innovation may be crucial to survival.

According to Ma, the likelihood of survival and success differs depending on the scale of the company. Most Tier One companies will survive and thrive, he said, while more than 90 percent of Tier Three companies will go under. Around 40-50 percent of Tier Two companies with several MW of capacity and innovative technologies can potentially survive, he said, depending on their sector. “Only 45 leading Chinese solar manufacturers are still manufacturing; all the rest are already quitting the market,” he said.

Expansion will be an important strategy, Ma said, with two key approaches to making a solar company viable in the new landscape: either building new capacity or acquiring a Tier Two company with advanced technology. And the government is encouraging Tier One companies to acquire or merge with Tier Twos in an effort to spread solar development more evenly across the country. “In Jiangsu province most players are Tier One,” he said, “while in Jiashan province only Renesola is Tier One; the others are Tier Three.” Spreading development more evenly will benefit the realisation of the domestic target.

Distributed solar, which is projected to gain a 30 percent share of the Chinese solar market in the next two to three years, will present opportunities for smaller solar companies. Because energy consumption on China’s east coast is much higher than in the west, said Ma, but there is less free land in the east, the best solution for east-coast China is distributed solar systems, while utility-scale solar farms will dominate in the west.

“The manufacturing side of the solar value chain will still be dominated by large companies,” he said, “but system developers can be small and medium-sized.” The current profit margin for engineering, procurement and construction (EPC) firms is around 10 percent higher than for upstream manufacturing, the report noted, projecting that the majority of Chinese companies will grow their project development business.

Another survival strategy will be expansion into new foreign markets. In the coming years, Chinese companies will become major players in the Southeast Asian and African solar markets — Southeast Asia because of its proximity to China, and African nations because of their good bilateral relationships with the Chinese government, Ma said. Chinese manufacturers will continue to export solar products to Europe, but as its quota for Chinese products is now limited  to 7 GW per year these companies will maintain rather than grow their market share in the region, he said.

New Investment

Ma predicts that new investment in the Chinese market will be a mix of local and foreign. Companies that aren't doing well but have advanced technology are selling themselves at very low prices, meaning local investors "can acquire solar assets at fire sale prices,” he said, while foreign investors aiming at China’s huge solar market are required to partner with local companies, either through taking shares or direct acquisition, “a good market penetration approach,” Ma said. The report predicts that foreign heavyweights such as First Solar (FSLR), GE (GE) and Sunpower (SPWR) will find local partners in order to target the Chinese market.

The ability of foreign companies to penetrate the Chinese market also depends on sector. “There is no space for foreign companies to engage in the Chinese market” in the module arena, Ma said, due to China’s strength in the sector, while for balance of system (BOS) suppliers such as inverters, back sheet materials and silver metallisation, he said Chinese companies “cannot supply products with good quality, so in these areas there are some opportunities for foreign companies” — but they will need to collaborate with the right local partners, as domestic material and BOS suppliers have home market advantages such as low cost logistics.  

Foreign solar companies who collaborate with Chinese manufacturers can also gain advantages in markets outside China, Ma said, since Chinese manufacturers are considering moving some facilities outside the country in order to beat the new EU and U.S. import duties. Outside China, he said, global materials giants have the advantage. He pointed to Canadian Solar’s (CSIQ) manufacturing plant in Canada and Trina (TSL) and Yingli’s (YGE) plans to build plants in Europe. “Only these big companies have sufficient capital and ability” to expand in this way, he said.

Tildy Bayar is Associate Editor of Renewable Energy World magazine.
This article was first published on, and is reprinted with permission.

September 03, 2013

Suntech Reorganizes While Sector Stabilizes

Doug Young

Several solar panel companies are in the headlines once again, led by an news that bankrupt former superstar Suntech (NYSE: STP) is nearing a reorganization that will cost its stockholders most of their money. While that may sound bad, I personally don’t have much sympathy for anyone who continued to hold Suntech stock after the company started experiencing major problems about a year ago. Meantime, the news is a bit more positive for rivals Yingli (NYSE: YGE) and Renesola (NYSE: SOL), which both reported narrowing losses as outlook for the sector continues to improve with stabilizing and even rising prices for solar panels.

Let’s start off with Suntech, as that’s the most salient of the latest news, involving a former solar pioneer whose rapid fall ended with its bankruptcy back in March. Suntech’s latest developments could be quite good, as it will most likely lead to the emergence of a smaller, more focused company. Its new leadership will also most likely consist of a more professional management team that doesn’t include its founder Shi Zhengrong, a former engineer who in many ways was responsible for some of the financial shenanigans that got the company into trouble.

Suntech’s latest update on its ongoing reorganization doesn’t contain too many specifics, except to say that it is nearing a reorganization agreement with a group of its major creditors. That deal will see the creditor group, which includes private equity firms Clearwater Capital and Spinnaker Capital, get equity in the newly reorganized company in exchange for their debt. (company announcement) The deal would also see “significant dilution” for Suntech’s existing shareholders, which is quite expected.

The announcement makes no mention of separate recent media reports that say Suntech was auctioning off major parts of its core operations to raise cash, with Yingli and Trina (NYSE: TSL) both cited as interested bidders. (previous post) My guess is that we’ll see a major asset sale to another solar company, and then the remaining Suntech assets will probably be folded into a new, significantly smaller company with a market value in the $200-$400 million range. I would expect Suntech’s current shareholders to get a maximum of 10 percent of the reorganized company, meaning their shares could sink another 80 percent or more from their current levels by the time a deal is finalized.

From Suntech, let’s move quickly to Yingli and Renesola, which have both posted relatively straightforward results that show stabilizing revenues and narrowing losses. Investors were most encouraged by the Renesola results, bidding up the company’s shares by more than 8 percent after the figures came out. Yingli shares also rose, but by a more modest 2.4 percent after it announced its results.

Renesola said it expects both revenue and margins to stay stable in the next few months. (company announcement) It forecast third-quarter revenue in the $360-$380 million range, roughly in line with its second quarter revenue of $377 million. It also forecast third-quarter gross margins in the 7-9 percent range, again in line with its second quarter figure of 7.3 percent. Investors must also have been encouraged by a second-quarter loss that narrowed to $21 million, 40 percent smaller than the $35 million loss a year earlier.

Yingli didn’t give any third-quarter outlook, but its second-quarter results also showed similar trends. Its loss for the quarter narrowed sharply to $52 million from $92 million a year earlier, while revenue grew about 10 percent to $550 million. Neither company looks set to return to the profit column by the end of this year, even though rival Canadian Solar (Nasdaq: CSIQ) has said it’s on track to return to profitability for all of 2013. (previous post) Look for more steady improvement from everyone in the second half of 2013, even as company finances remain tenuous due to the massive losses incurred by everyone over the last 2 years.

Bottom line: Suntech will soon announce a reorganization that will largely wipe out existing shareholders, while other solar players should see stability for the rest of this year.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

August 25, 2013

First Solar Won the Race; The Environment Lost

Joseph McCabe, PE

First solar logoIn 2011, I wrote about the CdTe Horse Race in which the three US companies making cadmium telluride (CdTe) photovoltaic (PV) modules, First Solar (FSLR), Abound Solar and General Electric (GE Solar, stock ticker GE) jostled for position.  Abound and GE were challenging the reigning champion First Solar to build the largest PV manufacturing facility in the world.

The official results of that race are in, and First Solar has beaten the competition by many lengths. Within about a year of each other both Abound and GE Solar announced they had stopped any hopes of solar panel manufacturing. On July 2 2012 Abound Solar announced they were closing (See The End of Abound Solar, What Have We Learned?).  On the August 6th, 2013 First Solar earnings call they announced the purchase of all the GE Solar intellectual property, along with a relationship to purchase GE inverters thus ending the Primestar/GE Solar story in manufacturing their own product. Our trifecta ticket wasn’t in the money because we had the win right with First Solar, but reversed the second place and third show order. GE Solar came in second place because they obtained 1.75 million shares of First Solar stock. On the day of the announcement FSLR was trading around $47 or $82.25 million for GE to exit (today’s FSLR stock quote, you do the math on what it means to GE).

Those who invested in Abound ended up with nothing, in fact the Department of Energy (DOE) is financially liable for Abound PV modules that are not fit for sale and reportably have poured concrete onto them at a cost of $2.2 M and The story will not end there, concrete encapsulated cadmium isn’t environmental stewardship. Anyone owning Abound Solar modules is now responsible for both warranty and end-of-life disposal/recycling costs.

First Solar’s February 2013 earnings call described their $1.39/watt system installed costs, which is a low cost milestone for the PV industry. GE Solar must have realized they cannot compete with this experience and pricing; in a way GE got off their own horse and got on First Solar’s during the race for dominance. GE is now one of the top ten shareholders of First Solar.

April Analyst Day

At the time of that February earnings call, First Solar wasn’t answering analysts’ questions, deferring to a April analyst day for answers. My perspective at that time was negative, having seen delay tactics resulting in bankruptcy, but my concerns were wrong. The analyst day was well received and the stock shot up from where it was around $26 at the end of February to over $39 after the analyst meeting.  First Solar announced the purchase of high efficiency crystalline silicon PV company Tetrasun at that analyst meeting, now blurring the lines between it and the other high efficiency crystalline silicon module manufacturer SunPower (SPWR).   First Solar also predicted its module cost would fall to $0.40/watt by 2017. Cost of production would be between $0.34/watt and $0.37/watt , plus $0.04/watt cost of sales. $0.04/watt is also what they eliminated with their end-of-life recycling program, now that responsibility is on the system owner.

No Environmental Stewardship

First Solar’s eliminating the prefunding for end-of-life recycling did not get much attention after the February earnings call, but it should have.  Recycling and environmental stewardship was once a cultural touchstone for First Solar during Bruce Sohn’s tenure as President, from 2007 to 2011. Asbestos manufacturing can be used as a guidepost for First Solar in that owning the recycling might be the best long term approach to reduced liability from manufacturing.

From the transcript of the February 2013 earnings call:

Note, regarding our module end-of-life program, beginning in the fourth quarter of 2012, we made prospective changes to our solar module collection and recycling program outside of the EU. For new contracted sales, customers as part of their overall power plant decommissioning obligation will now be responsible for ensuring modules that are either recycled or responsibly disposed at the end of their life.

As noted with the Abound experience,  the decommissioning and recycling costs will likely far exceed what First Solar was previously prefunding.  CdTe can be an expensive material to throw away.  It cost the DOE at the very least $0.20/watt to encapsulate the modules in concrete (as many as 140,000 modules and $2.2M cost). The right and not very difficult approach is for these thin film PV materials to be recycled and reused to produce new higher efficiency modules; a cradle to cradle philosophy (See Clean & Green). Maybe General Electric can do the right thing with their unused modules now that GE Solar is finished.


Photo 1: Crates full of broken unusable Abound Solar modules during their October 2012 auction. Photo by author.

End-of-Life Costs for PV

An example of the cost for decommissioning PV systems was recently revealed by a public bid at the Sacramento Municipal Utility District in Sacramento California (SMUD). Financial experts should take note that the 1.6 MW of retiring PV systems cost $1M to decommission or $0.61/watt. Albeit this included all ground work and removal of materials to make the land like nature intended. This kind of activity and bid is something that hasn’t been seen previously for the PV industry because systems are just now coming into retirement. PV is much less expensive than a nuclear power plant to decommission which SMUD also has experience in decommissioning. Interestingly the decommissioned Rancho Seco nuclear power plant is the exact same place the decommissioned PV systems were located.

There is currently very little knowledge base or experience in the salvage, decommissioning and recycling of PV systems. The SMUD cost experience can become less expensive if the industry can develop mechanism for decommissioning and recycling for both crystalline silicon and thin film PV technologies. We have several data points: First Solar will no longer prefund $0.04/watt; SMUD spent $0.61/watt for full site rehabilitation including recycling, and DOE’s reported disposal of Abound Solar modules with concrete cost at least $0.20/watt.

The lesson from these experiences is to be conscious of cost reductions from module and system installers that have now become the responsibility of governments and the system/landowners.


First Solar continues to be a dominant player in the PV industry, winning the thin film solar factory race against Abound Solar and GE Solar, and it has now teamed with the latter on intellectual property and inverter sales. First Solar dominates the industry with low costs for installed systems, and now joins the race for dominance in the crystalline silicon space with the purchase of Tetrasun.

Environmental stewardship will need to be addressed, if not by the manufacturer then by the communities installing these systems. There is a new race, the race to avoid paying for end-of-life costs. The loser of that race is becoming clear: the public, because we don't even know we're in the race. If only the race were for dominance in environmental responsibility.

Disclosure: No positions.

Joseph McCabe is a solar industry expert with over 20 years in the business. He is an American Solar Energy Society Fellow, a Professional Engineer, and is internationally recognized as an expert in thin film PV, smart grid and new business models for the solar industry. McCabe has a Masters Degree in Nuclear and Energy Engineering and a Masters Degree of Business Administration.

Joe is a Contributing Editor to Alt Energy Stocks and can be reached at energy [no space] ideas at gmail dotcom.

August 23, 2013

Microinverters Make a Move on Multi-MW Solar Power Installations

Tildy Bayar

EnPhase Microinverter
A microinverter from iEnergy
Photovoltaic (PV) microinverters, traditionally used in smaller rooftop solar installations, are being used in a 2.3-MW commercial rooftop installation in Ontario, Canada, supplier Enphase Energy (ENPH) has announced. The installation is the largest commercial rooftop project under the province’s feed-in tariff (FiT).

Analysis firm IHS Research has called the announcement a milestone in the microinverter segment’s progress towards establishing itself outside its biggest market, the U.S., and outside the residential solar segment. 

According to IHS’s analysis, PV microinverter shipments are forecast to exceed 2 GW in 2017 — and penetration into larger installations, along with success in new markets, will be the key driver for this growth. IHS inverter analyst Cormac Gilligan cautioned that if microinverters are unable to move into new markets and lower their dependence on the residential sector, their success will be tested.

The U.S. accounted for nearly 75 percent of the shipments IHS recorded prior to 2013, but in many states the residential market for microinverters is approaching saturation. It will be increasingly important, said Gilligan, that microinverters are used by the third-party/solar lease companies which are very active in the country. While solar lease companies such as Vivint Solar and Sunrun have used microinverters in limited numbers, other large companies like SolarCity (SCTY) have preferred to stick with string inverters as the more proven technology, he said. IHS does forecast that microinverters will be used in greater numbers by solar lease suppliers in the coming years as the technology improves and new models are released.

Microinverter use in commercial installations will grow by more than 20 times 2012’s amount to over 700 MW in 2017, said IHS, with revenues of more than US$200 million and commercial installations accounting for over one third of total inverter shipments in that year.

In 2012 the world’s second-largest microinverter market was France, largely due to market leader Enphase’s penetration, said Gilligan. In addition to the U.S. and France, the company currently focuses on Canada, Italy and the UK. In future, IHS projects Australia, Japan and the UK as very attractive markets for microinverters, as all have large residential markets and smaller commercial ones.   

Although microinverters are currently more expensive than traditional string inverters, IHS forecasts that prices will decrease by 10 percent per year, on average, which will contribute to increased commercial adoption.

What’s Driving Microinverters’ Success?

Features such as embedded module-level monitoring, increased energy yield and improved safety have enabled microinverters to successfully penetrate the MW-scale installation space in 2013, said IHS, and these factors are expected to drive the projected growth in commercial uptake. All are currently important considerations when choosing an inverter for a solar project, Gilligan said, but they will also grow in importance.

For example, he explained, safety features are particularly important on a rooftop commercial solar installation in case of fire, so that fire personnel are protected. Indeed, safety was a key concern mentioned by the owners of the Ontario MW-scale system.

On larger projects, costs such as installation and servicing can add up. With microinverters’ module-level monitoring an installer or electrician can quickly discover which module is underperforming and replace it, saving on labour costs. And, Gilligan pointed out, in commercial locations such as cities and car parks it’s likely that there will be shading from buildings or trees, in which case the microinverter for each module can carry out its own diagnostic, optimising energy harvesting and helping to pay for the extra investment.  

Gilligan said microinverters will be used less in larger (2 MW and above) installations because for these projects it may not be economical, as installing a microinverter for each module may become challenging or time-consuming. “There’s no particular limit,” he said, “but I’d say up to around 250 kW is where microinverters become attractive. Thereafter, for 101 KW — medium-sized commercial installations — and above, there would have to be unique circumstances or customer demand.”

In the case of very large PV projects, he said, the customer or installer usually needs to be familiar with microinverter technology and have used it in the past — for example, in the U.S. and Canada where customers are already knowledgable and comfortable with it.

Key Players

Enphase, which has dominated the market to date, holds a 15 percent share of the total U.S. inverter market, and the company has grown that share year-on-year over the past few years, said Gilligan. Other key microinverter suppliers are Enecsys, SolarBridge and two traditional inverter suppliers, SMA (S92.DE) and Power-One (PWER), who have now entered the microinverter space. These larger companies are likely to have the bankability and resources to promote and offer a microinverter solution, said Gilligan, with the U.S. currently their biggest target market.

The traditional string inverter suppliers, he continued, don’t seem to be running scared just yet — although they have realised that it is important to offer a microinverter solution as part of their portfolio. “So if they have a particular customer or installer or integrator who’s comfortable using microinverters, they will offer one to them,” he said. “But equally, if they have an electrician or installer who’s very comfortable with the string solution, they’ll offer that. Different customers have different requirements and if there’s a unique situation — for example, a lot of shading, or angled roofs, or space issues where a larger inverter is impractical — it makes sense to use microinverters.”

Tildy Bayar is Associate Editor of Renewable Energy World magazine.
This article was first published on, and is reprinted with permission.

August 20, 2013

SunEdison's Impressive Customers Not Yet Impressing Investors

by Debra Fiakas CFA

Sunedison Logo.png A series of acquisitions have put SunEdison, Inc. (SUNE:  Nasdaq) in the business of solar energy systems.  Until recently called MEMC Electronics Materials, the company had been a provider of silicon wafers to semiconductor producers and fabricators.  In 2009 and 2010, MEMC acquired SunEdison and Solaicx, respectively.   Besides the foundation for a new name, the SunEdison deal gave the company a line of photovoltaic energy solutions to sell to solar system developers and major end users.  Solaicx acquisition gave the company access to a proprietary continuous crystal growth manufacturing technology which yields high-efficiency monocrystalline silicon wafers.  Conveniently, Solaicx came with a manufacturing facility in Oregon.

SunEdison reported $2.0 billion in total revenue in the most recently reported twelve-month period ending June 2013.  Historically, about two-thirds of revenue has been from the sale of solar systems and the remaining one-third from semiconductor materials sales.  However, in the June 2013 quarter the value of solar systems sales slipped to just 40% of total sales, elevating semiconductors materials to the leading segment with 60% of total sales even though sales in that segment were only slightly higher than the same quarter last year.  Selling prices have been pressured downward by aggressive pricing on the part of Chinese solar components companies.

What is more the company has not reported a profit since 2010. At the operating level, the semiconductor segment has been profitable most of the time.  However, the solar segment has been floundering in operating losses for the past few years.

The board of directors decided last May that a name change from MEMC Electronics Materials to “SunEdison” would give the company better branding success.  The name change and emphasis on better branding for the solar segment is part of an overall plan to boost sales and profits.  The company refers to it as the 2011 Global Plan.  Other elements include streamlining the semiconductor materials operation and improving cash flows.  We note that in the June 2013 that segment was cash flow positive.  The company is also taken a more protectionist stance on solar project, limiting exposure until customers have committed project financing.

What may be a bigger problem for SunEdison than the branding qualities of its name is the selling qualities of product line.  Frankly, there is little that stands out in a crowded market.  Acquisitions have served as the company’s ticket to the solar market.  It is doing very little in-house to added nuance to its technology.  Research and development spending total only 3% of sales over the last three years.  It is important to consider that in the solar system design and installation business, financing can be an even bigger obstacle to getting a sale completed than being able to differentiate yourself from the next solar system peddler. 

That said, we note SunEdison has been able to land solar system contracts with some of the most visible leaders in the move to solar power:  Staples, Kohls, Walgreens, Albertsons and Whole Foods, among others.  SunEdison claims over 550 different customers in its solar segment.

For now investors have not been impressed by the customer list.  Recent trading sessions in the stock has shown clear bearish sentiment prevails.  That does not prevent us from including SUNE in the Solar Group in The Atomics Index for companies in the alternative energy business.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  SUNE is included in the Solar Group of Crystal Equity Research’s The Atomics Index, composed of companies using the atom to create alternative energy sources.

August 18, 2013

Suntech Shares May Be Worthless; Canadian Solar Sells More

Doug Young

Suntech logo]The latest news from Canadian Solar (Nasdaq: CSIQ) and Suntech (NYSE: STP) is casting a shadow over a nascent recovery for the embattled solar sector, as each company struggles to fix its broken finances pummeled by a two-year downturn. Canadian  Solar has announced a plan to raise up to $50 million through a stock sale, while domestic media are reporting that bidding for bankrupt Suntech is moving ahead quickly, indicating the end may be near as an independent company for this former solar high-flyer. All this shows that investors shouldn’t get too bullish on solar companies just yet, even as Canadian Solar says it is still on target to post a profit for all of 2013.

Let’s start off with Suntech, which is in the process of a painful reorganization in bankruptcy court. The steady stream of signals coming from the courtroom in the city of Wuxi seem to indicate that Suntech won’t emerge as an independent company after the reorganization, though its brand and operations are likely to survive. That means Suntech shareholders could ultimately find themselves holding worthless stock, which is often the case for companies that undergo this kind of bankruptcy reorganization.

The latest report indicates that rival solar panel maker Yingli (NYSE: YGE) has looked at Suntech’s books and decided to bid for the company’s main manufacturing assets. (Chinese article) According to the report, Yingli is seen as the most likely winner in the current round of bidding, where it is competing with 3 other firms including Trina Solar (NYSE: TSL). Previous reports had indicated that the companies would each bid to become a strategic investor in Suntech’s main assets, which would probably see them take a controlling stake in those assets.

Investors seem to sense that their shares could soon become worth very little or nothing, and are quickly dumping the stock to recoup some money while they can. Suntech’s shares are down 33 percent this month alone, including a 14.3 percent plunge in the latest trading session. They now trade at $1.08 a share, and could soon fall below the $1 level that would put them in violation of continued listing requirements. Still, I doubt the company is too worried about being de-listed, since it’s shares are likely to become worthless before that happens. Look for a winning bidder to be named by October, and for the shares to lose most of their value by that time.

From Suntech, let’s move quickly to Canadian Solar, which has announced a plan to sell shares to raise up to $50 million. With a current market value of about $500 million, that would translate to issuing about 10 percent of company stock in this fund raising exercise. Investors weren’t too excited about the plan, with Canadian Solar shares tumbling 11 percent after the news came out. But even after a recent pull-back, the shares are still 5 times higher than their lows from late last year.

Frankly speaking, I was a bit surprised to read about this new capital raising effort, as previous signals from Canadian Solar had indicated the company was boosting its finances by selling some of the solar plants it constructed with its own money. This $50 million also doesn’t seem like a very big number, which hints that the company may simply need the cash to keep funding its daily operations in the present. Regardless of the reason, this latest news doesn’t seem too encouraging, and we could well see Canadian Solar shares continue their recent pull-back over the next month or two.

Bottom line: Suntech’s main assets could be auctioned off in the next month, leaving its shares worthless, while Canadian Solar’s stock may also come under pressure.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

August 12, 2013

Yingli or Trina May Bid For Suntech

Doug Young

August 9th was “Solar Friday”, as we were bombarded with a flurry of news that showing the sector is rebounding and could also see its first major merger. In the former category, earnings updates from Yingli (NYSE: YGE) and Trina (NYSE: TSL) are showing steady improvement for the embattled panel-making sector, while a quarterly report from Canadian Solar (Nasdaq: CSIQ) is showing the sudden improvements may already be starting to plateau. In the latter category, Chinese media are reporting that both Yingli and Trina are also showing interest in investing in Suntech (NYSE: STP), the former solar panel pioneer that is now in bankruptcy reorganization.

All the reports point to an industry that is still very much in a state of flux, as it rebounds from its worst-ever downturn and seeks to return to profitability following a painful downsizing. Let’s start with the latest M&A news, which comes just a day after I wrote about another media report that said 5 potential investors are interested in buying strategic stakes in the main operating unit of Suntech as part of its bankruptcy reorganization. (previous post)

That earlier report said at least one of the 5 potential suitors was a major solar panel maker, and now a new report says that both Yingli and Trina are among the interested parties. (Chinese article) Other potential bidders include Beijing Putian New Energy, and an unspecified company from Xi’an. The report points out that the suitors are being very cautious due to Suntech’s huge debt, which stands at about $1.75 billion.

It says that Trina executives in particular are divided about the a bid for Suntech due to the company’s shaky finances and heavy debt. I would expect that Yingli, Trina or any other suitor will also move very cautiously in the matter, but that we could see one of these big names ultimately purchase most of Suntech’s assets and a limited amount of its debt.

From Suntech, let’s take a look at the bigger solar picture coming from the new earnings reports and updates from Trina, Yingli and Canadian Solar. The Trina and Yingli updates look remarkably similar, with both companies providing upward revisions to their previous shipment and margin forecasts. Trina said its second-quarter shipments will now come in about 20 percent higher than its previous forecast, while Yingli doubled its expected growth rate for the quarter. (Trina announcement; Yingli announcement)

Both companies also said they expect their second-quarter gross margins to come in around 11-12 percent, again higher than previous forecasts. Trina shares rose 9.4 percent after its announcement, while Yingli shares rose 6.3 percent. Both stocks are now trading at about double the levels from their April lows.

By comparison, Canadian Solar shares tumbled 8 percent after it announced its latest quarterly results, though its shares are still more than triple the levels of their lows from March. Canadian Solar also reported relatively solid numbers, including shipments and margins that beat its previous guidance. Its bottom line wasn’t as attractive, widening to a net loss of $12.6 million from a $4.4 million loss in the first quarter. (company announcement)

The company also wasn’t very upbeat about the rest of the year, indicating its sudden jump in performance could already be starting to plateau. It predicted its shipments and gross margins would both actually fall slightly in the current quarter, and left its shipment forecast for the full year unchanged from previous guidance. In a more upbeat sign, it reiterated its view that it could meet its previously stated target of returning to profitability for all 2013.

After the huge run-up in solar stocks so far this year, these latest results could indicate the shares may be due for a rest or even a pull-back as investors take some profits. Still, on an operational basis the results do seem to indicate the sector is returning to health, albeit slowly.

Bottom line: Either Yingli or Trina is likely to make a serious bid for Suntech, as the sector’s recent rebound slows and consolidation continues.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

August 09, 2013

First Solar Buys GE's Tech: A Defensive Move?

James Montgomery

First solar logoFlexing its muscles yet again, thin-film solar PV leader First Solar (FSLR) has quietly acquired GE's (GE) similar solar intellectual property portfolio, but questions linger about whether and when the company will see the benefits.

The deal includes both a specific module purchase commitment plus a longer-term commitment with agreed-upon pricing "over an extended period of years," according to First Solar CEO Jim Hughes during the company's 2Q13 earnings results. GE, meanwhile, will supply inverters for First Solar's global deployments, technology acquired through French firm Converteam, and it will seek to sell solar PV into power plants alongside wind and thermal assets. (Such an example already exists, with GE helping Invenergy outfit adjacent solar and wind farms at its Grand Ridge projects in Illinois, a GE spokesperson pointed out.) Financially, GE also receives 1.75 million shares of First Solar common stock, making them one of FSLR's top-10 shareholders -- a roughly $82 million value at yesterday's market close, but currently down to about $70 million as First Solar's stock slumped in reaction to its other financial and project announcements (more about that on the next page).

GE and First Solar had been trading CdTe efficiency records lately. Both agree that thin-film solar PV and especially cadmium telluride (CdTe) have lots of room to improve conversion efficiency and better compete with silicon PV.

GE's CdTe technology is "distinctly different" from First Solar's CdTe process but nonetheless it is "consistent with our manufacturing platform," Hughes said in the call. Both sides, though, have yet to "fully determine how we best integrate their technology into our roadmap, determine the proper sequencing in terms of upgrading of equipment and what it means in terms of our profits," he said. An update on that evaluation likely won't come until First Solar's Analyst Day next spring, but he confidently stated that within two years some of GE's CdTe technology would be incorporated into First Solar's modules. GE currently has 19.6 percent cell efficiency in a research cell, beating FSLR's best lab cell mark by nearly a full percentage point, he noted, and GE's >450 issued patents and pending applications in CdTe effectively doubles FSLR's portfolio.

We asked First Solar for further clarification about the companies' CdTe methodologies and how they might be combined, but the company declined to comment.

First Solar has long been one of the bellwethers in the solar PV sector, and certainly the far-and-away leader in CdTe, with technology specifically geared toward large-scale solar deployments. (Solar Frontier holds a similar position on the CIGS side of thin-film PV). First Solar also was one of the first solar upstream manufacturers to extend further downstream into project development, creating a captive pipeline for its products.

But not everyone agrees this was a good deal for First Solar. "[It] appears defensive," writes Credit Suisse analyst Patrick Jobin in a research note. It's the second recent acquisition by First Solar (following Tetrasun and its C-Si technology) for solar PV technology that's "relatively early-stage," he points out, which perhaps suggests that the company's "core technology is not cost-competitive in today's low-poly environment." Deutsche Bank analyst Vishal Shah agrees, writing that GE's CdTe IP likely won't materially help First Solar's efficiency marks until 2017, and that the rest of the partnership likely will amount to merely "a few 100MWs of negotiated volume contracts."

With this deal, GE effectively bows out of the CdTe segment that it joined in 2011, with dreams to scale it up into a multibillion-dollar business alongside its wind business. Its planned $300 million, 400-MW factory in Aurora, Colorado was put on ice last summer, though, and now GE will "discontinue the build-out" of the plant entirely and seek to lease the space, according to a company rep. The original operation in Arvada is going away as well, with 50 employees affected, and future research going through GE's operations in New York.

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

August 08, 2013

Chinese Solar Sector Overhaul Goes Local

Doug Young

The latest signs coming from bankrupt solar panel maker Suntech (NYSE: STP) indicate a Beijing-led overhaul for the struggling sector may not be coming after all, and that local governments and other stakeholders may instead become the main rescue agents for these companies. Reports last year had hinted that Beijing was working on a broad plan to retrench the sector, which was suffering from massive overcapacity. But since then most of the problems at the weakest major player LDK (NYSE: LDK), have been handled by the local government and other stakeholders in its home province of Jiangxi. Now the same appears to be happening at Suntech, which was forced into bankruptcy in March.

While this approach is a bit unexpected, it does seem more practical than a single massive restructuring from Beijing, which would have been difficult to execute since each company has its own individual issues and stakeholders. This kind of approach also looks better because it’s more market oriented, with major stakeholders taking the lead in the restructuring rather than planners in Beijing. Those stakeholders are more likely to make the difficult decisions that ultimately return these companies to health, since all would like to get back some of their investment.

All that said, let’s take a look at the latest news from Suntech, the former solar pioneer that later collapsed under a pile of debt that ultimately forced it into bankruptcy. Suntech has been working closely with its bondholders and other creditors to restructure the company since the bankruptcy filing. We saw one sign of progress in late June, when the a group of bondholders named 2 directors to Suntech’s board, both with strong experience in reviving distressed companies. (company announcement)

The latest report this week indicate the process is moving steadily forward, with media saying that Suntech is talking with 5 potential investors about taking a strategic stake in its main operating unit. (English article) The report doesn’t say much about the actual potential investors, except that 3 are private sector and 2 are state-run entities. It notes that one is another major solar panel maker, which could lead to an interesting mega-merger if that buyer ultimately gets control of Suntech The report also notes that Suntech’s liabilities now total $1.75 billion.

This relatively methodical reorganization contrasts sharply with the turbulence that gripped Suntech before the bankruptcy, when founder Shi Zhengrong and the other stakeholders were fighting for control of the company. We haven’t heard Shi’s name mentioned much since the bankruptcy, while leads me to believe he no longer has much of a voice in the reorganization process. In another minor positive development for the company, Suntech also announced it had regained compliance with listing rules of the New York Stock Exchange, meaning its shares would continue to trade. (company announcement)

This orderly reorganization looks similar to what’s happening at LDK, which has been slowly selling off assets and also taking in new money from state-owned and private investors in its own bid to avoid bankruptcy. Other panel makers are also looking increasingly upbeat, after a retrenchment over the last year that saw many cut back their capacity by shuttering older facilities and laying off staff.

This kind of piecemeal restructuring looks quite market oriented, with Beijing playing a hands-off role and letting each company work out its own issues separately. The one drawback to this approach is that we may see few or no mergers, which Beijing could have engineered and would really help to bring the industry back to health more quickly. Still, this kind of approach will stand a better long-term chance of success, as it will force the companies and their stakeholders to craft solutions that are acceptable to everyone.

Bottom line: Beijing may be using a localized, more market-oriented approach to overhauling its solar sector, giving the retrenchment a better chance of success.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

July 29, 2013

The Sun Breaks Through Stormy Skies of China/EU Trade

sunset breaking
through clouds.jpg
Sun breaks through trade war clouds
China and the West broke a decades-old pattern of troubled trade relations over the weekend with a landmark deal to settle a trade dispute between China and the EU involving Chinese manufactured solar panels. Leaders in China and the West should use this breakthrough agreement as a template for resolving future trade disputes, turning to compromise rather than destructive accusations and punitive tariffs to end their disagreements.

Trade between China and the West has grown rapidly over the last two decades following China’s economic reforms to create a more market-oriented economy. The EU and the US are now China’s two biggest trading partners, with combined exports to both markets totaling more than $700 billion last year – greater than China’s entire exports a decade ago. Disputes are almost inevitable with such rapid growth, and many of those are related to China’s policies of State support for many big companies and key industries.

The solar panel dispute began two years ago when the sector suddenly plunged into a downward spiral after nearly a decade of explosive growth. A major cause of that downturn was a rapid buildup of capacity in China, as China rolled out favorable policies like tax incentives and cheap loans to promote development of a cutting-edge sector with big growth potential. As prices tumbled, a growing number of companies in the US and Europe went bankrupt, with many blaming cheap imports from China for their woes. Washington opened an investigation into the matter, which ended with the imposition of antidumping tariffs against Chinese manufacturers last year. The EU followed with its own investigation, and announced its own tariffs this spring.

China responded with its own countermoves, opening an antidumping investigation into polysilicon, the main ingredient used to make solar cells. It also opened a separate probe into unfair state support for European wines, which many saw as retaliation for the EU solar probe. Meanwhile, the EU has also opened its own separate probe into State support for Chinese telecoms equipment.

Worried that the trade wars were spiraling out of control, several EU leaders finally sought to end the negative cycle by pressuring both sides to negotiate a settlement to the solar dispute. High-level talks began last month, resulting in the new agreement that will see Chinese manufacturers charge a minimum price roughly equivalent to the spot market price for their solar panels. (English article) That price is up to 50 percent more than what some Chinese producers had been charging.

This kind of negotiated settlement is far more constructive than trade wars, which only reduce trade and end up hurting both companies and local economies. The damage is even greater when trade wars involve cutting-edge products like solar cells, which are seen as key to the world’s future energy security. China and the EU should be commended for finally breaking the destructive cycle of trade wars by compromising to end their dispute rather than resorting to punitive measures. They and the US should take advantage of the positive momentum and look for more similar negotiated settlements to their other trade disputes, and relegate the previous cycle of destructive trade wars to the history books.

Bottom line: China and the west need to seize momentum from a new solar panel deal to reach more compromises in their trade disputes.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

July 21, 2013

China Levies Tariffs on US and South Korean Polysilicon

James Montgomery

The Chinese Ministry of Commerce has formally decided to levy antidumping duties on imported solar-grade polysilicon from U.S. and Korean suppliers, turning up the heat yet again in the broader trade disputes simmering between several key markets for solar energy.

The antidumping tariffs, which are said to be effective starting July 24, range from 54-57 percent targeting nine U.S. suppliers and from 2-49 percent for 11 South Korean suppliers. (Here's a roughly Googlized translation of the China MOC announcement.) Here's how the antidumping tariffs lay out:

Not included in these polysilicon tariffs is any mention of European suppliers, which China had hinted at last fall. Reports had suggested China likely will avoid any such sanctions on European polysilicon as the two sides negotiate through the recently imposed penalties on Chinese solar imports. In a statement earlier this week, Chinese commerce ministry spokesperson Yao Jian reiterated that the MOC has laid the groundwork to pursue just such a case, but that "we’ve never changed our position that [the] solar PV trade dispute should be settled through negotiations," and that all sides "are actively endeavoring to consult with each other in hope of properly settling this case through price undertaking negotiations."

These new solar tariffs on U.S. polysilicon, though, were more anticipated as retaliation against last year's decision to impose antidumping and countervailing duties on Chinese solar cells and modules. China's GCL is the world's largest polysilicon supplier with strong government support -- even as rafts of other domestic producers are being quietly shuttered-- and these tariffs will likely deepen its domestic dominance to fuel China's massive solar energy goals.

Still, raising prices anywhere in the supply chain run counter to the solar sector's relentless march to lower costs. "There's no way that module manufacturers can tolerate a 57 percent increase in polysilicon price," emphasized Michael Parker, a Hong Kong-based analyst at Sanford C. Bernstein & Co.," quoted by Bloomberg.

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

Credit: Chinese Ministry of Commerce

July 20, 2013

Bright Forecasts from Renesola

Doug Young

Renesola logo
ReneSola (NYSE:SOL) boosts revenue and margin forecasts
More good news is coming from the battered solar panel sector, with mid-sized player ReneSola (NYSE: SOL) sharply boosting its revenue and margin forecasts for the current quarter in the latest sign of a sector rebound. ReneSola isn’t forecasting a return to profitability just yet, but the latest signs do seem to indicate the sector’s strongest players could return to the black by the end of this year if current trends continue. Some could also interpret this upbeat news as reflecting growing confidence that the EU and China could soon reach an important compromise that would prevent the former from imposing anti-dumping tariffs on Chinese solar panels.

ReneSola’s upbeat forecast sparked a rally for its shares, which soared nearly 20 percent on the news to levels not seen in more than a year. Still, at $3.44 per share, the stock trades at less than a quarter of highs seen before the current downturn. On another interesting note, ReneSola’s upbeat news didn’t help other solar shares, which were unaffected by the news. That could mean that despite a recent broader rally for solar shares, investors may become more selective about their purchasing in the months ahead, rewarding the companies that can return to profitability the quickest.

Let’s look at the details in ReneSola’s latest forecast, which have it sharply raising both its revenue and margin outlooks for the current quarter. The company said it now expects to ship 760-770 megawatts worth of products in the second quarter, up about 8 percent from its previous forecast. (company announcement) It boosted its revenue forecast by an even stronger 15 percent to $365-$370 million, reflecting improving margins as prices finally stabilize and after 2 years of steady declines. It estimated gross margins for the quarter will come in at 5-6 percent, again a strong improvement over its previous guidance for 3-5 percent.

As an interesting footnote, ReneSola was more conservative in revisions to its full-year forecasts, raising its shipment estimates by just 3.5 percent. That seems to indicate it’s far from certain that the unexpected strength in the current quarter will last for the rest of the year. While some of the uncertainty is based on whether or not prices will remain stable, I suspect a bigger part is based on the uncertainty in the EU that is the industry’s largest export market.

ReneSola’s upbeat forecast is just the latest piece of positive news for a sector that had become far more used to negative reports as prices plummeted and profits evaporated in the current downturn. Canadian Solar (Nasdaq: CSIQ) predicted earlier this month that it would report a profit for all of 2013, and Trina Solar (NYSE: TSL) said around the same time it had sufficient resources to pay off $138 million in bonds coming due this year. (previous post) Those upbeat reports followed news in May that the industry was seeing some of its first sustained price increases in more than 2 years. (previous post)

The positive news follows a recent downsizing that saw former industry superstar Suntech (NYSE: STP) sharply reduce its operations following a bankruptcy filing earlier this year. Struggling LDK (NYSE: LDK) has also sharply cut back operations, as it slowly sells off assets and stock to avoid a similar fate. Beijing has also stepped in by encouraging construction of new solar plants, providing an important new source of demand for these export-dependent companies.

I’ve wrongly predicted an end to the current downturn at least a couple of times over the past 2 years, mostly based on overly optimistic remarks by industry executives. Accordingly, I think it’s still too early to predict the industry is poised for a rebound just yet. But the signs do look increasingly encouraging, and I do expect we’ll see some of the big names finally return to profits as soon as the third quarter.

Bottom line: ReneSola’s raised guidance reflects an improving market for solar firms, but major risk remains due to an EU anti-dumping probe.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

July 10, 2013

China Won't Impose Tariffs on EU Polysilicon: Solar Trade Tensions Cool

Doug Young

After months of heated rhetoric, the voice of reason is growing between Europe and China as they seek to end their dispute over Beijing’s state support for its solar panel sector. In the latest sign that a potential agreement to resolve the dispute could be near, Beijing has decided not to levy punitive tariffs against European polysilicon, the main ingredient used in making solar panels. (English article) Many had seen China’s launch of an anti-dumping investigation into European and US polycilicon imports last year as a retaliatory move for similar US and European investigations into Chinese solar panels.

Of course the big question now is whether this positive move by Beijing will be followed by the more important step that will see an agreement to end EU punitive tariffs that took effect in June. The signing of such an agreement could also pave the way for talks between the US and China, which could reach their own deal to end similar punitive tariffs.

The latest media reports cite a German government official saying that China won’t impose punitive tariffs on European polysilicon, at least not for now. (English article) China had opened the investigation into European polysilicon last October. The wording used by the official from Germany’s Economy Ministry seems a bit unusual, since she doesn’t say the polysilicon dispute has actually been resolved permanently. That seems to imply that if the 2 sides don’t reach a deal on the broader solar panel issue, then perhaps China could reopen its investigation into European polysilicon.

This latest move by Beijing comes as media have reported that China and the EU are close to such a broader deal that would end the dispute. (English article) According to those reports, such a deal would see Chinese solar panel makers agree to a minimum price for their products above their production costs. The 2 sides opened their negotiations 2 weeks ago, following more than a year of acrimony between China and both the US and Europe. Western governments accuse China of unfairly supporting its solar panel makers through measures like tax rebates and cheap loans, which has undercut many of their North American and European rivals.

Beijing denies providing such unfair support, and has launched a number of its own retaliatory probes in response to the US and European tariffs. In addition the probe against polysilicon makers, China has also recently launched an investigation into unfair support for European wine makers (previous post), and is reportedly considering another investigation into European luxury cars.

These latest reports indicate that after the months of angry rhetoric, both sides are finally realizing that the developing series of trade wars would benefit nobody and could deal a serious blow to the important alternative energy sector. It appears that both sides agree that the solution for now is for Chinese panel makers like Trina Solar (NYSE: TSL) and Canadian Solar (NYSE: CSIQ) to raise their prices to levels that would be more comparable with rivals in Europe and North America.

More long-term, Beijing should work with local governments to try to end strong state support policies that are common in China and often result in this kind of global trade dispute. I do expect that we’ll probably see a resolution to the current conflict in the next few weeks, and that China could quickly drop its wine investigation after that. If Beijing is smart, it will take advantage of momentum from such positive developments to open similar negotiations with Washington to try and end the US punitive tariffs. If all goes well, perhaps we could see all of these solar disputes resolved by the end of the year, allowing everyone to return to the more important business of developing alternate energy sources to traditional fossil fuels.

Bottom line: Beijing’s dropping of a probe against European polysilicon is the latest sign of progress in the 2 sides’ talks to end their solar panel dispute.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

July 06, 2013

China Solar Companies: "We Can Survive"

Doug Young

ldk logoA mini flurry of news from embattled solar panel makers seems to have the same singular message, designed to tell investors that they can survive an industry crisis now entering its third year. Of course the companies that emerge when the crisis finally subsidies could be far different from the ones that went into the crisis, which seems to be the message from LDK (NYSE: LDK) in its latest announcement involving its slow takeover by a Chinese investor. At the other end of the spectrum, the message from Canadian Solar (Nasdaq: CSIQ) is a more upbeat, with the company forecasting a return to profit for all of 2013 as it rolls out a new business model. Finally in the middle there’s Trina (NYSE: TSL), which is simply trying to show investors it’s capable of repaying its debt.

Investors responded to this flurry of news by continuing to treat solar stocks as mostly gambling toys rather than real investment instruments, as everyone waits to see what kind of industry will emerge from the ongoing sector retrenchment. Only Trina’s shares managed to rally on its relatively upbeat news, rising 3.5 percent after it said it would repay its debt coming due later this month.

Canadian Solar shares actually fell 2 percent after it forecast that it would turn a profit for all of 2013. But I should also note that the company’s shares have staged an incredible rally over the last few months, nearly quadrupling since late March, So perhaps the stock was due for a break on this latest good news. Lastly, LDK shares fell 5 percent on the latest news that the company is being slowly taken over by another Chinese investor.

Let’s start with a closer look first at Canadian Solar, whose forecast of a return to profits for all of 2013 is part of a larger announcement about the sale of a solar power plant that it built. (company announcement) In this case, Canadian Solar sold the 10 megawatt plant in Canada to TransCanada Corp (NYSE: TRP). The plant is the first in a bigger deal by Canadian Solar to sell a total of 9 similar-sized plants to TransCanada. Solar companies have turned to this kind of deal, in which they build plants for operators, in a bid to generate new business during the ongoing crisis.

This kind of model does indeed look like a good source of new business, assuming buyers like TransCanada actually end up paying for all the new plants they promised to buy.  Canadian Solar says the sale is part of its goal to obtain half of its revenue from building such plants for operators, which is a key part of its strategy for posting a profit for the full-year 2013.

From Canadian Solar, let’s look quickly at Trina, which said it expects to finish paying off $138 million worth of 5-year bonds by their due date later this month. (company announcement) In this case most of the notes have already been redeemed, and Trina still needs to repay $57 million. But the message is clear. Trina is saying it has the money to repay its obligations and will continue to honor its debt, at least for now.

Finally there’s LDK, the weakest of China’s major solar players, which announced it has issued 25 million new shares to Fulai Investments for $1.03 per share. (company announcement) Based on its latest share price, the sale would account for about 12 percent of LDK’s market value. Fulai had previously purchased 19 million shares of LDK (previous post), meaning it should now own about 20 percent of the struggling company. Look for Fulai to keep boosting its stake, most likely at the expense of existing shareholders, as it slowly takes over LDK.

Bottom line: Canadian Solar looks set to survive the solar industry’s ongoing crisis using its new business model, while LDK is slowly being taken over by an opportunistic buyer.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

June 22, 2013

Two Exciting Alternative Energy Themes For Summer

By Harris Roen

Summer is here, and the sun has been shining on alternative energy.

Two investment themes in the changing alternative energy landscape have emerged as potential profit centers for investors. To take advantage of these trends, the Roen Financial Report has added in four new companies to the list of about 250 alternative energy companies that we track for our readers.

solar energy iconInvestment Theme #1: The growing domestic Japanese solar market

In the wake of the Fukushima nuclear disaster, Japan has committed to growing renewables as a domestic energy source. According to Mercom Capital Group, Japan has already had a 73% quarter-over-quarter growth rate in solar cell shipments, and a massive 343% year-over-year growth. The two companies below are promising plays in this area.

Kyocera Corp. ADR (KYO)

Kyocera is a Japanese electronics company with a wide range of products, including solar and energy management systems. This profitable company is likely set to benefit from the acceleration in domestic Japanese solar installations.

Sharp Corp. ADR (SHCAY)

Sharp is a large Japanese consumer electronics company that has been in the solar business for over 50 years. Its stock price has been struggling as a result of poor earnings reports, but like Kyocera, Sharp should benefit from growth in domestic Japanese solar.

alt fuels iconInvestment Theme #2: Alternative Fuel Engines.

Engineers have been developing and building the next generation of engines that decrease U.S. dependency on foreign oil while reducing greenhouse gas emissions. These latest alternative fuel engines are far more efficient and far less polluting. Importantly, they also cut back on transportation costs. The two companies below are key players in this area.

Cummins Inc. (CMI)

Cummins is a large Indiana-based engine manufacturer whose products include energy efficient diesel engines and low emission natural gas engines. It has a reasonable PE, but its stock looks overpriced at these levels.

Power Solutions International (PSIX)

Power Solutions is a “pure play” company that produces power systems that run on alternative fuels such as natural gas, propane biogas and electric, as well as hybrid technologies. Despite the fact that its stock has doubled in price in the last year, Power Solutions shows excellent sales growth and is likely to continue its uptrend from here.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article, but it is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

Remember to always consult with your investment professional before making important financial decisions.

June 20, 2013

China, EU Solar Talks Less Cloudy

Doug Young

After a disastrous round of talks last month that broke down almost as soon as they began, China and Europe look set to try again with a new round of negotiations to resolve their dispute over the EU’s claims of unfair state-support for Chinese solar panel makers. Much has changed since the failed round of talks in late May, including a growing number of individual European leaders who want to resolve this dispute through negotiations rather than trade wars. As a result, this new round of negotiations will take place between top-level government officials, an important change for both practical and symbolic reasons that I’ll explain shortly.

While it’s obviously still too early to say what the result of these new talks will be, the latest signs of a growing desire to solve this crisis through dialogue should give these new negotiations a good chance of success, perhaps around 70 percent. The sudden change to a more positive approach marks a distinct break with the past, when similar disputes most often saw western countries take unilateral punitive actions, evoking angry responses from Beijing. Accordingly, I’m cautiously optimistic that this new formula could emerge as a template for helping the west solve some of its larger trade disputes with China without having to resort to the usual trade wars.

Let’s take a look at the latest headlines, which have media reporting that the EU’s top trade official will travel to Beijing on Friday to discuss the dispute. At the heart of the matter is China’s strong state support for its solar panel sector, which it provides through means such as cheap loans and low-cost land use rights. The talks will be attended by the EU’s top trade official, Karl DeGucht, and Gao Hucheng, the top official at China’s Ministry of Commerce. (English article)

The location for and participants in these latest talks contrasts sharply with what we saw in the failed negotiations last month. Those talks took place in Europe, and involved lower-level EU trade officials and the top official from China’s main solar panel industry association. (previous post) I previously said that China made a big mistake by sending such a low level, inexperienced negotiator to those earlier talks, and I also faulted the EU team with failing to explain the process properly to its Chinese counterparts.

After those talks broke down, the Chinese negotiator returned to Beijing and held an angry press conference blaming the Europeans. The EU negotiators defended their position by saying the talks were only informal preliminary discussions. Afterwards, first Germany and then a number of other European leaders stepped up and said the matter needs to be resolved through negotiations, rather than through punitive tariffs that Europe is proposing.

This time I wouldn’t expect to see any of the angry rhetoric, since both De Gucht and Gao are experienced negotiators with strong diplomatic skills. The moving of talks to Beijing is also important both practically and symbolically. On the practical level, it means that Gao can easily consult with other government agencies and industry groups as he tries to address some of the EU’s concerns about ending unfair state support. Symbolically, the move to Beijing also helps China to save face, as it shows the Europeans are coming to China this time rather than forcing the Chinese to come to Europe.

I do have to stress that all of these positive developments are largely procedural, and that any deal could still be difficult for the simple reason that many of Chinese government’s state-support policies may be hard to dismantle. But at least this shows that both sides want to try negotiations, marking an important shift in tone to a more positive approach to reach an amicable agreement.

Bottom line: New talks between top EU and Chinese officials to end their solar dispute reflect a new positive approach, and could stand a 70 percent chance of success.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

June 18, 2013

Japanese Solar Manufacturers Get Their Groove Back

Junko Movellan

The Skies are Brightening as Manufacturers Resume Spending to Improve Efficiency

Almost one decade ago, Japanese PV makers dominated global PV production — Sharp (SHCAY), Kyocera (KYO), Sanyo (now part of Panasonic) and Mitsubishi Electric represented about 50 percent of global production in 2005. When German and other European markets expanded quickly, a great number of companies in Europe and Asia, specifically China, jumped into the “potentially” profitable PV industry. They rapidly ramped up their production and brought down costs, leaving Japanese companies behind.

When the Japanese government decided to pump life into the lagging domestic PV market, it created a generous feed-in tariff (FIT) program. Japanese manufacturers began enjoying full access to the lucrative domestic market and started to see the improvements in their bottom lines.

Taking advantage of the uptick in business, Japanese manufacturers have put all of their resources into the domestic market. They have increased shipment and production, improved cost structure, and moved beyond the “module only provider” phase through horizontal and vertical expansion into the downstream solar value chain.

Domestic Market Focus

Japanese manufacturers were export-oriented due to the better profit margin they could earn in German and other European markets. However, that trend is now over. At 1Q’13, Japanese PV makers kept 90 percent of what they produced in the domestic market, compared to just about 30 percent at 1Q’09 (Figure 1).

Figure 1: Japan PV Domestic Production: Exports vs. Domestic Shipment

Jqpan PV Production and export

Japanese solar manufacturers have taken a “Japan shift,” said Nobuyuki Nakajima, Solar Frontier’s manager of communications.  A few years back, Solar Frontier was export-focused, but since 2012 its domestic shipments have exceeded exports — about 80 percent of its modules will serve the growing domestic market in 2013, explained Nakajima.

Solar Frontier, a CIS (copper, indium, selenium) thin-film PV manufacturer, made its first-ever operating profit in the first quarter of 2013, two quarters ahead of plan. The company successfully reduced its material costs by 25 percent through the first half of 2012, bumped up its production capacity utilization to 100 percent at its 900-megawatt (MW) Kunitomi plant in January, and will resume production at its previously suspended 60-MW Miyazaki No. 2 PV plant in July to keep up with demand.

Kyocera, a vertically integrated poly-crystalline silicon PV manufacturer, has also been improving sales and profits by shifting its focus largely to Japan. According to Ichiro Ikeda, Kyocera’s general manager of solar energy marketing division, its domestic shipment accounted for about 80 percent of the company’s global shipment in FY2013 (April 2012 – March 2013), compared to about 50 percent in FY2010. It has been meeting the growing domestic demand by re-importing modules from its overseas production facilities in Czech Republic, China and Mexico. Ikeda said that Kyocera is planning to boost its shipment to over 1 gigawatt (GW) for this fiscal year (April 2013 – March 2014), up from 800 MW in FY2013.

PV Module Technology

The PV technology mix in Japan has also been changing. Domestic manufacturers largely produced poly-crystalline silicon (poly-si) technology, so it dominated the market. However, the Net FIT for the residential market revitalized the domestic market. Since then, the demand for high-efficiency or mono-crystalline silicon (mono-si) modules has gained popularity among homeowners who want to maximize energy production on their space-limited roofs.

SunPower (SPWR) and Panasonic, providers of world-leading, high-efficiency modules, are currently neck and neck, chasing the largest market share in the residential segment in Japan. Sharp and Mitsubishi Electric, previously poly-si module focused producers, started offering mono-si modules specifically for residential customers. Last year, Mitsubishi Electric announced the termination of poly-si modules production to focus on mono-si sales. Sharp, Japan’s largest PV producer, but deeply financially troubled, announced its very first outsourcing contract deal with SunPower to sell SunPower’s high efficiency modules under Sharp’s brand (“Black Solar”) for the domestic residential segment.

Although demand for mono-si modules is expected to grow, the launch of the full FIT program has ignited the large-scale, non-residential system market. Since its launch, the demand on more price-competitive poly-si modules has started to pick up again.

Sharp’s sales manager stated that Sharp’s current tactic is to ship mono-si modules to the efficiency-focused residential segment, and ship poly-si to the cost-conscious, non-residential segment.

The residential segment has been bread-and-butter for the Japanese module makers, providing a steady market with good profit margins; however, the module makers cannot ignore the potential growth of the non-residential segment, which is expected to grow much larger by volume than the residential segment in the next few years.

According to the Japan Photovoltaic Energy Association (JPEA), the non-residential segment grew by close to 900 percent in FY2012 (April 2012 – March 2013) from FY2011 (April 2011 – March 2012) while the residential segment grew by 55 percent. For the first-time ever, the non-residential segment exceeded the size of the residential segment.

Panasonic, a long-time producer of HIT (premium, high-efficiency modules) has even started offering OEM poly-si modules to capture the piece of the growing non-residential segment. In April, the company shipped 8,784 240-W poly-si modules, 2 MW in capacity, to a FIT non-residential project in Tokushima Prefecture – its biggest poly-si project in Japan.

The thin-film market is also making headway in Japan against silicon counterparts. A recent report states that thin-film PV lost more ground globally to silicon PV in 2012; however, the thin-film share in Japan is, in fact, increasing (Figure 2).  Data released by JPEA shows that thin-film took 21 percent of Japanese PV technology market share in Q4’12, up from a 4 percent share in Q1’10. Solar Frontier is the biggest contributor to the growth of this segment.

Figure 2: Japan Domestic PV Market by Module Technology

Vertical and Horizontal Expansion

To protect its turf and profitability, Japan PV manufacturers are expanding their product and service offerings and strengthening their domestic networks against foreign PV markets, which now accounts for more than 30 percent of the domestic market.

Kyocera, Sharp and Solar Frontier have moved beyond “module only provider,” by vertically expanding into the downstream solar value chain, as an EPC contractor, project developer and independent power producer.

Solar Frontier has created an investment company, SF Solar Power, with the Development Bank of Japan (DBJ) to fund around 100 MW worth of medium-scale PV in Japan. These projects serve as a “sweet spot” since they are easier to acquire and interconnect than projects over 2 MW.

Last year, Kyocera joined forces with IHI Corp. and Mizuho Corporate Bank to construct one of a 70-MW PV project, the nation’s largest, in Kagoshima Prefecture. Kyocera will not only supply its modules but also undertake part of its construction, operation, and maintenance. The project is expected to be completed by this fall.

In terms of the horizontal integration, Kyocera, Sharp and Panasonic all have starting selling lithium-ion storage batteries with PV systems for the residential segment in order to offer the complete packaged solution to “create, store and control energy.” Kyocera will also add Home Energy Management System (HEMS) to its PV and lithium-ion battery system offerings.

To the World

The Fukushima Disasters in March 2011 certainly created a keen interest and demand for safe and clean renewable energy sources, including solar, but a solar revitalization plan had already been in the works.

In 2010, JPEA released “JPEA PV Outlook 2030,” which spells out JPEA’s vision to create ¥10-trillion (about $100 billion) Japanese PV industry and increase the share of Japanese PV makers or “Japan Brand” to 33 percent of the world PV supply by 2030, up from 8.5 percent in 2011. “Japan Brand” means modules marketed and produced by Japanese companies not only in Japan but also in other parts of world.

According to the Outlook, the domestic market will be saturated by 2020.

After that period, the survival of Japanese PV manufacturers will depend on how much they can expand outside the domestic market. The current revitalization of the domestic market is providing them with a chance to regain the strength required — technology, innovation, and production capacity — to last in this turbulent PV industry.

Junko Movellan is a Solar Industry journalist who writes and analyzes the US and Japan PV downstream markets. She has more than 10 years of experience in the PV industry, analyzing and developing business strategies for global companies. She previously worked as a Senior Analyst at Solarbuzz and as a Market Development Analyst at Kyocera. She is based in California, USA.

This article was first published on, and is reprinted with permission.

June 12, 2013

These Solar Panels Do NOT Work!

By Jeff Siegel

Solar Failures Rising

Those who wish death upon the solar industry are about to be given a gift.

According to a New York Times investigation, reports of defective solar panels are starting to rise — just as the industry is on the cusp of significant adoption and expansion.

Energy analyst Todd Woody points out that no one is exactly certain how pervasive the problem is, writing:

There are no industry-wide figures about defective solar panels. And when defects are discovered, confidentiality agreements often keep the manufacturer's identity secret, making accountability in the industry all the more difficult.

Here's the problem...

In an effort to cut costs, solar cell and panel manufacturers — as well as chemical companies that provide specialized materials for the industry — have been cutting corners. As a result, quality control may have been suffering.

And unfortunately, the extent of these cost-cutting measures may not be fully realized for another year or two, as the lion's share of new solar installations were rolled out in 2012.

In other words, any potential defects tend to take a few years to be noticed.

For instance, a solar power system on a warehouse in California has recently been discovered to have faulty coatings on its panels. This has resulted in hundreds of thousands of dollars in lost revenues. Certainly not the kind of PR the solar industry is looking for...

But because of confidentiality agreements, the public has no idea as to who provided these coatings.

Of course, I would actually argue that the coatings found on solar panels today will be as relevant as the typewriter in another year or two...

The truth is while conventional coatings have been used primarily as a protective measure, new coatings coming out of U.S. labs are now also providing increases in efficiency.

Certainly you've read about those new “black solar” coatings that actually boost the amount of power generated by solar power systems. Black solar is actually the next generation in coating technology.

Quality Control

While faulty coatings have been to blame on some projects, overall, it looks like cell and panel manufacturers have been skimping on quality control, too.

But due to confidentiality agreements and the dozens of panel and cell manufacturers that supply the industry, it's hard to pin down the responsible parties.

Most analysts with whom I have spoken believe the lion's share of defective cells and panels are coming from China, as China isn't particularly known for quality or transparency. But I'm not so certain you can cast that wide of a net.

I'm not saying that most of these defective materials aren't coming from China. After all, the odds alone favor such an argument. The majority of the world's cell and panel suppliers are based in China.

But I wouldn't be so quick to assume guilt by Chinese association on this one...

The Race to Grid Parity

SolarCity (NASDAQ: SCTY), a quality solar installer and leasing company, is not an organization that is likely to gloss over quality concerns. Run by the same guy who runs Tesla (NASDAQ: TSLA), Elon Musk, the company has proven to be a major force in the solar sector.

SolarCity actually uses a couple of Chinese manufacturers, including Yingli (NYSE: YGE), which has actually had a small number of defective modules returned. We're talking 15 of the nearly 3 million that now call the United States home. As well, YGE offers insurance policies to its customers and runs a separate testing facility in the United States, where quality control tends to be a bit more stringent than in China.

Of course, it should be noted that U.S. manufacturers have also had their fair share of defective modules. But for the sake of clarification, the major U.S. manufacturers don't actually manufacture everything domestically. For instance, SunPower (NASDAQ: SPWR) runs a manufacturing facility in the Philippines.

In any event, it'll be interesting to see how this plays out over the next year or two. I do believe we will see more defective systems, and this will likely be the final nail in the coffin for those manufacturers that are already teetering on the edge of the abyss.

You can cut costs all you want. But at the end of the day, you get what you pay for.

I believe it was Benjamin Franklin who once said, “The bitterness of poor quality remains long after the sweetness of low price is forgotten.”

So, will defective solar panels hurt the industry? Absolutely. But it won't be enough to stop its amazing ride to grid parity.

As long as the problem doesn't persist, this bump in the road will be miles behind us in no time at all.

That being said, I wouldn't be too quick to jump on any solar manufacturers any time soon. If you want to play the solar sector, stick with SolarCity.

To a new way of life and a new generation of wealth...


Jeff Siegel is Editor of Energy and Capital, where this article was first published.

June 11, 2013

What Makes Solar Energy a Good Investment?

by Billy Parish

Five years after the Great Recession, most Americans have yet to regain their faith in our country’s largest financial institutions. The Dow is up, but the latest Financial Trust Index shows that 58% of Americans expect the stock market to drop 30% or more this year. Meanwhile, a recent Harris Poll noted that only seven percent of the public trusts the leaders of Wall Street.

Strangely, the same poll which found that most Americans think stock prices will decline also found that 92% of Americans plan to hold or increase their investments in the stock market.

What’s going on here?

Why do we put our money in institutions that we don’t trust and investments that we think are going to decline in value?

The problem comes down to a lack of quality investment options. It’s hard to access a mix of investments that will provide reliable returns over the long run. Add in criteria about not investing in harmful or risky industries and the task of finding a good investment can start to look impossible.

Fortunately, solar energy is a good investment for Americans, particularly when paired with new kinds of investment marketplaces like Mosaic. Here is how we think about our investment product:

Financial Returns

Big banks are good at financing big projects. But for smaller projects, like commercial scale solar energy, big banks lend at exorbitant interest rates, if they lend at all. This fact makes it possible for Mosaic to make solar energy loans with interest rates that are lower than those charged by banks, but still high enough to provide competitive returns for investors.

To date, over 1,500 investors have used the Mosaic platform to provide more than $2.1 million in financing to projects in California, New Jersey, and Arizona. The expected annual returns on our most recent loans has been between 4.5% and 6.38%. With 10 year Treasuries at near historic lows (1.90%), CDs at 0.5% APY, bonds averaging 5.20% from 2003-2012 and stocks in the S&P 500 averaging 4.95% annualized returns from 2003-2012, Mosaic’s expected yields are competitive with the best investment products on the market.

Financial Risks

Like all investments, solar energy investments through Mosaic do not come without risks. Transparency is a core value, so we post the prospectus of each project on our website and encourage investors to read the prospectuses in order to understand the risks associated with our investments. Specifically, the broad categories of risk facing solar projects include credit risk (a borrower defaults), technology risk (solar panels fail), weather risk (a storm destroys solar panels), or operational risk (Mosaic goes out of business).

In the case of credit risk, Mosaic offers debt, rather than equity, financing for solar projects. if a project encounters a problem, our investors recoup their money first. We also employ rigorous underwriting procedures, which involve not only Mosaic’s project finance team, but also third party lawyers, engineers, and insurance experts to review every project. Finally, looking to the future, we recently helped found a solar industry consortium called truSolar, which aims to standardize the risk evaluation process for solar projects. Founding members of the group include 16 leading businesses and research groups, from DuPont and Standard and Poors to the Rocky Mountain Institute. By working with other thought leaders to establish best practices for risk evaluation, we aim to drive down financing costs across the solar industry.

In the case of technology risk, solar equipment is itself very reliable, to the point that manufacturers typically offer 25-year warranties for solar panels and solar inverters. Insurance for events like fires or hurricanes adds another layer of protection against weather risks.

Finally, in the event that Mosaic goes out business, we have entered into a backup servicing and successor agreement with Portfolio Financial Servicing Co. ( that would ensure the servicing of all issued loans. PFSC is one of the largest third party lease, loan and structured settlement servicers in the U.S., with $11 billion under management.

Where Does Distributed Solar Fit in a Balanced Portfolio?

For most investors, financial risk and return information doesn’t mean much outside the context of a broader portfolio. Most individuals and institutions invest in a portfolio of assets. We might invest in the stock market and in municipal bonds. Maybe we invest in ourselves, via payments for education, or in our homes, via expenditures on energy efficiency. So where do Mosaic’s investment products fit into this mix?

Our investment products function much like a bond. Debt generally lacks the significant upside potential of a stock (investors won’t earn more than the projected annual interest rate), but has less downside risk as well. Investors are repaid their loans, with interest, on a monthly basis. Investors could look at a Mosaic product to fulfill the same role in a portfolio as Treasuries or other kinds of fixed income investments.

More broadly, we see our products offering a hedge against two types of market risk.

First, because our investments are in tangible, localized assets, they are “uncorrelated” and offer a hedge against dramatic shifts in global markets. If you’re heavily invested in major corporations or commodities, investing in community-based assets could make good sense.

Second, our investments hedge against the increasingly systemic risks facing fossil fuels. Energy is the world’s largest industry, and so it should come as no surprise that energy investments make up a large chunk of the portfolios of institutional and individual investors alike. Global energy markets have experienced major swings for fossil fuel prices in recent years -- oil, for instance, running up two historic price peaks with a crash in between, or gas plummeting in cost, and now rapidly rising -- and it’s only going to get worse. In particular, we think it’s important for investors to understand that fossil fuel companies are betting against action on climate change. HSBC recently warned that the top 200 fossil fuel companies could see a 40-60% decline in their equity value if governments take action to curb climate change. Mosaic investments represent a way to start moving away from fossil fuels before the bubble bursts.

Compounded Good

If you invest in an index or mutual fund, or keep your savings in an account with a national bank, there’s a strong chance you are financing the operations of some of the world’s largest fossil fuel companies. As a father, I see this as illogical. What’s the point of making an investment that will pay for my childrens’ future if it also harms the world they inherit?

Mosaic investments run in the opposite direction. Our investors have so far financed enough solar energy to power 95 typical American homes every year. They’re creating societal gain, without compromising their personal gain.

But let’s break that down a bit further. The magic of investment is that it compounds. So what kind of compounded good could we create?

Well, our first fifteen hundred investors have put in $2.3 million. Assuming they all reinvested their money in new solar projects, and assuming they earn a rate of 4.5%, in ten years they would have a little over $3.6 million invested in solar energy. In twenty years, they’d be approaching $5.6 million invested, enough to power perhaps 600 American homes every year.  

At Mosaic we believe the fastest way to create a 100% clean energy economy is to let everyone benefit from it. That’s why we work every day to create a rock solid, accessible clean energy investment.

June 08, 2013

China Trys to Cork EU Solar Tariffs With Wine Probe

Doug Young

China is quickly learning how to play the game of tit-for-tat trade wars, with news that Beijing has launched a new anti-dumping probe against wines imported from the European Union. Anyone who has followed recent China-EU trade relations will know, of course, that announcement of this new probe by the Commerce Ministry comes the same day that the EU formally announced anti-dumping tariffs against imported Chinese solar panels.

While I certainly don’t condone this kind of trade war rhetoric, I have to say that China’s decision to target Europe’s wine industry looks like a very smart selection for this kind of probe. For starters, wine is one of Europe’s most famous products and is one of its biggest exports. At the same time, Chinese consumers are quickly discovering a fondness for imported wines, with European varieties fetching some of the highest prices.

All that said, let’s have a look at the actual news that saw the EU formally impose an 11.8 percent anti-dumping tariff on Chinese solar cells to take effect on Thursday. (English article) The tariffs were widely anticipated following a months-long investigation, and were actually quite a bit lower than most people had expected. But the rate could rise to 47.6 percent in August if China and the EU don’t reach a negotiated settlement in the matter before then.

Chinese solar panel makers were predictably dismayed, with Trina (NYSE: TSL) issuing a statement expressing its disappointment. (company statement) Yingli (NYSE: YGE) said it hopes the 2 sides will be able to negotiate a settlement, which is what some individual EU leaders have been pushing for to avoid a trade war. (company statement)

In addition to its usual angry statements of denial and condemnation, China this time has also responded by launching its own investigation into wines imported from the EU. (English article; Chinese article) This latest probe is similar to one that China previously launched against US makers of polysilicon, the main raw material used to make solar cells. China opened that investigation last year after the US imposed similar punitive tariffs on Chinese solar cells.

Media are pointing out that by targeting wine, China is looking to punish southern EU members like France and Italy that are big wine producers and were strong backers of the solar anti-dumping tariffs. At the same time, any Chinese anti-dumping tariffs on EU wines would have less impact on northern European nations, most notably Germany, which opposes the punitive tariffs on Chinese solar cells.

Personally speaking, I think this move targeting wine looks quite shrewd and is probably even justified. Europe is famous for providing extensive subsidies to its farmers, and the wine industry is one of the biggest recipients of the kind of state support that China gives to its solar panel makers. China’s growing thirst for wine means that anti-dumping tariffs against EU products could also have a major impact on some its major winemakers.

Of course the timing of China’s probe looks quite questionable, and anyone who doesn’t believe this particular investigation is linked to the solar trade war would be quite naive. The Chinese probe also looks dubious because most wines imported from Europe are already subject to relatively high taxes and are more expensive than domestic brands. That means any claims that EU subsidies are hurting the Chinese wine industry are most likely untrue.

I’m not a fan of trade wars, and I honestly don’t think this move by China will do much to help create a better atmosphere of trust if the 2 sides really want to mediate a solution. But at the same time, at least China’s wine probe may put some added pressure on the EU to try a bit harder to negotiate an acceptable solution to prevent the solar trade war from escalating.

Bottom line: China’s launch of an anti-dumping probe against EU wines will boost hostilities, but could also add pressure for the 2 sides to resolve their ongoing solar dispute.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

EU Moderates Tone in Solar Trade Clash with China

Doug Young

After more than a year of antagonism, I’m happy to see that the voice of reason finally seems to be coming to the ongoing clash between China and the west in their prolonged dispute over Beijing’s state support for solar panel sector. Germany seems to be the driving force behind this welcome change in tone, following German Chancellor Angela Merckel’s remarks last week that she opposed anti-dumping tariffs on Chinese solar cells being proposed by the EU’s trade office. Merkel correctly realized that a trade war over solar panels wouldn’t benefit anyone, and could potentially deal a crippling blow to a sector that will be critical to the world’s future energy security.

Following that behind-the-scenes pressure from Germany and perhaps 1 or 2 other European leaders, the EU’s trade commission has suddenly backed down in its previously aggressive stance towards China in the dispute. Media are reporting that the EU’s trade commissioner has decided to impose an 11.8 percent punitive tariff rate on imported Chinese solar cells from Thursday this week, far lower than the 47 percent rate that was initially planned. (English article) But the rate would rise to the original 47 percent in 2 months if China and the EU can’t reach a settlement before then to resolve the matter.

The dispute centers around western claims that China unfairly supports its solar panel makers by giving them numerous economic advantages, including cheap loans, low-cost land and tax incentives. Those incentives led to a huge build-up of China’s sector over the last decade, which resulted in a massive oversupply that has sent the global industry into a prolonged slump over the last 2 years. As a result, many of the western firms that pioneered the technology have gone out of business, and most of China’s big players are only continuing to operate with support from Beijing. (previous post)

Unhappiness about Beijing’s strong support for its solar sector led the US to impose anti-dumping tariffs on imported Chinese solar cells last year, and the EU is preparing to take similar steps following its own investigation. In both cases, Beijing did little or nothing to try and resolve the matter to avert a crisis, even though it had plenty of time to try to intervene while the months-long investigations were occurring.

Last week Beijing finally got a little more proactive by sending a delegation to Europe to try and negotiate a settlement. But those talks quickly broke down due to lack of experience by the Chinese negotiators. (previous post) Shortly after that happened, Merckel came out publicly and said Germany opposed the sanctions, which appears to be the main driver for this sudden softening of the EU’s stance in the matter.

So the big questions become: What will happen next, and will the 2 sides be able to reach a settlement before August? My guess is that we’ll see the Chinese side send a new delegation to Europe in the next week or two, and that this time we’ll finally see some serious negotiations take place. Since it’s unlikely that China can dismantle its extensive state support for the industry so quickly, we’re more likely to see the Chinese companies agree to simply raise their prices to a level that is comparable with products from their European and North American rivals.

I would give this latest round of negotiations a good chance of success, perhaps at around 70-80 percent, since I think that both sides truly want to settle this matter without a trade war. If they do reach an agreement, that could become a template for similar talks with Washington that could perhaps result in the rollback of US tariffs, providing another major boost for the embattled sector.

Bottom line: A softening of Europe’s stance in its solar panel dispute with China means the 2 sides now have a 70-80 percent chance of negotiating a settlement to the matter.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

June 06, 2013

Earnings Surprises Keep SunPower An Investor Favorite

By Harris Roen

The stock market has been paying attention to SunPower (SPWR) in a big way. At the end of May the stock hit an annual high of 23.76, a gain of 125% from where it was just a month earlier. That price is quadruple levels it was trading at in the beginning of the year.

Since May, the stock has seen about a 17% correction, and is trading sideways in the 18 to 20 price range. Volume at these high price levels have been impressive too—shares exchanging hands in the past 30 trading days exceeds that of the previous 64 trading days.

Investors have been impressed with the latest earnings report, and the company estimates that earnings per diluted share will turn positive next quarter, beating analyst estimates. Despite this recent jump in the stock price, is SPWR still a good investment?

SunPower is a small to medium sized California-based solar company with about 5,000 employees and $2.5 billion in annual sales. This vertically integrated solar company is involved in the manufacture, installation and service of photovoltaics. SunPower delivers solar to a huge array of customers around the globe, from rooftop residential systems to commercial, government and utility-scale power plant clients. SunPower claims to have the largest U.S. residential and commercial installed base, with over 100,000 residential systems installed.

A look at SunPower’s comparative financials paints a mixed picture of the company’s future prospects. The chart above measures SPWR against the average of 23 other solar companies in the same size range (those with annual sales between $1 billion and $10 billion).

When comparing debt and sales growth, SPWR beats out the competition. It posts numbers 50% above the other companies. It measures poorly, though, on earnings, profits and return on equity. Having said that, it should be noted that these three later measures are all negative on average for solar companies in the group, it’s just that SunPower’s numbers are more negative. So for example, the current EPS for SunPower is -2.8, compared to an average for the other solar companies of -1.3.

Solar installation as an investment theme is hot on analyst’s radar these days, and it is largely due to this part of SunPower’s business that the stock is getting so much attention. It is important, then, to compare SPWR against the other big players in solar installation.

The chart above shows SunPower compared to four other publically traded major players in solar installation: Real Goods Solar (RSOL), SolarCity (SCTY), Sunvalley Solar (SSOL) and Akeena Solar (WEST). This comparison, again, shows a mixed picture. SPWR compares well in market cap and price/book ratio, but measures up poorly on sales, net margin and return on equity.

I believe the main justification for investor interest in SunPower is its history of positive earnings surprises—this is a metric where SunPower shines. To illustrate, when earnings came in at $0.22/share for the first quarter of 2013, it handily beat consensus analyst estimates of $0.06/share. Similarly, earnings per share of $0.18/share for the fourth quarter of 2012 exceeded the average analyst estimate of $0.14/share. Once a trend like this is established, professional investors take notice.

So while SunPower may not rise to the top of comparable companies, it continues to be an investor favorite. As long as the company continues to perform well in the ultra-competitive solar sector, SunPower will remain one of the Roen Financial Report’s top picks.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

June 04, 2013

Canadian Solar's Chinese Loan

Doug Young

China’s struggling solar panel makers must are slowly transforming into de facto state-owned enterprises as they take increasing loans from Beijing, with Canadian Solar (Nasdaq: CSIQ) becoming the latest to take a handout from the policy lender China Development Bank (CDB). If Beijing is trying to convince Europe and the US that it’s not unfairly supporting its solar sector, then this certainly isn’t the way to do it. But that said, I doubt that Canadian Solar or many of its peers could get financing to maintain their operations from any true private sector banks right now, as the future remains unclear for most due to their precarious financial positions.

This latest deal looks at least slightly positive for Canadian Solar, as the 270 million yuan ($44 million) loan it has just received will be used to finance a specific project in western China rather than simply to fund day-to-day operations. (company announcement) But despite the loan’s stated use, I do suspect that Canadian Solar will actually use most of the funds immediately to fund its daily operations that are still losing big money. Just so everyone is clear that this loan is a gift from Beijing, the CDB is offering a one-year grace period where Canadian Solar presumably won’t have to pay any interest — a condition it would never be able to get from a commercial lender.

While this news hardly looks encouraging to me, investors seemed to think differently, bidding up Canadian Solar’s shares by 3.5 percent after the announcement came out. Perhaps the markets are taking this deal as a sign that Beijing will continue providing low-cost financing for Canadian Solar until the industry finally returns to profitability. Other solar shares also rallied on the news, with Yingli (NYSE: YGE) up 3.9 percent and Trina (NYSE: TSL) up 2.7 percent.

This kind of financing seems to be Beijing’s new approach to propping up its solar companies while they wait for a 2-year-old slump in their sector to ease. Rather than provide major funds, CDB seems to be giving mostly smaller loans in the $40-$150 million range to help companies fund their operations for a few months while they wait for the market to improve.

Yingli received its own largess from the CDB in April, when it announced 2 new loans worth a combined $165 million. (previous post) Mid-sized manufacturer ReneSola (NYSE: SOL) announced its own new 320 million yuan ($51 million) credit line from CDB in March, and LDK (NYSE: LDK) said a month earlier that it received a similar 440 million yuan in new CDB financing. CDB has also provided past financing for the now-bankrupt Suntech (NYSE: STP), and late last year provided major new funds for wind power equipment maker Ming Yang (NYSE: MY).

So, what’s the bottom line in all of this? As I’ve said above, this kind of preferential financing is unlikely to convince Europe or the US that Beijing is committed to ending state support for its solar sector. That could make negotiations difficult for China when it tries to stop the EU from imposing anti-dumping tariffs on solar panels imported from China in upcoming talks.

Over the more medium term, I would expect the CDB to keep making more similar loans to the solar panel makers for the next year or so, with each such loan providing enough money to fund operations for the next 2-4 months. Recipients of the loans do indeed look well positioned to emerge as sector leaders once the industry finally stabilizes, which is perhaps why investors are favoring many companies that receive CDB loans.

Bottom line: China Development Bank will provide loans to China’s solar panel makers to fund their operations over the next year until the sector stabilizes.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

May 31, 2013

Bluefield Solar Eyes £150 Million IPO

Bluefield IPO to Be the Second Green Energy Fund Flotation in London This Year

by Alice Young

KD501Bluefield Solar Income Fund Limited, an investment fund focussed on solar power, plans to raise £150 million in a London IPO. The Bluefield IPO will be the second flotation of a green energy find on the London Stock Exchange this year following the IPO of Greencoat UK Wind (LON:UKW).

Bluefield Solar Plans London IPO

On Wednesday, May 29, London-based Bluefield Solar announced that it intended to launch an initial public offering on the LSE’s main market. The fund, which is focussing on large-scale agricultural and industrial solar assets, said in a press release that it was seeking to raise £150 million by way of a placing and an offer for subscription of ordinary shares. Bluefield expects its shares to start trading in July.

One of the fund’s cornerstone investors will be Vestra Wealth LLP which has committed to subscribe for no less than 15 million ordinary shares. Numis Securities is acting as broker and financial adviser to Bluefield in relation to the London IPO. The fund will also be advised by Bluefield Partners.

The fund plans to invest the proceeds from the IPO in UK-based agricultural and industrial solar energy assets. “Solar energy should play an important part in the UK’s energy mix going forward,” John Rennocks, the proposed Non-Executive Chairman of the fund, said in the press release. On Wednesday, the Financial Times quoted James Armstrong, a managing partner in Bluefield Partners, as saying that large-scale solar energy was “poised to become a major investment theme in the UK”.

Bluefield Solar was founded by former partners of Foresight Group, a large renewable technology investor. Jon Moulton, the private equity tycoon and chairman of investment company Better Capital (LON:BCAP), sits on its investment committee.

Green Energy IPOs

The Bluefield IPO announcement came two months after the floatation of Greencoat UK Wind (LON:UKW), a wind energy investment fund managed by UK-based infrastructure fund Greencoat Capital, which raised £260 million in March through a London IPO. Greencoat owns stakes in onshore and offshore wind developments.

UK government support for clean energy has offered an incentive to renewable energy producers to seek London listing. Electricity suppliers have been encouraged to increase the share of renewables such as solar and wind power in the electricity mix they sell to customers.

The Renewables Infrastructure Group (TRIG) backed by Renewable Energy Systems is reportedly considering a flotation, hoping to raise £300 million for its portfolio of 18 wind farms and solar parks in Britain, Ireland and France.

This article first appeared on, an informational and educational resource for retail investors. The portal provides news, analyses, commentary on data on the markets and investment products available to private investors. It encourages engagement and contribution from all stake holders in the retail investment world, covering energy, equities, funds, forex, real estate and more.

May 29, 2013

Get Ready for a Revival in Solar Tech Investments

James Montgomery

The Skies are Brightening as Manufacturers Resume Spending to Improve Efficiency

Slumping solar PV equipment spending has finally bottomed out, and we're about to witness a "revival" in investments that will finally close the yawning gap between oversupply and demand, according to a pair of analysts reports.

Solar PV manufacturers spent nearly $13 billion in 2011, but then their investments plunged more than 70 percent to $3.6 billion in 2012, and will probably drop another 36 percent this year to $2.3 billion, the lowest level since 2006, says Jon-Frederick Campos, analyst with IHS Solar. But with prices showing signs of stabilizing, companies that idled manufacturing lines and lowered utilization, and put off expansions in the last 12-18 months, are adding new plants and production capacity in emerging markets where some of the best growth is happening: Middle East to Africa to Latin America, he said.

Two signs Campos has seen over the past six months that indicate reached the bottom of PV investments: "average selling prices, though still not completely favorable, have been stabilizing and have actually shown increases thus far in 2013," he said. And second, he points to improved forecasts and stronger financials from PV companies, thanks to improving market conditions. "The rest of 2013 and early 2014 will eliminate much of the overcapacity still out there."

Ed Cahill, research associate at Lux Research, isn't exactly so optimistic, saying we haven't actually reached the bottom yet: "It'll be worse next year, when a lot of consolidation will happen," starting with the vertically integrated manufacturers who are most exposed to price pressures across the board. But like Campos he sees demand going up and supplies going down over the next couple of years, with prices rising and profits reemerging. "When will those two match up? We see it in 2015," when capacity dips to 58 GW, and demand surges to 52 GW. (He clarifies that roughly a 12 percent overcapacity beyond demand is "a healthy amount" that provides a cushion for manufacturers; after 2015 that buffer could shrink down to 5 percent and create what he calls a "supply-constrained" environment in 2016.) Total demand is seen reaching 62 GW by 2018, led by China (12.4 GW of installations) and the U.S. (10.8 GW). Those numbers assume "multiple large movements within the market," from new financing models for distributed solar projects, to governments fast-tracking utility-scale project development in emerging markets, and shutting off government support for smaller and struggling manufacturers.

PV supply demand & overcapacity Lux
Increasing demand and decreasing capacity lead to the market's return to equilibrium in 2015. (Source: Lux Research)

Both Campos and Cahill think crystalline silicon (c-Si) will continue to dominate the solar PV market and that's where the real gains will be seen to further lower costs. Improvements continue to be made all over the module bill-of-materials, from the starting wafer material (direct solidification, epitaxial silicon, and quasi-mono silicon ingot) to structured saw wires, selective emitters, rear passivation, backside contacts, metal wrap-through, and anti-reflective coatings. Small improvements in specific areas can add up; just ramping utilization back up to 90 percent should save manufacturers $0.09/W, Cahill notes. "Capacity-boosting investment is what got the industry in trouble," Campos adds. "Technology and process step-up investments are the key to our industry's continued revival."

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

May 28, 2013

EU, China Solar Talks Fall Apart: What's Next?

Doug Young

Trade War
Trade War. photo via Bigstock
It’s been interesting to watch all the different interpretations coming out of a brief flurry of talks in Europe late last week aimed at settling a trade dispute between the EU and China over Beijing’s support for its solar panel makers. About the only thing that everyone agrees on is that some talks did happen, and that China took the interesting step of letting an industry association rather than government officials handle its side of the negotiations. But after that, no one seems to agree on why exactly the talks fell apart or whether there’s hope that they might be restarted before the EU finalizes proposed punitive tariffs on imported Chinese solar panels. Adding further intrigue to the mix, German Chancellor Angela Merkel has come out during a meeting with visiting Chinese Premier Li Keqiang to say that Germany opposes punitive tariffs and wants to see the dispute resolved before a trade war begins.

I have to commend Merkel for breaking with the EU trade commission to try and find a constructive solution to the dispute, since a trade war isn’t in anyone’s interest and could deal a serious blow to this important sector. But that said, it’s far from clear that China’s inexperienced negotiator will be able to work constructively to find a solution to this impasse, which stems from western allegations that Chinese solar panel makers receive unfair state support.

The current state of confusion has its origins in remarks last week by an official from the Chinese Chamber of Commerce for Import and Export of Machinery and Electronic Products, a government-backed industry group that was chosen to represent Chinese solar panel makers in talks with the EU. After the talks broke down, the frustrated official returned to Beijing where he said his group had made an offer that had been rejected by the EU’s trade office. (English article)

That prompted an EU to quickly fire back to call the Chinese statement misleading because formal talks had yet to be launched. An EU spokesman further added that the meeting last week was only “technical preparatory talks”, and that formal negotiations could only begin after the EU commission considering the case publishes its preliminary findings.

Clearly there are some communication problems here, which I blame on both sides. For his part, the Chinese representative probably has little or no experience negotiating in this kind of major trade dispute, and simply thought he could make a quick offer and settle the matter. The EU, meanwhile, failed to realize the Chinese negotiators lacked understanding of the EU’s process for settling this kind of talks. If they wanted to handle the situation better, the EU negotiators should have realized they would be dealing with a relatively inexperienced Chinese team and made more effort to educate them about the EU’s dispute resolution process.

Merkel’s entry into the situation seems a bit unusual, since individual EU leaders seldom speak out on this kind of dispute and usually let the bloc’s trade representative handle such matters. (English article) As I said before, I’m happy to see such a major national leader finally speaking out on the need to negotiated solutions in these kinds of disputes rather than conducting investigations and unilaterally imposing punitive tariffs.

Merkel’s words and China’s willingness to finally admit there is a problem and seek a negotiated solution both look like good signs that both sides want to resolve the matter and perhaps a trade war can be averted; accordingly, I’d put the chances of success for a negotiated settlement relatively high, perhaps at about 70 percent.

Bottom line: Despite some confusion, talks to resolve the EU-China dispute over solar panels should have a good chance of success due to both sides’ desire to avert a trade war.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

May 15, 2013

SolarCity: Mixed Results But Good Prospects

By Harris Roen

SolarCity (SCTY) has been one of the hottest alternative energy stocks since its Initial Public Offering five short months ago. Yesterday it shot up 24% in one day, on the largest one-day volume since it opened, in anticipation of its quarterly earnings release. It is up 95% in the past three months, and has more than tripled from its initial trading price. As of this writing SCTY has given back about a third of yesterday’s stratospheric gains.

Now that earnings have been released, let’s take a grounded-in-reality look at this innovative solar company.

Scty Revenue and Income

SolarCity’s earnings results were mixed, showing steady revenues, but also a net loss for the first quarter of 2013 (chart above). It’s disconcerting that net income has been negative for the past four quarters, and on a per share basis, the most recent losses were 28% greater than analyst expectations. Revenues, on the other hand, came in ahead of analyst estimates, but just barely.

If SolarCity is to make it as a company, it needs to successfully implement a business plan that grows its customer base in a big way. It therefore makes sense to look at data relating to its clients. The chart below shows data for each of the past four years, and compares it to the most recent quarter.

SCTY Clients

Customer growth remains robust for the first quarter of 2013. 2012 was off the charts, with SolarCity adding on 30,950 new clients. The first three months of 2013 added close to a quarter of that number, which is good news for FY 2013 projections.

Total revenue per customer is declining steadily, but that is to be expected as the number of customers dramatically increases and the price of solar panels falls. What is occurring though (and what we want to see) is that the net loss per customer is steadily decreasing. It has changed from a low of around $5,000 in 2010 and 2011, to about $500 in the most recent quarter. If SolarCity can keep that trend going then the company will soon be in the black again. Another important metric is the acquisition cost per customer, which has remained steady at 2012 levels.

SCTY debt

I also find it encouraging that SolarCity’s debt levels remain reasonable, just about the same as 2012 levels. It is important to understand that in many ways SolarCity is a financial company, crafting and offering creative finance options to allow clients to get solar done with minimal up-front costs. As with other financial firms, debt is a big part of SolarCity’s business, so it must be analyzed under that spotlight.

Though I still view SolarCity as an investment for the speculative portion of a portfolio, the long-term prospects for this company are very compelling. For example, SolarCity recently announced its biggest project to date—a 24 megawatt, 6,500 Homes in Project at Navy and Marine Bases in Hawaii. Investors that are willing to ride the SCTY stock price rollercoaster are likely to be rewarded in the long term.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article, but it is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

Remember to always consult with your investment professional before making important financial decisions.

May 14, 2013

SunPower (NASDAQ: SPWR) and Graphene Investing

By Jeff Siegel

've said it before, and I'll say it again...

If you want to profit from solar, the money is in installation and technology.

Certainly SunPower (NASDAQ: SPWR) knows this to be true. One of the few U.S. solar plays still around, SunPower surprised analysts with a narrower Q1 loss and sales that exceeded estimates. This, by the way, was due to an increase in installations. No surprise there.

And certainly those of us who regularly monitor installation data, which is not hard to come by, have been quietly picking up shares since the start of the year.

The result? Take a look:


This isn't to say SunPower is in the free and clear; the solar business remains a tough one with nearly impossible margins.

But those still in the game are stronger today compared to where they were last year — and the year before that.

With global installations continuing to soar — especially here in the United States — installers are busier and more profitable than ever. Certainly the only publicly-traded solar installer and leasing company SolarCity (NASDAQ: SCTY) is proof of that. Just look at this chart:


Of course, you may want to wait for these to cool off a bit for jumping on for the ride.

But there are still other solar plays that you can get into now and turn a very nice profit over the next six months or so...

$8.6 Billion Worth of Product

As you saw, there's big money in solar installation these days. And investors who have taken advantage of this reality and invested accordingly have done quite well.

But the second opportunity for solar investors is actually much more impressive than installation...

I'm talking about solar technology. The top-notch solar tech plays of today will be the gatekeepers of the industry tomorrow. And that's why we're loading up the boat while they're still insanely cheap.

We're most impressed with two specific solar tech angles right now: The first is through a new solar material that's currently being perfected at the University of Manchester and the National University of Singapore. I won't dive too far into the particulars, as you'd need a few chemistry books to even attempt to understand it. (I even needed to run this one by my old chemistry professor to get a handle on this thing). But here's the basic idea...

As explained by research reps from the University of Manchester, this particular materials discovery could lead to entire buildings being completely powered by sunlight, which is absorbed by its exposed walls.

Antonio Castro Neto from the National University of Singapore said, "We were able to identify the ideal combination of materials: very photosensitive TMDC and optically transparent and conductive graphene, which collectively create a very efficient photovoltaic device."

While some of that may sound like scientific mumbo jumbo, the only thing you need to know here is that the key element is graphene.

Graphene is what makes this entire process possible.

As you know, we've been singing the praises of graphene for years. And nearly every week we discover a new use for this miracle material.

From advanced desalination systems and high-powered supercapacitors... to cellphone touchscreens and bulletproof vests... graphene will be found in nearly every commercial and industrial application in just a few short years.

And this is why it's so important that you load up on quality graphene plays NOW — before the herd rushes in and jacks the price up. That, by the way, will be when we cash out.

Solar in the Black

A more direct way to play the solar tech angle is through manufacturing systems and tools.

The interesting thing about solar is that over the years, it's been the suppliers of these “tools” that have benefited the most. Applied Materials (NASDAQ: AMAT) actually made a sizable chunk of change in this space back in 2006-2007.

But like most solar manufacturing processes, what's hot today is nearly useless tomorrow.

That being the case, we're always on the lookout for the next big thing in manufacturing technology. And right now, the next big thing coming around the bend is “black solar.”

You may have read about black solar before, as it's long been a sort of dream deferred for solar manufacturers. It's essentially a specialized chemical coating that allows solar panels to trap ten times more light than what's available today.

A great idea in theory, but in practice, hard to prove...

Well, those days are over. Not only has black solar been proven effective and completely doable on a commercial scale, but there's a conga line of solar manufacturers looking to license this technology right now. Because the end result of having this technology in place is a 50% cost reduction and a full doubling in efficiency.

To a new way of life and a new generation of wealth...


Jeff Siegel is Editor of Energy and Capital, where this article was first published.

May 10, 2013

Chinese Anger at EU Solar Tariffs

Doug Young

Majishan_angry_20090226 I’ve been trying to avoid writing about the latest punitive tariffs for Chinese solar panels that look set to come from the European Union this week, since the story has dragged on for more than a year now and the outcome was almost inevitable. But that said, it would be a bit remiss of me not to write at least something on this latest move, which is expected to see European Trade Commissioner Karel De Gucht formally recommend the introduction of anti-dumping tariffs for solar panels supplied from China. (English article) The latest reports say the recommended levies are likely to be set at 40 percent or higher, even though industry insiders say anything above 30 percent could seriously hurt China’s already struggling solar panel sector. [Ed. Note: Recommended Tariffs were release on Thursday, averaging 47.6% in a range from 37.3% to 67.9% More here.]  But instead of focusing on this tired old story, I’d like to move my attention to China’s predictable reaction, which was to lash out with a warning to the EU on the risks of levying such tariffs.

Personally speaking, I do believe that China regularly engages in the kinds of unfair support for its solar sector that prompted the initial US and EU investigations. That’s just the way that Beijing does things: it picks industries it wants to promote, especially in emerging high-tech areas, and then showers them with all kinds of benefits like tax rebates, free or cheap land and other forms of policy support.

But instead of acknowledging this problem, which gives Chinese firms an unfair advantage over companies in other markets, China simply continues to do nothing to address the source of the complaints. Instead, its approach is always reactionary, whereby it sits back and watches momentum slowly build against its solar panel makers, and then reacts angrily at each negative development.

China certainly can’t say it didn’t see this coming, as this clash has been building for nearly 2 years now. It all began with the bankruptcy of a US solar panel maker in 2011, which led to a congressional hearing because the failed company had received a government-backed loan. That hearing resulted in the launch of a formal investigation, which ended with the decision to levy punitive tariffs last summer, and the finalization of those tariffs in November. (previous post)

In the meantime, the EU launched its own investigation since many European solar panel makers also struggled for similar reasons. Like the US case, the EU process has been long and involved a number of major milestones, the latest of which will be the recommendation to impose tariffs this week. That move will be followed by a few more administrative steps, before such tariffs are most likely finalized later this year.

In the face of this tired and ultimately destructive cycle, leaders in Beijing should seriously reconsider their approach, taking a more constructive and proactive tack. This kind of angry and reactive approach is actually quite typical for Beijing in many areas, from trade disputes to diplomacy and domestic social issues.

Chinese leaders typical abhor the idea of any kind of “interference” in such issues, and usually just prefer to let matters build to a crisis level before taking any action. The only problem is that usually by that time, the problem has become so great that it’s difficult to solve. What’s more, frustration and anger from all parties make constructive dialogue difficult or impossible, which ultimately results in this kind of destructive deadlock.

At this point in the solar panel dispute, it’s probably already too late for Beijing to take any constructive steps to try and address concerns in the US and Europe. But that doesn’t mean that China shouldn’t at least try to make at least some kind of conciliatory effort, which could perhaps help to end this dispute sooner rather than later. That’s important, since it’s in everyone’s interest to salvage this key sector  that will be critical to creating a sustainable energy environment in the future.

Bottom line: Beijing needs to change its approach to one of constructive dialogue rather than angry warnings to solve its solar panel disputes with the US and EU.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Photo: Angry sculpture in Majishan Grottoes in Gansu Province, northwest China.  Photo by MarsmanRom via Wikipedia Commons.

European Commission Recommends Tariffs on Chinese Solar

James Montgomery

Trade War
Trade War. photo via Bigstock
The European Commission has decided to recommend duties on Chinese solar panels up to 67.9 percent, according to reports from multiple sources.

Wall Street Journal reports that the tariffs will affect more than 100 companies, and be implemented at a range from 37.3 to 67.9 percent at an average of 47.6 percent, close to projections earlier this week. Companies will face tariffs as follows:

  • Suntech (STP) and its subsidiaries: 48.6 percent
  • LDK Solar (LDK): 55.9 percent
  • Trina Solar (TSL): 51.5 percent
  • JA Solar (JASO): 58.7 percent

Other companies that cooperated with the investigation will likely be hit with a 47.6 percent tariff, while those that did not cooperate will face a 67.9 percent tariff.

China strongly opposes the tariffs and is calling for extended dialogue to resolve the situation, according to Bloomberg. The Alliance for Affordable Solar Energy (AFASE) also expressed its concern in a statement, claiming that punititve tariffs at any level will cause "irreversible damage to the entire European Photovoltaic value chain."

Last November the U.S. handed down antidumping and countervailing duties. Europe already was eying actions against China's solar manufacturers in motion for more than a year, before the U.S.' own trade case was finalized, though presumably the U.S.' decision provided momentum.

The EC's preliminary decision on antidumping was scheduled for early June, followed by a preliminary ruling on antisubsidies in August. Both are expected to be finalized in December.

In recent weeks the EC has further tightened the screws on Chinese solar imports, first requiring registration of panels, and more recently initiating antisubsidy and antidumping investigations into solar glass from China. The latter, spawned by a complaint by EU ProSun Glass, is a distinct investigation from the Chinese solar panel investigation, and is said to be not formally affiliated with the SolarWorld (SRWRF)-led "EU ProSun" coalition which launched the broader solar complaint a year ago.

Not all of Europe is united in this solar dispute. The Solar Trade Association (STA), a collection of EU national industry associations — UK, Italy, Romania, Poland, Hungary, Sweden, and Slovakia — has expressed "deep concerns" and "overwhelming opposition" in an open letter to European Trade Commissioner Karel De Gucht, arguing that the EC's investigation into Chinese solar manufacturers already has been damaging. "The impact on employment and EU value added will far outstrip any impact that the duties may have on EU photovoltaic producers, particularly because these producers are struggling with structural issues that cannot be efficiently addressed through the imposition of duties," they say. "Duties at any level are already having a significant impact, dwarfing any possible benefit for European solar producers and setting back the objective for grid parity for years." Meanwhile, China and France have been formally discussing broader "economic relations and the cooperation of common interest," including having the French urge the EU "to cautiously utilize trade remedy measures" regarding the PV investigations.

And China has repeatedly suggested it might retaliate with its own probe into US and European polysilicon suppliers. "I continue to not understand the logic" of a retaliatory Chinese penalty on silicon imports, said Thomas Gutierrez, president and CEO of GT Advanced Technologies (GTAT), which makes equipment for producing the silicon starting material for solar cells and modules, days ago during the company's quarterly results conference call. "China can't support itself in high-quality production of polysilicon. And if they put tariffs on polysilicon, they're going to increase the cost of their already profitless wafer and cell manufacturing industry."

Among the arguments lobbed in the EU/China trade dispute is the issue of jobs at risk, as it was in the U.S./China dispute. A report earlier this year suggested nearly a quarter of a million jobs might be at stake across several European countries, potentially wiping out €18.4-€27.2 billion of market activity. Chong Quan, deputy international trade representative with China's Ministry of Commerce, has suggested 400,000 Chinese workers could be affected by Europe's solar trade decision. The STA acknowledges the European Photovoltaic Industry Association's calculation of a €39.4 billion value in the PV value chain and "no less than 265,000 jobs — but that the companies behind Europe's antidumping investigations "represent no more than a maximum of 8,700 jobs," or at most 3 percent of all jobs in the PV value chain, according to the STA.

Both types of trade disputes have dangerous consequences on the overall global market. "If domestic requirements are forced to be abandoned and incentive policies changed radically, that would change demand in specific countries," explained Michael Barker, senior analyst at Solarbuzz. The upstream trade disputes, meanwhile, could change supply arrangements across key regions; placing duties on products "could change investments going forward and short-term supply."

"Trade issues are big — but PV demand is driven more by local policy and regulatory movements than by cost," Barker said. As costs come down, so do incentive policies — even down to the city level. "While the cost portion is certainly very important, it's also what countries are doing at the local level to make it easier, or harder, for PV to be competitive or get ample returns," Barker said. "Local regulations and policies will be the ones enabling end-market demand, or hindering it."

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

May 07, 2013

Solar Gainers and Losers

By Harris Roen

Five solar stocks announced key updates – three show improved prospects, and two warn of danger.

Power REIT (PW)
More Info
Power REIT will acquire 100 acres of land underlying a 20 megawatt solar array to be developed. The leasee will sell electricity to Pacific Gas & Electric (PG&E) and Southern California Edison (SCE), which should then provide a steady income stream to PW shareholders. The stock price is up 11% for the year, in addition to a yield of 3.9%. Press release
Advanced Energy Industries (AEIS)
More Info
AEIS issued a respectable, though mixed, earnings report. Profits were up and net income jumped considerably, but revenues dropped slightly and EPS was down 17% from the previous quarter. Q2 2013 guidance was in line with analyst estimates, which are projected to come in 18%-30% above current levels. The stock had a nice bounce on the news, and is up 34% for the year. Reuters article
SunPower Corp (SPWR)
More Info
A positive earnings report caused a jump in SunPower’s stock price, up 18% yesterday and 171% for the year. Revenues dropped slightly for the quarter, but were 30% higher than the same quarter one year ago. The company also announced it will supply Verizon with rooftop and ground-mounted PV systems in 6 states. Press release
GT Advanced Technologies Inc (GTAT)
More Info
GTAT stock remains battered on a poor earnings report. The stock dropped 5% in one day on large volume, and is down 43% for the year. The company announced it sill stop offering earnings guidance going forward. SolarServer article
STR Holdings, Inc. (STRI)
More Info
Losses continue for STRI, with revenues 30% below the previous quarter, and 64% below the same quarter last year. Profits and net income showed improvement compared to losses of the previous quarter, but still remain negative. STRI stock is down around 90% from its highs in late 2010. Press release

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article, but it is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

Remember to always consult with your investment professional before making important financial decisions.

May 06, 2013

Reports of Price Increases and Better Margins Boost Solar Stocks

Doug Young

Sun peaking out of clouds.jpg
Solar panel makers are finally seeing signs that the clouds could be lifting from their embattled sector, sparking a stock rally for their volatile shares. Canadian Solar (Nasdaq: CSIQ) led off the upbeat news, releasing preliminary results that included better-than-expected first-quarter sales and margins. But perhaps more importantly, other reports said the industry is seeing some of its first sustained price increases after more than 2 years of declines. Those 2 pieces of good news ignited a rally for solar shares, led by Canadian Solar whose stock rose more than 12 percent to a new high not seen for more than a year and a half. (company announcement) Shares of JA Solar (Nasdaq: JASO) also rose a healthy 11 percent, while Trina Solar (NYSE: TSL) was up 7.5 percent. Even embattled LDK (NYSE: LDK) shared in the gains, rising 8 percent in the rally.

Let’s start with Canadian Solar, which said it now expects to report that first-quarter shipments totaled 335-345 MW, or about 13 percent higher than its previous forecasts. The company also said first quarter gross margins would come in at 9-10 percent, a slight improvement over its previous forecast. Equally important, the latest margin forecast is a significant improvement over the 5 percent gross margins in last year’s fourth quarter, indicating the company’s net loss is likely to show strong improvement when it releases its final first-quarter results.

Canadian Solar made its relatively upbeat announcement as other media reported the first sustained pricing gains for solar panels in more than 2 years. The reports cited data tracking firm iSuppli saying the price of Chinese panels shipped to the European Union rose 4 percent in March and another 1 percent in April. (English article) Those increases marked the first monthly rise for the sector in more than 4 years before it entered its current prolonged downturn caused by massive oversupply. iSuppli further predicted that solar panel prices in Europe would rise by an average of 4 percent over each of the next 3 months.

So now the big question becomes: Will these new price increases help companies return quickly to profitability, and what does that mean for these companies’ stocks? The answer is probably quite complex, since this nascent rebound comes just as China embarks on a major overhaul for its solar sector. That retrenchment is likely to see bigger names like Canadian Solar and Trina pressured to take over operations of smaller, less efficient firms as part of a Beijing-led effort to salvage as much of the sector as possible.

I doubt that any of the larger companies will have to take over completely hopeless operations of other companies, which are more likely to simply be shut down as part of this overhaul. Still, the big players will ultimately have to take over at least some other companies’ operations, creating integration issues and also prolonging their own return to profitability.

In terms of stocks, the bigger names like Canadian Solar, Trina and Yingli (NYSE: YGE) do indeed look like strong bets at this point, as most still trade far below the meteoric highs reached just 3 years ago at the height of bullishness on solar energy. Protectionism in the US and Europe remain potential risks, but even those are at least partially offset by expected new demand in developing markets and also in China.

In a world where overly optimistic companies have incorrectly predicted an end to their downturn for much of the last year, it’s hard to say if this time the worst is really finally over. But the recording of the first price increases in more than 4 years by a third party observer like iSuppli is certainly a good sign, and it’s possible we could finally start to see companies’ losses start to shrink later this year.

Bottom line: Recent price increases indicate the solar sector may finally be exiting its prolonged downturn, which could help to spark a rally in solar stocks.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Photo by Tom Konrad

May 04, 2013

MidAmerican, SunPower Begin "Major Construction" at Antelope Valley

James Montgomery
Joshua trees in Antelope Valley, CA. Photo by Tom Hilton

MidAmerican Solar and SunPower [SPWR] have begun "major construction" at the Antelope Valley Solar Projects (AVSP), two co-located megasolar projects totaling a combined 579 megawatts (AC) generation capacity that MidAmerican bought earlier this year for $2+ billion.

Construction work technically began in January with laying groundwork and putting infrastructure in place, such as trailers and supplies. One MW has already been installed at AVSP, and now efforts will ramp up over the coming weeks with more workers on the ground driving piers for subsequent arrays, according to a MidAmerican spokesperson.

Celebrating this milestone at what MidAmerican Solar and SunPower call "the world's largest solar power development under construction," the two companies hosted a community picnic and celebration at the project site, with representatives of the company and local and state officials discussing the project's construction schedule, environmental values, and technology and community-centered plans for the future.

The AVSP projects, developed by SunPower using its own solar panels and trackers (and eventually SunPower's operations & maintenance services), are on roughly 3200 acres of land spanning Kern and Los Angeles Counties near Rosamond, CA. Both projects are under 20-year power purchase contracts with Southern California Edison (SCE). Construction technically began in January and will continue through the end of 2015; during that three-year stretch the companies expect to employ about 650 workers and generate the majority of an anticipated $500 million in "regional economic impact."

Other large solar projects in the same proximity reportedly have run into delays with problems about environmental impact during construction. AVSP's dust mitigation efforts are "a multi-pronged approach," says the MidAmerican spokesperson. This site won't need massive grading, and road creation will be the only land disturbance, they claim; crews will drive posts where they're needed and then leave the ground as-is. Also there is ongoing spot reseeding of native grass where it's not already growing in, continuing efforts by the previous local property owners.

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

April 30, 2013

First Solar Optimistic About Future

Liz Nelson

First solar logoThe largest thin-film panel manufacturer in the world has an optimistic view of the immediate future for renewable energy demands. First Solar (FSLR) had an impressive charge for several years until the final quarter of 2008 when the stock value of the photovoltaic manufacturer began to plummet. Over the course of four years, the stock had dropped from approximately $311 per share to a dismal $11.43 nearing the end of the second quarter in 2012. At the beginning of April of 2013, the stock had nearly tripled in value and continues to gain momentum.

The beginning of First Solar's downward spiral came in the form of U.S. government not developing a proper action for subsidies and credits as these would help reduce costs making solar power a cost effective solution all-around. During the same time First Solar's stock hit its all-time low, European subsidies were pulling from open fields to rooftop models. Combined with the competitive market for eco-friendly energy development, the solar power company suffered from little sales growth by the middle of 2012.

Many photovoltaic companies are feeling the brunt of the lack of support from the governing bodies of respective countries. Other manufacturers such as SunPower (SPWR) rely on lower-scale residential installations and are able to thrive in the European market due to the subsidy change. First Solar is attempting to overcome the recent obstacles by providing a more cost effective solution without relying on these subsidies in order to make the process cheaper. Since the company's stock hit its all-time low, the focus has been slightly shifted to produce goods for areas that can be utilized without government relief. 

1. Future Contracts - Currently, First Solar is one of the contenders for developing 500 to 1,000 megawatt power plants that are to be assembled in the Middle East and North African areas. Experts state that the solar giant could easily win a large portion of these bids greatly increasing the company's revenue based on the low-cost effectiveness of the manufacturing process of the thin-film panels. This comes on the heals of First Solar's acquisition of TetraSun, a start-up silicon cell developer that has created a proprietary method of cost-effective manufacturing. The acquisition will give First Solar more diversity when bidding on projects and expand the market creating more opportunities later on by reducing costs in manufacturing which reduces the price to consumers.

2. Environmental Sustainability - First Solar is committed to sustainability in a variety of forms. When it comes to the carbon footprint left behind by energy production, First Solar systems are cleaner than nuclear sources. Surpassed only by wind generation, photovoltaic power generation is one of the most environmentally sound applications currently in production. Recycling of these CdTe photovoltaic modules at the end of their lifespan that are featured in First Solar's developments continues the waste reduction even further.

3. Social Sustainability - A social conscience is what makes a good eco-friendly organization, and First Solar proves to be mindful of the future of humanity. The solar power giant has generously donated panels, equipment, and training to a wide variety of locations stretching from schools in California to non-profit organizations in Australia. First Solar has also teamed up with a number of other organizations around the globe in order to bring solar awareness and efficient productivity to as many people as possible regardless of their location.

4. Economic Sustainability - Launching campaigns to inspire job creation, First Solar provides knowledge and training to a variety of locations around the globe. The goal is to reduce the overall cost of photovoltaic manufacturing in order to compete with markets that are based in fossil fuels. With energy security on the minds of a great deal of people and governments world-wide, First Solar puts forth manufacturing efforts to ensure this security never diminishes. If we are unable to tap solar power, the planet has far more immediate and pressing concerns relating to our Sun.

Siemens discussed pulling out of the DESERTEC project in 2012

 Some companies have begun to rethink strategies regarding renewable energy development as the value of such products are over-shadowed by doubt in their opinions. Siemens (SI) discussed pulling out of the Sahara Desert project, DESERTEC, and solar power in general, in October of 2012 due to variables such as falling government subsidiaries. This is shortly after being criticized over the controversial move of making a deal for windmill plants in Morocco occupied Western Sahara earlier in 2012. With as much attention as renewable energies have witnessed recently, First Solar is primed to be on the ground level of a variety of projects and is anticipating greatness in the future.

As long as companies like First Solar can keep the cost of building power plants low, the success will only increase. Since the middle of 2012, many photovoltaic manufacturers have been looking for methods and innovative creations in order to reduce these costs. First Solar has done a great deal to accomplish this task as well as restructure internally. With the acquisition of TetraSun, First Solar has been on the rise with manufacturing projects all around the globe. Between August of 2012 and nearing the end of April 2013, FSLR stock rose from $19.99 to $44.08. As manufacturing costs decrease, buyers are interested in building solar arrays once again and First Solar has the ability to offer a very competitive price while still being able to generate a profitable net income.

This is a guest post by Liz Nelson from She is a freelance writer and blogger from Houston. Questions and comments can be sent to: liznelson17 @

April 26, 2013

Solar PV Inverter Market Shakeout Continues With ABB and Power-One Deal

James Montgomery

A pair of analyst reports issued last week came to roughly the same conclusion about the market for solar PV inverters: It's getting crowded and complicated, with top incumbents facing challenges in maintaining near-term growth in an increasingly fragmented market.

Those PV inverter stalwarts will need to pursue more restructuring and mergers & acquisitions to stay atop the shifting and broadening customer base, addressing everything from tough-to-crack markets (e.g. China, Japan) and embracing newer technologies such as module-level power conversion, i.e. microinverters, say IMS Research and GTM Research. This consolidation has already started to play out: SMA (S92.DE) bought Chinese inverter maker Jiangsu Zeversolar New Energy in December 2012, and earlier this month Advanced Energy (AEIS) acquired REFUsol, a German maker of three-phase string solar PV inverters.

And Wednesday there was another M&A splash in solar PV inverters: Swiss machinery component conglomerate ABB Group (ABB) is acquiring No. 2 PV inverter company Power-One (PWER) for approximately $1 billion.

The $6.35/share cash consideration — which, including Power-One's $266 million net cash, amounts to a 6.4× multiple on 2012 EBITDA and 13× on projected 2013 earnings — was a 57 percent premium to Power-One's closing on April 19 and a 50 percent premium on its 90-day average stock price. (PWER's stock already has shot up today and absorbed all of that premium.) The deal is expected to close in the second half of this year, and be accretive to earnings in the first year. Power-One will be slotted within ABB's discrete automation and motion division, alongside power control and quality, industrial motion, and electric vehicle charging and components.

The solar PV inverter market is expected to grow 10 percent annually through 2021, say the companies, citing data from the International Energy Agency (IEA). IMS Research pegs it as a $7 billion market today and exceeding $9 billion in 2016, rising 14 percent annually through 2017. Within that, the inverter segment is "the most attractive and 'intelligent' part of the PV value chain," the companies say.

Global PV Inverter Revenues

Global PV inverter revenues. (Source: IMS Research/IHS)

Here's what both sides gain from the deal:

ABB: Gains better access to the Americas region (USA, Canada, Central/South America). Power-One is active here and is targeting this as a key growth segment for 2013 at all levels, residential, commercial and utility. The company's Trio (commercial) and Ultra (utility) inverters were recently UL-certified. Adding Power-One also gives ABB inroads into residential and commercial markets in Europe and worldwide beyond its traditional utility-scale focus, points out Cormac Gilligan, a lead analyst on IMS Research's inverter team.

Jefferies analyst Scott Reynolds likens this deal to ABB's 2012 acquisition of Thomas & Betts, which expanded its portfolio into low-voltage technology but also added 6,000 distribution points and wholesales in North America. Power-One "has a significantly larger sales and distribution footprint than ABB which will enable the combined entity to accelerate growth," he writes in a research note.

Power-One: Gains access to ABB's broader worldwide footprint for manufacturing and R&D capabilities, including in-house know-how of power electronics. It also can leverage ABB's brand and background for "bankability" in securing access to finance, Gilligan says. ABB also cites its own strengths in the wind inverter sector, plus monitoring/control, infrastructure, and services.

ABB/Power-One Renewables Portfolio

As a combined entity, ABB and Power-One will still have to balance the trend of decreasing prices for PV inverters that will squeeze profits. And like everyone else they'll have to secure inroads into emerging markets (Asia, Middle East, South America). Markets in Japan, China, and India in particular will be key: working with local suppliers and meeting each country's unique requirements (e.g., JET certification in Japan) and price points.

To that end, M&A activity in the PV inverter market is likely only just getting started. ABB pursued this Power-One deal now because waiting for more clarity in market direction could very well lead to paying more, said Joe Hogan, ABB CEO, during an investor conference call. There are no midsize or large deals in ABB's short-term pipeline, he noted, and emphasized that "you won't see us ever do a solar panel deal" because "we're not a machinery company at all."

Some might question ABB's long-term appetite for solar M&A given last fall's backpedaling of investment CPV startup Greenvolts. But PV inverters are very much in the company's wheelhouse of expertise in power electronics, power management and grid interactions, Hogan reiterated. Solar PV inverters have to interface with grids in diverse regions with unique technical and regulatory requirements, and "we know how to do that. It's in our DNA," he said.

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

April 25, 2013

Yingli Queues Up For Next Chinese Solar Bailout

Doug Young

Yingli logoYingli (NYSE: YGE) has become the latest player in China’s struggling solar sector to get a lifeline from Beijing, as an interesting picture starts to emerge of the relative health of the sector’s major players and who is likely to lead a coming consolidation. The list of who gets these lifelines could also reflect the relative importance Beijing places on China’s wide and varied field of solar panel and panel component makers, meaning some of these lifeline recipients could emerge as potential leaders to help consolidate the sector in the months ahead.I should make a big disclaimer here by saying my observations are based only on public disclosures that I have seen, and that some of the industry’s other major players could also be quietly receiving their own state-backed lifelines that they simply haven’t disclosed yet with official announcements. But that said, I do suspect that most of the big solar names will disclose any big new state support they get, since such support is usually critical to their survival.

With that lengthy disclaimer as an introduction, let’s take a closer look at the latest news that has Yingli saying it has secured 2 new loans worth a combined $165 million from China Development Bank, a major policy lender that is quickly emerging as Beijing’s main tool to bail out the solar sector. (company announcement) Yingli didn’t say very much else in its announcement, except to state the obvious that the loans would help to strengthen its balance sheet.

Investors welcomed the news, bidding up Yingli shares by 8.5 percent after the announcement. Other big solar players also rallied, with Trina (NYSE: TSL) up 9.6 percent, Canadian Solar (Nasdaq: CSIQ) up 4.4 percent and JA Solar (Nasdaq: JASO) up 3.4 percent. Even beleaguered LDK (NYSE: LDK), which is rapidly selling off assets to stay afloat, rose 4.6 percent, though bankrupt Suntech (NYSE: STP) managed to buck the trend and fell slightly.

With its announcement, Yingli becomes the latest in China’s solar sector to receive a temporary reprieve from China Development Bank. Mid-sized manufacturer ReneSola (NYSE: SOL) announced its own new 320 million yuan ($51 million) credit line from China Development Bank in March (previous post), which followed LDK’s announcement a month earlier that it received a similar 440 million yuan in new financing from the bank. (previous post) China Development Bank has also provided past financing for Suntech, and late last year provided major new funds for wind power equipment maker Ming Yang (NYSE: MY) to build new projects in India. (previous post)

So the big questions become: How can one interpret this flurry of activity by China Development Bank, and what’s likely to happen next? I would expect we’ll see CDB make 1 or 2 more similar big loans to other major players in the next month or two, giving everyone the funds they need to survive for the next couple of quarters. The bank will then use its clout with the companies to promote consolidation, providing financing and other assistance to force a series of mergers and closures of smaller, inefficient players.

Investors are likely to look favorably on most loan recipients, as many will believe those companies are likely to emerge as the top new players after a state-led consolidation. If I were a betting man, I would say that loan recipients do indeed look like Beijing’s picks to become future leaders. That’s because even though CDB is a policy lender with less emphasis on earning profits, it’s still unlikely to pour money into companies that Beijing thinks has no future.

Bottom line: Yingli’s receipt of a lifeline from Beijing indicates it and other similar loan recipients are likely to lead a state-sponsored restructure of the solar sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

April 20, 2013

Suntech May Sell Italian Assets, LDK Defaults

Doug Young

Suntech logo]A restructuring storm continues to blow through China’s battered solar sector, with word of a potential major asset sale by Suntech (NYSE: STP) and a debt default by LDK Solar (NYSE: LDK). Of these 2 news bits, the Suntech one is easily the most interesting as it finally helps to make sense of reports last week that billionaire investor Warren Buffett might want to buy the former solar superstar that last month declared bankruptcy. But Suntech investors will be disappointed to learn the latest reports don’t seem to include a major cash infusion from Buffett, who isn’t really known for investing in such troubled assets.All that said, let’s take a look at the latest Chinese media reports, which say that Suntech may be looking to sell its Italian assets as part of its bankruptcy restructuring. The main asset up for sale would be its 88 percent stake in GSF, a fund that was building solar plants in Italy mostly using Suntech-supplied solar panels. Some readers may recall that Suntech came under fire last year after disclosing its relationship with GSF, since it was using sales to the firm to inflate its own revenue figures.

But let’s move past that scandal to the latest reports, which say that Suntech could sell its stake in GSF to raise some badly needed cash. GSF has an enterprise value of up to $800 million, but Suntech’s stake would likely be worth far less than that amount since the solar plants that are GSF’s main assets were built when solar panels prices were sharply higher than their current levels. A Suntech spokesman said the company intends to operate GSF for now, though he did add that it will consider its options to maximize shareholder value.

So where does Warren Buffett come in to all this? Media reports have suggested that Buffett may actually be interested in purchasing Suntech’s GSF stake, most likely at a steep discount to GSF’s current value. Suntech’s battered shares briefly jumped last week after media reported rumors that Buffett was interested in buying Suntech’s core manufacturing assets in its hometown of Wuxi.

This latest report that Buffett would buy Suntech’s GSF stake makes much more sense than the earlier one last week. That’s because Buffett has a record of buying existing solar power plants, which is essentially what he would be getting by purchasing Suntech’s GSF stake. It’s easy to calculate the rate of return for such plants, since costs and revenue are all well known quantities. These latest media reports point out that Buffett is likely to ask for a steep discount for Suntech’s Italian assets if he really makes a bid, meaning Suntech isn’t likely to get anything close to the $700 million that the stake may officially be worth.

ldk logoFrom Suntech let’s look quickly at LDK, which didn’t surprise anyone with its announcement this week that it has "partially” defaulted on payment for some of its convertible bonds due to lack of cash. (company announcement; English article) This current partial default was relatively minor, involving a $23 million payment that was due on April 15. But the media reports also point out that LDK has another $240 million in debt coming due in June, and that a default on that amount could well trigger the second bankruptcy for a major Chinese solar panel maker after Suntech.

LDK is trying desperately to sell off its assets to various state- and privately-owned entities to avoid Suntech’s fate. It does seem to be attracting some interest in those assets, which it is selling at sharp discounts. At the end of the day, perhaps it will avoid a bankruptcy through such asset sales. But when all is said and done, such sales are probably the same as a bankruptcy reorganization, since the “new” LDK is likely to be a fraction of its original size if it even continues to exist at all.

Bottom line: Suntech could sell its Italian assets to Warren Buffett at a big discount, while LDK could avoid bankruptcy by selling off most of its assets.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog,
Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

April 12, 2013

Solar Stock Alerts

By Harris Roen

Three companies in solar had gains yesterday. Duke made a significant acquisition; First Solar offered positive guidance; JinkoSolar posted an upsetting loss.

Duke Energy Corporation (DUK)
More Info
Duke Energy Renewables acquired two PV power projects in Southern California. Highlander Solar 1 and 2 have a combined capacity of 21 MW, and have 20-year power purchase agreements with Southern California Edison. Operations should become commercial in mid-2013. This brings Duke to more than 100 MW of generating capacity. The stock is up 18% for the year. Press release
First Solar, Inc. (FSLR)
First Solar announced strong guidance for 2013, beating analyst estimates. Revenues are projected to be 13%-19% above 2012 levels, and consolidated operating income should reach $430-$460 million. The stock went up 2% for the day on the news, and is up 70% for the year.
Reuters article
JinkoSolar Holding Co., Ltd. (JKS)

JinkoSolar released a disappointing fourth quarter 2012 earnings report, posting a $122 million net loss. This is more than double the loss from the same quarter last year. For the fiscal year, JinkoSolar had a net loss of $248 million, reversing a net income of $43 million for the previous year. Despite this, the stock jumped 4% for the day, and is up 5% for the year. Press release

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article, but it is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

Remember to always consult with your investment professional before making important financial decisions.

April 11, 2013

Will Buffett Rescue Suntech?

Doug Young

Solar Lifeline image via Bigstock
Intriguing rumors that billionaire investor Warren Buffett might be eying bankrupt former solar superstar Suntech (NYSE: STP) are breathing new life into embattled solar shares, as traders bet that western investors could help to revive the sector. Such a move would indeed be a major vote of confidence in this tarnished industry, since most observers believe that no private investors would want to bet on this group and a state-led rescue will be necessary to save the shaky sector. But all of that said, I’m quite skeptical that the latest rumors are true, since Buffett isn’t know for investing in problem-plagued companies or sectors.

Regardless of whether they’re true, the rumors that Buffett might want to buy Suntech helped to spark a rally in Chinese solar shares, with Suntech’s own shares up nearly 16 percent in Monday trade. (English article) Other solar shares joined the rally, with Trina (NYSE: TSL) and Yingli (NYSE: YGE) up 7.6 percent and 4.5 percent, respectively. Even mid-sized players joined in the rally, with Canadian Solar (Nasdaq: CSIQ) and JA Solar (Nasdaq: JASO) also gaining 9.7 percent and 3.7 percent, respectively.

Let’s take a look first at the reasons why the rumors might be true to see why investors were so excited. Buffett has shown a recent interest in new energy companies, some of which could be poised for big growth as many governments try to wean their economies from overdependence on traditional fossil fuels.

One of Buffett’s earliest investments in the area came in 2008, when he purchased 10 percent of BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF), a China-based maker of electric cars and buses.  More recently, Buffett has also invested in solar power projects in California and Arizona, and in an Illinois-based wind farm. (previous post) While the US-based investments are likely to produce their promised returns, results from the BYD investment have been decidedly worse as the company’s EV program struggles.

Now let’s take a quick look at the reasons why an investment in Suntech doesn’t really sound like something Buffett would consider. Leading the list is the complexity of Suntech current situation, after the company defaulted on more than $500 million in debt and was forced into bankruptcy last month by its largest lenders.

Not only is Suntech now in bankruptcy, but the case is being heard in a court in Suntech’s home city of Wuxi where the local government wields big influence. Buffett would have to be very brave to try his luck in this unfamiliar territory, which is hardly like a bankruptcy case in the US court system.

The case is further complicated by Suntech’s problematic founder Shi Zhengrong, formerly one of China’s richest men but now better known for creating many of the problems that led to his company’s rapid crash. Shi’s refusal to yield control of his company in exchange for a government bailout was largely responsible for the bankruptcy that was ultimately forced on Suntech.

Many expect that Shi will be pushed out of the company as part of a restructuring that will see government entities become Suntech’s controlling stakeholders. Beijing and the Wuxi government might actually welcome Buffett’s participation in such a restructuring, since it would provide the company and also China’s broader solar sector with a huge new credibility boost.

But I suspect that Buffett is too smart to get involved in such a messy affair, especially since there’s no evidence just yet that the industry can be commercially viable in its present state. Accordingly, this latest rumor is probably either just wishful thinking by Suntech or some of its rivals, or perhaps it was deliberately created by traders looking to make some quick cash from the stock rally. I expect the rumor will quickly disappear after this week, though it’s still is possible Buffett could invest a year or two from now when the sector finally returns to more stable footing.

Bottom line: Rumors of a Warren Buffett investment in Suntech are most likely false, though Buffett could ultimately invest in China’s solar sector when it returns to health.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog,
Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 24, 2013

JA Solar and Renesola Rush to Reassure Creditors

Doug Young

Mid-sized solar panel makers JA Solar (Nasdaq: JASO) and ReneSola (NYSE: SOL) are both in the news today discussing their finances, in what looks like an attempt to calm the nerves of investors and creditors who are no doubt worried following the bankruptcy forced upon former industry leader Suntech (NYSE: STP) earlier this week. All of these companies have billions of dollars in debt which they used to build up their manufacturing operations over the last decade, and big amounts of that money will be due for repayment in the next 2 years.

Meantime, the fate of Suntech itself remains cloudy because the process is happening in an Chinese courtroom where local government officials wield big influence; but Chinese media are giving some indication of how things might proceed, with the government in the company's hometown of Wuxi looking like it will play a major role in the coming reorganization.

Let's start off with the news from JA Solar and ReneSola, which, like everyone else, are both losing money and struggling under big piles of debt accumulated during China's solar panel build-up. Chinese media are quoting a JA Solar official saying the company has already prepared sufficient funds to repay $120 million worth of its bonds that will come due in May.

The reports cite CEO Xie Jian saying the company's bonds "don't have default risks", although those words didn't stop the price of the company's bonds from falling. Its publicly traded shares also fell 3.5 percent in New York, and are down 9 percent this week.

Meantime, ReneSola has put out its own statement announcing a new credit line from policy lender China Development Bank worth 320 million yuan, or about $51 million. (company announcement) The announcement doesn't say much, though the company says its ability to secure new funds in such a tough environment underscores ReneSola's relatively strong financial position.

I don't want to be too cynical, but it does seem like someone needs to point out that China Development Bank is hardly a traditional commercial bank, and I seriously doubt ReneSola could have gotten similar funds from any real commercial lender. People who have followed the current crisis will know that China Development Bank has been mentioned on numerous occasions as Beijing's most likely financial vehicle for a broader industry bailout that could come later this year. This latest news would seem to indicate the bank will help Chinese solar panel makers to keep operating by providing necessary funds until the broader restructuring plan is implemented.

Lastly, let's take a look at the latest report on Suntech in the China Daily, whose headline on the saga cites analysts saying the decision to declare bankruptcy was a "wise move". Since the China Daily is an unofficial spokespaper of Beijing, it's probably safe to assume that government officials in both Beijing and Wuxi agree with this characterization of the bankruptcy declaration, which was forced on Suntech by its creditor banks.

The report, which largely cites unnamed industry insiders, says there is a good possibility that the Wuxi government will take over Suntech's debt, which includes more than $1 billion owed to 9 Chinese commercial banks. The report also indicates that newly named Suntech director Zhou Weiping, who has strong ties to the financial industry, may play an important role in the reorganization. It indicates that Suntech founder Shi Zhengrong may assist in the coming reorganization, but is unlikely to stay around after that. All of these moves look designed to calm investor worries as government entities keep the sector alive until a broader industry reorganization plan is announced.

Bottom line: New comments from JA Solar and ReneSola are aimed at easing default concerns among their creditors, with Beijing likely to continue funding the sector before a broader reorganization.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog,
Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 21, 2013

Suntech Forced into Bankruptcy, Yingli Partners with GCL

Doug Young

Suntech logo]The inevitable has finally happened at tanking former solar star Suntech (NYSE: STP), which has been forced into bankruptcy ending a months-long battle between the company's founder Shi Zhengrong and just about all the company's other stakeholders. In the meantime, I would be remiss not to mention another solar news tidbit that has panel maker Yingli (NYSE: YGE) forming a new strategic tie-up with GLC-Poly Energy (HKEx: 3800), in what could eventually become the first mega-merger in the struggling solar panel sector.

Let's start with Suntech, which has been in the headlines nearly non-stop these last 2 weeks as it formally defaulted on more than $500 million in bonds that came due last Friday. Suntech founder Shi Zhengrong has been fighting nonstop not only with the bondholders, but also with his company's bankers and officials in the city of Wuxi where Suntech is based.

Nearly everyone wants Shi to leave the company as part of any rescue plan, and the company's various stakeholders have partly succeeded in that goal by first stripping Shi of his CEO title, and then his chairman's title as well. But Shi remained in the picture because of his holdings of 60 percent of Suntech.

Now the government and Suntech's state-owned lenders have finally joined forces and petitioned a local court in Wuxi to have Suntech declared insolvent, according to a company announcement. (company announcement) Chinese media reported that the court accepted the petition on Wednesday, and ordered that the company undergo a bankruptcy organization.

That should theoretically set the stage for the cancellation of Suntech's US-traded stock, which would eliminate Shi's last remaining influence at the company. Such a share cancellation would mark the end of a spectacular downfall for Shi, who was once China's richest man with a fortune worth more than $2 billion.

Interestingly, Suntech's shares were unchanged in Wednesday trade after all the latest news. But at 59 cents each, they are already at a tiny fraction of their all-time high of around $80 reached back in 2008. Some shareholders may think that Suntech stock will retain some value under the reorganization, as China may want to keep the company publicly traded. But that may be a dangerous gamble since such a move would leave Shi with some influence at the company. Accordingly, I would put the chances of Suntech's stock becoming worthless at greater than 50 percent.

Meantime, let's look quickly at Yingli's new tie-up with GCL-Poly. (company announcement) There's not much detail in the announcement, which looks like a good fit since Yingli is a leading solar panel maker and GCL-Poly is a top supplier of material used to make those solar panels. Both companies are also among the largest in their respective spaces, though GCL-Poly's market cap is quite a bit bigger than Yingli. If this partnership goes smoothly, I could see the 2 companies eventually combining, producing a new leading player for this beleaguered sector that is in desperate need of more consolidation.

Bottom line: Suntech's upcoming bankruptcy reorganization is likely to result in the cancellation of its stock, wiping out founder Shi Zhengrong's fortune and removing him from the company.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog,
Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 19, 2013

Bejing Should Oust Shi to Save Suntech

Doug Young

Suntech logo]New developments have come rapidly over the past week at Suntech (NYSE: STP), leaving the former solar superstar on the brink of collapse as its founder Shi Zhengrong blocks a potential government rescue. Shi’s exit is believed to be a main condition for the government bailout, and his refusal to leave could well result in the failure of a company that is otherwise an industry leader with strong potential. To prevent such a collapse, the government should take the unusual step of forcing Shi to go so that Suntech can begin a desperately needed reorganization. Such interference should be used only rarely in a true market economy, but does make sense when it means saving important companies in crisis.

Suntech’s current woes are grounded in a 2-year-old crisis for solar panel makers, which are suffering from massive overcapacity due to a huge build-up over the last decade. Most companies are now deeply in the red, and their shares have also plummeted. Suntech’s shares have come under particular pressure and now trade at $0.70, a fraction of their nearly $50 price back in 2008.

Dr. Zhengrong Shi
Dr. Shi Zhengrong Suntech Founder, Chairman and CSO.
Photo credit: Suntech

But Suntech’s woes go beyond the industry’s general malaise. The company came under fire last year when it disclosed a relationship that allowed it to book millions of dollars in revenue by selling panels to a company that it controlled. That relationship sparked a confidence crisis as investors feared Suntech may have engaged in other dubious business practices.

The crisis came to a head last week when more than $500 million worth of Suntech debt matured even though the company lacked cash to repay the money. Some 60 percent of Suntech’s bondholders agreed to a two-month extension of the deadline, but at least one said it would sue, further compounding Suntech’s woes. (English article) Meanwhile, media reported that Suntech could declare bankruptcy by March 20. While all this was happening, Shi was removed from his posts as CEO and chairman of the company. But he retains a place on Suntech’s board and continues to control the company through his 60 percent ownership of its stock.

Government entities in Beijing and Suntech’s hometown of Wuxi are reportedly ready to provide desperately needed funds to ensure the company’s survival, as part of a broader State-led rescue that would see the industry consolidated around about a dozen its the biggest players. Suntech would almost certainly be among those consolidators if it can reorganize without Shi’s interference.

But Shi has shown he has no intention of leaving, even if that means driving Suntech to ruin. To prevent that, Beijing and Wuxi should force Shi from the company, using their clout with government agencies and Suntech’s State-owned lenders to apply pressure through actions like withholding funds and revoking business licenses.

This kind of interference is rare in the West, but has occurred in times like the global financial crisis when governments stepped in to save companies like General Motors (NYSE: GM) and RBS (London: RBS). Without such intervention, Suntech’s downward spiral could easily continue to the point where the company fails, resulting in the loss of a major player with the potential to reorganize and regain its place as a global leader.

Bottom line: The government should move more aggressively to push Shi Zhengrong out of Suntech, or risk seeing the company fail.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog,
Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 17, 2013

Does SolarCity Run a Capital Efficient Operation?

by Debra Fiakas CFA

SCTY residential solar.png The last post “SolarCity's Investor Disconnect” visited the oft repeated flogging of a company missing consensus estimates.  SolarCity (SCTY:  Nasdaq) reported strong sales growth in the December 2012 quarter, but the net loss was far deeper than expected  -  at least as suggested by published consensus estimates.  Investors immediately held the company accountable for the miss.  A closer look at the consensus reveals it is there is a great deal of disagreement on SolarCity’s fortunes.

We can debate whether a company should be measured against a shakey consensus earnings estimate.  However, that would be a waste of time.  Since the stock has been trimmed back, it makes more sense to figure out whether there is anything happening at the solar panel installer that makes sensible a contrarian, long position.

Along with top- and bottom-lines, SolarCity reported a string of accomplishments in the year 2012.  The customer base grew more than four times.  That is probably why total leased solar systems topped $1 billion by the end of the year.    Contracted payments for all those leased systems totals $1.1 billion  -  a number akin to a backlog.

As impressive as all these numbers might appear, for me it is really not enough to get involved with SolarCity.  I need to know the company is running an efficient operation.  SolarCity has this unusual business model with revenue coming from sales of solar systems as well as recurring payments from leased systems.  Financing is a key driver of both revenue streams.

So a look at SolarCity’s financing interval is the first place to begin looking  -  how much financing the company needs to support operations.  We all learned this in financial accounting.  Inventory Days plus Accounts Receivable Days tells us how many days worth of sales have to be financed by the company.  At the end of 2012, Inventory Days Outstanding totaled a whopping 413 days and Days Sales Outstanding in Accounts Receivable were 71 days.

Of course, the cheapest source of financing for operations is credit from suppliers.  At the end of 2012, Payables Days totaled 296 meaning SolarCity is in good enough favor with its suppliers to credit for nearly a year’s worth of supplies.  So we have a financing interval of 206 days (413 days plus 71 days minus 296 days) that have to be covered by some other source of financing.  Put in dollar terms based on sales in 2012 $72.6 million dollars.  The calculation goes like this:  $128.7 million sales in 2012 divided by 365 yields a dollar value of sales per day.  Then multiplied by 206 days tells us what has to be financed.

Having just gone public we have limited visibility on SolarCity’s track record in managing its working capital.  If the financing internal of 206 days at the end of  2012 appears lengthy, the same measure for 2011 was absurdly low at just 11 days.  SolarCity it seems was able to string suppliers along on average over three years!
We can take a couple more insights from this exercise.  Collections on accounts receivable is excellent  -  just 71 days.  What is more, the number of days worth of sales held in inventory has been more than cut in half.  Still there were 413 days worth of sales sitting in inventory at the end of 2012.  There is still room for improvement.

Thus we get a bit of encouragement and a bit of reality from SolarCity’s balance sheet.  Shares of SolarCity have been trimmed back, but not enough for me.   I would pay the price if the company were closer to profitability or further along in managing working capital.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

SolarCity's Investor Disconnect

by Debra Fiakas CFA

SCTY residential solar.pngThis week solar panel installer SolarCity (SCTY:  Nasdaq) made its first earnings announcement following its initial public offering in December 2012.  The event was much anticipated even if only to get a glimpse of the company’s most notable (or it’s that notorious?) investor Elan Musk. 

Billionaire Musk was mostly recently in the public eye because of a spat with a New York Times reporter over one of Musk’s other major investments, Tesla Motors (TSLA:  Nasdaq).  The reporter was entrusted to road test one of Tesla’s electric sports cars and ended up writing a scathing article about the failure of the car to hold up to performance promises.   It turned out to be one of those “they said this and he said that” situations with Musk and reporter talking past each other in the social media.  In the end Musk prevailed after Washington Post and CNN reporters figured out their fellow journalist at the New York Times was probably just not car savvy enough to make a road trip in any car, let alone one that requires consistent driving skills as well as a strategy for charging batteries.

Musk came out of the road test brouhaha a bit diluted in my view.  So it seems SolarCity is in the same shape as its largest shareholder. 

SolarCity reported $14.0 million in total revenue in the December 2012 quarter, twice the top-line in the prior-year quarter.  That sort of top-line growth was expected.  Unfortunately, SolarCity reported a much deeper loss than expected  -  $0.54 per share compared to the consensus estimate of $0.44.  For all the billions invested by professionals there, a dime is big on Wall Street.  The stock price immediately gapped down by 8.2% as trading opened the morning after SolarCity’s earnings release and conference call.

Admittedly, my interest in SolarCity is after the fact.  I am always amazed at the hair trigger response of investors to quarterly earnings surprise, especially when an unseasoned security like SCTY is the target.  Certainly, the “shortfall” or “upside” is an instructive guide for investment decision makers, but only when the benchmark consensus is reliable.

In fact, there is quite a bit of dissent in the SolarCity earnings consensus.  There are seven contributors to the Thomson Reuter’s consensus estimate for the March 2013 quarter.  The mean estimate is a negative $0.29 per share on $29.2 million in revenue.  However, the range of estimates is so wide you have to wonder if these seven analysts are looking at the same company.  The lowest earnings estimate is a loss of $0.48 per share and the highest is a loss of $0.04 per share.  That is a pretty wide range in viewpoint.  Some of this can be explained by disagreement on the amount of sales the company will record in the quarter.  The range of sales estimates is from a low of $21.3 million to $33.8 million.  Still, it appears there is some difference of opinion on costs and expenses as well that is driving loss estimates.   The same sort of disagreement is in evidence for year 2013 and year 2014 estimates.

191x63logo_green[1].pngGranted, a group of analysts will have differences in expectations for any given company.  However, just three months after the SolarCity IPO, you would not expect to see such wide disparity in estimates.  After all, the roadshow exercise should have laid SolarCity open to a fairly thorough vetting.  What is more all analysts would have started from largely the same vantage point  -  the prospectus.

 Yet here we are today with SCTY trading 15% off its pre-earnings release price at $19.27 per share  -  all because the company failed to report earnings in alignment with what is clearly a jumbled set of expectations.  Should a company be held accountable when investors cannot agree on a benchmark?

Perhaps the more important question is why so many smart people cannot pin down sales and profits in the first place.  Could it be that SolarCity’s communication with investors is…well…lacking? Indeed, there may be a bit of pattern here in Mr. Musk’s investment portfolio.  Both Tesla and SolarCity appear to have trouble getting their message across to the public about performance expectations.

Fortunately, for those of us who are late to the party, disconnection of this sort presents a perfect buying opportunity.  Next post, we will look at all the reasons a long position in SCTY makes sense and a few more reasons to be cautious.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

March 16, 2013

Suntech Plunges as Reckoning Day Approaches

Doug Young

Suntech logo]I rarely write about the same company 3 times in a single week, but in this case the developments are coming so quickly at plunging solar panel pioneer Suntech Power (NYSE: STP) that an update to this fast developing story is necessary. Company watchers will know that Friday was the official deadline for Suntech to repay some $540 million in bonds that have just come due. The company has no cash to make that repayment, and earlier this week received a 2 month extension on that deadline from a majority of bondholders. (previous post) Meantime, Chinese media reported earlier this week that Suntech could declare bankruptcy sometime between March 15-20, which means such a move could come as soon as today if the reports are true. (English article)

Not surprisingly, all the talk has taken a toll on Suntech's already-battered shares. Suntech stock has lost nearly half of its value this week, including a nearly 20 percent plunge on Thursday in New York that sent it to an all-time low. Shares were down by 50 percent at one point on Thursday from their previous close, as the company's trading volume tripled from its usual levels.

The trading was so frantic that the New York Stock Exchange took the relatively unusual step of asking Suntech to issue a statement on what was happening. Not unexpectedly, Suntech said it was unaware of any undisclosed events that may have triggered the huge sell-off and surge in trading volume. (company statement) Suntech added that it had no plans to repay the bonds that were maturing on March 15, and added its previous disclosure that 60 percent of the bondholders had agreed to a 2 month extension.

So what's happening here, and will Suntech in its current form live to see another week? I suspect the sell-off was a direct result of the bankruptcy rumors, combined with investors skittishness as the official March 15 deadline approached. Accordingly, many people who previously hoped to make some quick money on a company turnaround finally decided to dump their shares before Suntech's stock became worthless, which is what usually happens with a bankruptcy reorganization.

As to the future, the next week will certainly be a pivotal one for Suntech but may not necessarily mark the end of the current saga. Suntech's founder Shi Zhengrong has been forced from both the CEO and chairman's job at his company, but still remains its controlling stakeholder with 60 percent of its stock.

I suspect the board and Suntech's new top management are pushing for the bankruptcy, which is probably a conditions for a government-led rescue plan. Such a bankruptcy would also conveniently remove Shi completely from the picture by making all of his shares worthless.

It does seem like Shi's control of the situation is weakening daily, and I honestly wouldn't be surprised if the board manages to force a bankruptcy filing against his will. But Shi is also a very determined man, so I wouldn't completely consider him defeated just yet. At the end of the day, I would put the chances for a bankruptcy filing by this time next week at around 60 percent.

Bottom line: Suntech's day of reckoning could come in the next week, with the chances of a bankruptcy filing during that time at greater than 50 percent.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 14, 2013

Chinese Solar Stocks Sell Off on Suntech Delay

Doug Young

Solar investors are feeling decidedly bearish this week, bidding down shares in most major solar panel makers even as a few major names including Suntech Power (NYSE: STP), Canadian Solar (Nasdaq: CSIQ) and JinkoSolar (NYSE: JKS) tried to prime the market with upbeat news. But truth be told, the news from all 3 of these companies looks marginally positive at best, which clearly wasn't enough for investors who have grown tired of the non-stop bad news from an industry that has been struggling for 2 years now due to massive oversupply.

Let's start our solar day with a look at Suntech, which was facing a Friday deadline to repay more than $500 million in bonds, even though it lacked the cash to make the repayment. Suntech has been trying to renegotiate new terms for the bonds since last fall, and has just announced that a majority of those bondholders have agreed to an extension of the current March 15 deadline. (company announcement)

Suntech said that 60 percent of the bondholders have agreed to extend the March 15 deadline by 2 months to May 15 as everyone works toward a "consensual restructuring." Suntech shareholders weren't too impressed by this delaying tactic, with the company's shares tumbling nearly 9 percent in New York trade after the announcement.

Everyone is clearly growing tired of Suntech's stubborn founder Shi Zhengrong, who is doing everything he can to postpone an eventual restructuring of his company. That overhaul will inevitably force him to leave his company and also to hand over most of the 60 percent of its shares he controls. Now it seems we'll have to wait until May for that to happen.

Meantime, Canadian Solar, a relatively healthy player compared to Suntech, has just reported results that look modestly upbeat though still nothing to get too excited about. Perhaps most significantly, the company reported its unit sales returned to an uptrack in the fourth quarter, when it shipped 404 megawatts of panels, up from 384 megawatts in the third quarter. (results announcement) But the fourth-quarter figure was still down from the fourth quarter of last year.

What's more, the company's revenue continued to decline sharply, its net loss continued to widen, and it gave weak guidance for the current quarter, all indicating a true turnaround is probably still at least a year away. The report didn't do very much to help Canadian Solar's stock, which tumbled 15 percent after the report came out.

Lastly there's smaller solar panel maker JinkoSolar, whose chief executive also tried to make some upbeat remarks while attending the National People's Congress taking place in Beijing. Chen Kangping forecast that the best managed solar panel makers could return to profitability as soon as the second half of this year, and that most companies that can survive 2013 should be able to become profitable again next year.

He added that his own company now has more orders than it can handle, echoing similar comments about a recent spike in demand from larger rival Yingli Green Energy (NYSE: YGE) 2 weeks ago. (previous post) Investors greeted Chen's words with indifference, bidding down JinkoSolar's stock by 10 percent.

All of this shows that investors are getting tired of industry executives' repeated forecasts of recovery, even though such a recovery never seems to come. Look for shares to stay in the doldrums until one or more players finally returns to profitability, or until Beijing takes some stronger action to restructure the sector by forcing smaller, weaker players to either close or merge.

Bottom line: The latest sell-off of solar shares indicates investors are tiring of industry executives' repeated forecasts of improvement that never comes.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 13, 2013

Time to Buy Solar Stocks

By Jeff Siegel

Here's Deutsche Bank's latest comments on the state of the global solar market:

“We see the sector transitioning from subsidized to sustainable markets in 2014.”

That's a bold statement, and one that's sure to agitate solar haters.

But that's not our concern. Our concern is simply when it will be safe to jump back into the solar game.

According to analysts at Deutsche Bank, margins will rebound and profitability will return in the second half of this year. This is something we've been saying, too — although I suspect it'll be more towards the end of the second half of the year before we see enough consistency in production numbers to let the bulls back out of the pen.

In the meantime, I find Deutsche Bank's call on subsidies quite interesting. Because quite frankly, if they're right...

This Changes Everything

Deutsche Bank recently raised its 2013 global solar demand forecast to 30 gigawatts. This represents a year-over-year increase of 20%. Analysts say much of this will come as a result of strong demand in the United States, China, Germany, and India.

Interestingly, India's Ministry of New & Renewable Energy recently said India increased its renewable energy capacity by 12.4 gigawatts in the past three years, taking its total up to 26 gigawatts. This puts the Asian nation just four gigawatts shy of its 2017 goal of generating 30 gigawatts of power from renewables.

Of course, this should come as no surprise, as India is desperate to integrate more non-coal-fired power generation due to pollution issues and supply shortfalls.

As I mentioned last year, it's becoming increasingly difficult for India to secure coal supplies. The Economist reported that by 2017, domestic coal production in India will meet only 73% of demand. The country's already spent $7 billion over the past six years  acquiring outside coal pits in Australia and Africa.

India is in dire need of expanding its power portfolio to include less-pollutive sources, too. Last year, India was ranked as having the world's unhealthiest air pollution, according to a Yale study.

It's also worth noting that in India, solar has already reached grid parity — and that's with the high cost of capital.

That, my friends, is likely the main reason you're going to see the Indian solar market grow significantly over the next decade.

Clearly this is enough to make the folks over at Deutsche Bank quite bullish on India solar expansion. And Deutsche Bank isn't the only major player warming up to solar...

A Mainstream Source of Power

Earlier this year, analysts at investment bank UBS put out the following statement:

Solar has turned from a heavily-subsidized marginal technology into a mainstream source of power generation. Thanks to significant cost reductions and rising retail tariffs, households and commercial users are set to install solar systems to reduce electricity bills — without any subsidies.

UBS analysts have estimated there could be 80 gigawatts of unsubsidized solar installed in Germany alone.

Of course, Germany has been the leading catalyst for global solar growth for more than a decade now, thanks to an aggressive feed-in tariff scheme.

Today, Germans get about 25% of their power from renewables. In fact, thanks to a strong solar contribution, solar power now regularly provides significant power to meet peak demand.

Check it out:


This kind of diversification offers an enormous amount of flexibility, particularly during the summer months.

Coming Around the Bend

So, what does all this mean?

Well, for consumers it means that for the foreseeable future, the price of solar installations will continue to fall, making it more affordable for folks to generate cleaner, domestically-sourced power without relying solely on the grid.

For investors, it means we're coming around the bend on solar's dark days — and by the end of the year, it could be safe to jump back in these waters.

The major cell and panel manufacturers will be the most obvious route to take, but we're also staying diversified with solar technology plays.

In fact, my colleague Nick Hodge is very bullish on one little solar tech firm that boasts a unique technology with the potential to make solar cheaper than coal — while doubling power output.

Although this may not be the most mainstream way to play solar, it could prove to be the smartest...

And let's face it; that's all that matters.

To a new way of life and a new generation of wealth...


Jeff Siegel is Editor of Energy and Capital, where this article was first published.

March 12, 2013

Is SolarCity a Wise Investment?

By Harris Roen

As a result of a disappointing earnings release, SolarCity (SCTY) took a shellacking on March 7th. The stock traded down 17.6% to the low of the day, and closed down 14.4%. Still, the stock is up 6.5% for the month, and the savvy investor would have gained 78% if they bought SCTY on the first day of trading in December 2012.

So what happened? Moreover, what is the outlook for this innovative solar company?

SCTY Losses Chart

It was no surprise that when SolarCity’s earnings results were released on March 6, the company had a net loss for 2012 (chart above). Though not as severe as the cash burn in other years since 2009, the company still lost $13.6 million for the year. This gave SolarCity a negative EPS of -0.54, which came in 23% lower than analysts’ expectations. These same analysts are seeing negative earning persist for the at least the next two years.

SCTY Revs Chart  

Not all the news was negative, though. Revenues grew tremendously for this company. Sales were up more than double of what they were in 2011, and almost triple that of sales in 2010 (chart above). The number of clients grew even faster, and though revenue per client decreased, the increased volume of clients more than made up for this (chart below). With the attractiveness of distributed solar in the U.S. going forward, and the expertise and desirable financing options SolarCity brings to the table, continued client growth is virtually assured.

SCTY Clients chart 
What I also find encouraging is that the customer acquisition cost, or the amount of money SolarCity spent to get a new customer, decreased dramatically in 2012. It reached an extreme of about $9,400 spent to obtain each new customer in 2011, but dropped to $1,223 in 2012. Compared to a revenue per customer in 2012 of $4,157, this is a hopeful sign for SolarCity’s business plan if these trends continue.

Though I still view SolarCity as an investment for the speculative portion of a portfolio, the long-term prospects for this company look good. It has had two impressive announcements of late – a contract with WalMart to install more than 4.7 megawatts of solar on stores in Ohio, and a high-profile partnership with Honda. Investors that are willing to ride the SCTY stock price rollercoaster are likely to be rewarded handsomely.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

March 10, 2013

New Financing Models for Solar Energy

By Harris Roen

As more homeowners and business become interested in installing solar, a myriad of financing options have evolved. From third-party financiers to Solar REITs, the options available to benefit the renewable energy industry and end users keep expanding. This article highlights what alternative energy investors should know about trends in creative financing for renewables, and which investments should profit.

Solar REIT

What it is:

A Real Estate Investment Trust (REIT) is a security that invests directly in real estate. Investors can buy and sell shares of the REIT like a stock. The REIT can either own the property outright, or own mortgages, or both. REITs generally earn money from rents, or mortgage interest. Solar REITs take this concept and invest in solar properties.

Benefits of Solar REITs:

Typically REITs invest in commercial real estate (hotels, malls, offices, apartments, etc.), which allows investors to become shareholders in profitable real estate projects. A solar REIT generates large-scale financing and allows individuals to own a piece of a significant solar project.

Investment opportunities:

There is one REIT I know of that has a hand in solar, Power REIT (PW). This REIT owns the land under the huge 5.7-megawatt solar farm in Salisbury, MA. It also owns long-term leases on 112 miles of railroad that services Marcellus Shale natural gas developments.

There was an excellent analysis of the company by Forbes blogger (and AltEnergyStocks' Editor) Tom Konrad a few months ago when it was trading around $8/share. The stock peaked around $11/share about a month ago, and it is still probably a good buy if it moves down to the $10 range. Caution is advised, though, due to legal issues the company is working through. However, Konrad reports that there is light at the end of the tunnel for PW.

On another front, Bloomberg New Energy Finance reports that a new California startup, Renewable Energy Trust Capital, Inc., may soon win approval to start raising money as a solar REIT. Should this be approved, I expect more Solar REITs to become available to investors in the years ahead.

Third-Party Financing

What it is:

This is a model where a go-between or “third-party” puts up the money to pay for solar panels that are installed on a house or building. The third party makes money by being paid through one of a variety of creative arrangements. This type of third-party financing may also be used for large-scale commercial solar arrays.

There are many flavors of third-party financing, including joint ventures, lease pass-throughs, sale-leasebacks and others. In one example, a homeowner pays a set rate per kilowatt for the electricity they use from their solar panel. This is paid back to the third party, who owns the panel. Another arrangement is where the homeowner pays a monthly fee for the use of the panels, regardless of how much electricity is generated.

Benefits of Third-Party Financing:

One of the challenges of going solar is that the owner has to pay large up-front costs for equipment and installation. With third-party financing, the owner can get the benefit of clean power and reduced electric bills without having to fork out a large sum early on.

Investment opportunities:

This type of financial arrangement benefits solar companies up and down the business stream, from photovoltaic manufacturers to installers to third-party investors to companies that put the whole deal together. It is the latter type of company I find the most intriguing for investors, and is best exemplified by the recently ballyhooed IPO of SolarCity (SCTY).

SolarCity is not the only player here, there are many other companies implementing this business model including SolarWorld, SunCommon, OneRoof and others. Solar City, though, is the only publically traded company whose mission is solely focused on financing and installing solar for the masses, and they are committed to it on a grand scale. While SolarCity stock will likely be very promising for the long-term investor, currently it is not an investment for the faint of heart. My previous article lays out some of the risks, but once SolarCity hits its stride, returns could be robust and consistent.

A more tangential way to profit from this trend is to buy stock in some of the third-party investors themselves. These companies range the gamut of categories, and include Credit Suisse (CS), Google (GOOG), PG&E Corporation (PCG) and Honda (HMC). One of the more attractive options is U.S. Bancorp (USB) (USB), which according to Greentech Media has financed hundreds of millions of dollars toward residential solar Power Purchase Agreements. USB is trading at a reasonable PE of about 12.

Master Limited Partnership (MLP)

What it is:

A Master Limited Partnership (MLP) is a type of company that allows investors to buy shares of fossil fuel energy projects while getting favorable tax treatment. Since it is a partnership, taxes only go to the investors (or partners), and as a result taxes at the corporate level are avoided. U.S. Senator Chris Coons (D-Delaware) has introduced legislation to expand MLPs so that the MLP business structure can be applied to renewable energy projects.

Benefits of Master Limited Partnerships:

This favorable tax structure allows an MLP to sell “shares” like a corporation, but be taxed like a partnership. This generally allows MLPs to offer high yields for investors, a huge bonus in today’s low interest rate environment. Current MLP statutes only allow this finance model to be utilized for oil, natural gas, coal, and pipeline projects.

This has caused a boom in MLP fossil fuel investments. According to Senator Coons this creative finance structure has infused an estimated $290 billion in capital toward energy projects through about 100 MLPs. Investors have been rewarded: the Dow Jones Brookfield Global Infrastructure Master Limited Index is up 53% in the past three years, as compared to a 38% gain in the S&P 500 over the same time period.

Investment opportunities:

We are in the early stages of the movement toward allowing MLPs for renewable energy projects, but the prospects are promising. Bloomberg reports that ranking member of the Senate Energy and Natural Resources Committee Lisa Murkowski (R-Alaska) and other Republicans support the bill. If the legislation is enacted, I expect several new MLPs to be listed on one or more of the major stock exchanges this year.


These new trends in financing show a maturing of the alternative energy industry. It also reflects a confidence of large dollar financiers toward the economic viability of renewable energy projects.

Of course, individuals could use their capital to install solar panels on their roof to reap financial and alternative energy benefits directly. This may be an attractive option for some, especially considering the drop on the cost of PV panels. For others, though, taking advantage of one of the options above could be a good addition to a diversified portfolio of alternative energy investments.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

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March 09, 2013

Suntech: Shinier Days Ahead?

Doug Young

Suntech logo]With only a week before a key deadline for a big debt repayment, solar panel maker Suntech (NYSE: STP) appears to have cleared a major hurdle for a rescue plan by settling a big dispute with one of its major partners. I suspect that settlement with GSF, a builder of solar plants in Europe, was a major condition by Suntech's bondholders for a deal that could see the company avoid both bankruptcy or a takeover by Chinese government entities. In the meantime, Suntech's colorful founder Shi Zhengrong is speaking freely to the media about his forceful ouster earlier this week from the chairmanship of his company, in an ongoing series of power plays taking place behind the scene.

All this may sound quite complicated, but the story really comes down to a battle between Shi and Beijing. Shi desperately wants to remain at his loss-making, debt-laden company which has more than $500 million in bonds that will mature next Friday, March 15. Beijing is offering funds for a potential bailout, but only if Shi leaves the company.

In the latest development of this fast-developing saga, Suntech announced it has reached a settlement with GSF, an affiliated company that was buying Suntech's panels to build solar electricity plants in Europe. (company announcement) The dispute with GSF began last year and is a bit complex, involving GSF's failure to deliver millions of dollars worth of bonds that it had promised to give Suntech to use as collateral for a loan.

Terms of the settlement will see Suntech increase its stake in GSF to 88.15 percent from a previous 79.3 percent. But more important than the terms is the fact that Suntech has settled the matter, which was most likely a key condition for the renegotiation of Suntech's $541 million in bonds that will mature in a week. If that's the case, look for developments to come quickly in this deal, as Shi tries to reach a settlement with the bondholders that will allow him to stay at his company and avoid having to take a bailout from Beijing.

Such a deal would almost certainly force Shi to give most or all of the 60 percent of Suntech he currently owns to bondholders. That stake was worth billions of dollars just 2 years ago before the solar panel sector plunged into a major downturn due to a massive supply glut. But now the stake is worth just $132 million based on Suntech's latest market capitalization, which includes a 4.3 percent rally for its shares after it announced the GSF settlement.

Meantime, let's take a quick look at the latest media reports that show just how bitter and dirty the behind-the-scenes battle at Suntech has become as its reckoning day approaches. According to a report in the China Daily, Shi, who lost his CEO position last summer, said he was excluded from all meetings at the company over the past month before finally being kicked out of the chairman's job earlier this week. (previous post)

Shi added that he was "shocked" by his ouster, and called the move unlawful. This latest settlement with GSF would seem to indicate that perhaps Shi still wields some influence in the company, and that he may be able to craft a rescue plan that would avoid a government takeover. But even if he avoids a government bailout, Shi will most likely have to give most of his Suntech shares to bondholders, who will almost certainly also insist that he step aside and let more experienced executives come in to turn the company around.

Bottom line: Suntech's settlement of a dispute with a business partner could pave the way for renegotiation of a major bond that will mature next week.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 08, 2013

Suntech Nears Final Reckoning; Yingli's Sales Grow While Losses Narrow

Doug Young

New developments in the battered solar energy space indicate the day of reckoning is fast approaching for embattled Suntech (NYSE: STP), even as the latest results from rival Yingli (NYSE: YGE) are showing early signs of a rebound for the battered sector. Industry watchers will recall that cash-strapped Suntech has nearly $600 million worth of bonds that will mature on March 15, even though it lacks the money to repay the bondholders.

The company hired investment bank UBS in October to try and renegotiate the debt, though we haven't heard anything from the company since then. (previous post) Just 2 months before that, Suntech founder Shi Zhengrong resigned as the company's CEO but retained his title as chairman. (previous post)

Now Suntech has formally announced that Shi has also resigned his position as chairman, with US high-tech industry veteran Susan Wang set to take over that position. (company announcement) The announcement adds that Shi will retain his position on the company's board. But for anyone who likes to read between the lines, this move looks like the prelude to Shi's compete removal from the company that he founded, and I wouldn't be surprised to see him quietly leave the board altogether when the next elections are held.

Chinese media previously reported that Shi's removal from the company was one of the main conditions from Beijing as part of a broader government-led rescue package. With the $575 million in Suntech bonds coming due in less than 2 weeks, it now looks like Shi has been unable to reach a deal by himself with the company's creditors. I suspect Shi couldn't offer those bondholders very much, perhaps 20 cents or less for each dollar, and that many of those creditors think they will get a better deal if they wait for a government-led rescue package.

Against that backdrop, Shi's exit from the chairman's position looks like one of the final steps before the company announces a state-led bail-out that will likely see Beijing and other government entities inject more than $1 billion into the company in exchange for a major stake. Perhaps sensing an upcoming dilution of their shares, investors bid down Suntech's stock by 3 percent in Monday trade after the announcement came out.

Meantime, we should also take a quick look at the latest earnings report from Yingli, which pre-announced much of the report's highlights last week. (earnings announcement; previous post) The main addition in the final report was Yingli's actual profit situation, which looked relatively encouraging. The company's net loss for the fourth quarter came in at $200 million, a marked improvement from the year-ago net loss of about $600 million. But the latest loss was also slightly larger than Yingli's third-quarter loss, as it took a $19 million write-down for unsold inventory.

Shipments grew by an encouraging 40 percent for the quarter, while revenue was up by a smaller 30 percent, reflecting continued pressure on prices. In another piece of upbeat news, the company said it expects 2013 shipments to continue growing at about a 40 percent rate, as the sector rebounds and the company gains market share at the expense of smaller, less efficient players. Yingli shares were unchanged after the results came out, most likely due to the mixed nature of its report and the fact that it pre-announced many of the figures last week.

Bottom line: Suntech is likely to announce a major new rescue plan from Beijing in the next 2 weeks, while Yingli's latest results point to accelerating consolidation in the solar panel sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

March 05, 2013

First Solar Retakes CdTe Crown

James Montgomery

logo[1].gifRoughly one month ago General Electric (GE) leapfrogged First Solar (FSLR) in thin-film cadmium-telluride (CdTe) solar photovoltaic (PV) conversion efficiency, with an 18.3 percent efficient champion cell -- a full percentage point higher than First Solar's 17.3 percent mark set last year.
Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

March 01, 2013

Solar: Big Gets Bigger, Small Suffers

Doug Young

Yingli logoA couple of new items from the battered solar sector hint that the situation may be improving for the largest companies, even as smaller players continue to struggle and face the very real danger of collapse. Of course I'd be remiss if I didn't point out that I've predicted a rebound for this embattled sector once or twice before based on optimistic company statements, and in each instance the rebound I was sensing never came. This time the difference could be that many smaller players have now closed or are tottering on the brink of insolvency, meaning they are losing share to the larger, relatively healthier players with more resources.

That situation is reflected in the latest news from Yingli Green Energy (NYSE: YGE), one of the sector's largest and relatively healthy players, which has just announced some preliminary fourth-quarter forecasts that look quite encouraging. (company announcement) Meantime, the smaller, China-listed Chaori Solar (Shenzhen: 002506) sent out the industry's latest warning signal, with word it may miss an upcoming bond payment. (English article)

Let's start with Yingli, as it's one of China's stronger solar panel makers and was actually earning a profit as recently as the second quarter of last year, even as most other players lost money for most or all of 2012 amid a prolonged global downturn. Yingli's preliminary announcement appears to show the company's sliding fortunes may have reached bottom in the third quarter of 2012, as both its sales and margins rebounded strongly in the fourth quarter.

Yingli said its fourth-quarter shipments rose 40 percent from the third quarter, well ahead of its previous guidance for a low teen percentage increase. The 40 percent rise was also much better than the previous 2 quarters, including a third quarter drop of 16.9 percent and a second quarter that saw shipments rise 13.7 percent.

At the same time, Yingli also reported its fourth-quarter gross margins would come in between -8 percent and -8.5 percent, partly due to one-time charges related to excess inventory and idle capacity. While it's never good to have negative margins, the fourth-quarter forecast was still a notable improvement from the -22.7 percent gross margin for the third quarter.

The company didn't comment on its profit situation, but it does appear that it will report another loss for the fourth quarter due to the one-time charges. If that's the case and sales and margins continue to rebound, we could see Yingli emerge as one of the first solar companies to return to profitability in the current quarter.

Shareholders seemed generally encouraged by the preliminary results announcement, bidding up Yingli shares by 2.3 percent after the news came out. A broader rally has seen Yingli's shares more than double from their lows in late November and early December, as investors bet that sunnier days are ahead for the sector as Beijing prepares a broader bailout plan that is likely to benefit the biggest companies like Yingli.

Meantime, the end of last week saw some mixed signals coming from Chaori, which said it might not be able to make a bond interest payment due on March 7 due to a cash shortage. But then a day later a top company executive said Chaori wouldn't miss the interest payment after all, thanks to intervention by the local government. (English article) This kind of intervention has become relatively common as local governments try to prevent companies from failing, though this is one of the first times a government has intervened to help a company with its bond payments.

Industry watchers will recall that former sector leader Suntech (NYSE: STP) also faces a much bigger bond-related headache in March, when nearly $600 million worth of its bonds will come due for repayment. Suntech hired UBS in October to help it renegotiate the debt with holders of the bonds, but we haven't heard any results yet of the negotiations. (previous post) At the end of the day I do expect we'll see Suntech reach a deal with the bondholders, though if it doesn't the government could also still come to Suntech's rescue the way it did with Chaori.

Bottom line: Yingli's preliminary fourth quarter results show the company may return to profitability in the current quarter, while smaller solar players like Chaori will continue to face a cash shortage.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

February 28, 2013

Photovoltaics: 10 Trends to Watch in 2013

2012 Report Card plus my 2013 trends and predictions.

Ed Gunther

20122013[1].png Though I’ll blame my lingering flu, the Photovoltaics: 11 Trends to Watch in 2012 review and 2013 photovoltaic (PV) trends and predictions post has again extended well into February. As usual, I won’t be grading on a curve.

Photovoltaic Market Demand Growth

Last year, I said:

In 2012, I predict at least 25% global PV installation demand growth. I am tempted by the under since the early year Feed-in Tariff (FiT) headwinds seem stronger than ever with serious talk of a 1 GW cap in Germany and PV installations in Italy expected to decline sharply from 2011. Has the German PV market peaked with the estimated 7.5 GW of installations in 2011?

Grade: Fail

For the context of the prediction, both IMS Research and iSuppli believed global 2011 PV installations exceeded 26 GW around this time last year. NPD Solarbuzz now claims photovoltaic (PV) demand for 2012 reached just 29.0 GW (GigaWatt), short of earlier estimates of 30 GW or more. My empirical observation has been prior year demand numbers settle by the end of March, but my prediction is well short of 25% demand growth even using the 26 GW baseline for 2011.

If that’s not enough, the German PV market did not peak in 2011, and eked out a small gain in 2012 PV installations to 7.6 GW.

I wonder if NPD Solarbuzz 2012 PV demand will be revised back upward because of 4Q12 (fourth quarter of 2012) module shipment growth at Yingli Green Energy Holding Co. Ltd. (NYSE:YGE) and JA Solar Holdings Co., Ltd. (NASDAQ:JASO) raising 4Q12 shipment guidance with others maybe to follow?

In the second part of the prediction, I said:

For the US, I’ll prognosticate at least 75% PV installation demand growth buoyed by modules purchased under the expiring 1603 Treasury Grant safe harbor, utility scale solar projects, and residential growth.

Grade: Fail

Per GTM Research, a division of Greentech Media, the US was forecast to install 1.2 GW of PV in 4Q12 and totaling 3.2 GW for 2012. Since the US installed 1.855 GW of PV in 2011 again per GTM Research, that implies about 72.5% growth in 2012, just short of my prediction! Perhaps the final numbers will settle in my favor when the next U.S. Solar Market Insight report is released?

In 2013, I predict near 20% global PV installation demand growth from the 2012 29 GW baseline to almost 35 GW.

For the US, I’ll swing for the fences and prognosticate at least 4 GW of PV installations even though we make things so difficult here for solar. More of these 4 kW (kiloWatt) installations at $2.50 per Watt in Texas would help.

As a bonus, I’ll predict the German PV market will still be larger than the US PV market in 2013. The timing and investor uncertainty caused by proposed amendments to the Renewable Energy Sources Act (EEG) and the national fall elections in Germany will decide this one.

 1603 Treasury Grant and Tax Equity and Solar Finance

I did not make a prediction last year. For 2013, I have a lot of questions.

First, if the US sequester is not avoided, 1603 Treasury Program grants awarded in Fiscal Year 2013 are subject to a 7.6% reduction.

I wonder if US Federal tax reform does happen after the manufactured fiscal cliff and sequester crises pass? How will comprehensive tax reform impact the Investment Tax Credit (ITC) and the chances of the Treasury Grant program being resurrected? If discussions about 2017 and beyond develop, I hope the SEIA (Solar Energy Industries Association) has strategized on an ITC phase out plan much like the AWEA (American Wind Energy Association) proposed for the PTC (Production Tax Credit).

How available is tax equity in 2013 and has the delayed extension of the wind PTC increased the availability for solar?

There are a number of innovative solar finance trends to watch in 2013 including solar leasing, crowdfunding, Real Estate Investment Trusts (REIT), and Master Limited Partnerships (MLPs). Most originated or are developing fastest in the United States.

Of course, solar leasing or so-called third party financing is on fire, and over 70% of residential solar installations in California and other states opted for solar leases in 2012. GTM Research forecasts the residential solar financing market will “rise from $1.3 billion in 2012 to $5.7 billion in 2016” according to the report, “U.S. Residential Solar PV Financing: The Vendor, Installer and Financier Landscape, 2013-2016”.

I’m a bit concerned about the solar lease gold rush and believe the downsides to this model may become apparent by yearend 2013. Much as with car leasing, I expect more regulation in terms of disclosure and proper comparison of lease versus buy options. I was pleased to see a low interest rate loan option being offered to California residents going solar. By the way, “Sunrun Faces Class Action Lawsuit Over Its Marketing” strikes me as frivolous but may be a harbinger of things to come.

On the solar crowdfunding front, I tried SunFunder on the suggestion of Bloomberg New Energy Finance CEO Michael Liebreich at the end of his Energy All-Stars presentation. I found investing in a not for profit SunFunder solar project to be a fun, easy, and rewarding experience. By contrast, I just looked over at the Solar Mosaic website and get the impression I have to sign up just to browse the potential investments. I wonder if Solar Mosaic is targeting certain gross sign up metrics?

I am less enthralled about REITs and MLPs though “Solar REITs: A Better Way to Invest in Solar [Updated]” by Tom Konrad at Forbes has these covered.

As soon as I hear the word securitization in the context of solar, I think of Wall Street and boom, bubble, and bust cycles.

 US solar trade claim against China et al.

Jumping into the trade area, I said:

For political reasons, I’ll go further to argue the imposed tariffs will not be punitive but amount to a slap on the wrist. Indications are China will respond with equivalent retaliation against polysilicon imports from the United States. The message is abundantly clear from a headline just today at DigiTimes: “Four China polysilicon firms demand government start anti-dumping and anti-subsidy investigation against US firms, according to China media”.

 I think the Harmonized Tariff System of the United States (HTSUS) schedule for the complaint subheadings will impose duties in a range from 2.5% to 10% on cells and modules manufactured in China and imported to the US. The duties will be tiered; cells will have a lower tariff than modules to encourage NAFTA (North American Free Trade Agreement) based module assembly.

Grade: Fail

I got a lot wrong here beginning with the countervailing duty (CVD) and antidumping duty (AD) only applying to Chinese photovoltaic cells and not modules. Of course, a recent Coalition for American Solar Manufacturers (CASM) appeal looks to close the PV module/panel loophole.

Global solar trade cases have proliferated since the US China trade case. A European Union (EU) solar trade investigation into Chinese PV manufacturers spearheaded by the SolarWorld AG (FRA:SWV, OTC:SRWRF) led EU ProSun may be decided as early as April 2013 per “EU and China stumble towards solar trade war” by Robin Emmott and Michael Martina for Reuters. Meanwhile, India’s antidumping investigation of China, Malaysia, Taiwan, and US based solar manufacturers has resulted in a US challenge at the WTO (World Trade Organization) concerning domestic content requirements in India’s Jawaharlal Nehru National Solar Mission. The WTO set a precedent on domestic content requirements in the ruling against Ontario, Canada, with regards to their solar Feed-in Tariff program.

Not be left out of the solar trade investigations, the Chinese Ministry of Commerce initiated an anti-dumping investigation of US, EU, and South Korean polysilicon manufacturers last year. US and EU polysilicon manufacturers are also being investigated for countervailing duties. The Chinese decision on the polysilicon investigation is supposed to have been delayed until at least March 2013.

 Polysilicon and solar grade silicon outlook

Regarding polysilicon, I said:

I expect polysilicon spot prices will remain below $38 per kg in 2012 and may briefly dip below $20 per kg at some point later in the year as the largest polysilicon supply versus demand correction since the Internet bubble plays out.

Grade: Fail

In another tough grade, polysilicon spot prices did not dip briefly below $20 per kilogram (kg) but smashed it for an extended period of time. I heard of polysilicon prices as low as $14 per kg for high quality material, and I’m sure a topper will claim a lower price for material of unknown vintage. Reports conflict if these spot prices were for material direct from polysilicon oligarchs or second hand, resold material.

Using the latest data, polysilicon prices appear to have reached an inflection point in February and are on the rise per IHS Inc. (NYSE:IHS) as polysilicon spot market volumes declined to 20% of total sales in December 2012 indicating inventories had been cleared.

On the 2013 polysilicon outlook, Mr. Johannes Bernreuter, head of Bernreuter Research, said:

The global polysilicon industry will return to the path of growth and increase its production by 6.5% in 2013, according to the latest analysis of Bernreuter Research. The polysilicon market research firm projects the global polysilicon net demand – including that of the semiconductor industry, but excluding the consumption of inventories – will amount to approximately 250,000 metric tons (MT) this year. The spot price is predicted to rebound to a level of US$20 to 25/kg by the end of 2013.

Going conservative, I expect polysilicon spot prices will remain below $30 per kg throughout 2013.

 Thin Film Photovoltaics

For thin film PV, I said:

Beyond the Solar Frontier, I’ll be watching Stion and strategic partner TSMC Solar Limited, a subsidiary of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), along with MiaSolé and the Solibro division of Q-Cells SE (FRA:QCE) for a third thin film contender.

Grade: Pass

After First Solar, Inc. (NASDAQ:FSLR) and Solar Frontier K.K., a wholly owned subsidiary of Showa Shell Sekiyu K.K. (TYO:5002), Stion, TSMC Solar, MiaSolé, and Solibro were the emerging thin film companies to watch though both MiaSolé and Solibro were acquired (saved?) by Hanergy Holding Group, Ltd. However, all of these firms have not been manufacturing at capacity or expanding during the PV shakeout. To this short list, I would add NuvoSun which began ramping a 40 MW production line in early 2012, and AVANCIS GmbH & Co. KG by virtue of being a subsidiary of Compagnie de Saint Gobain SA (EPA:SGO).

Just since my CIGS PV Poll Results and Analysis post in December, Nanosolar has had a reported 75% layoff, and per “State approves $20 million tax credit for SoloPower, as Portland plant struggles to meet job, manufacturing benchmarks” by Molly Young for The Oregonian, SoloPower replaced CEO Tim Harris and President Bruce Khouri left the firm as it has apparently failed to meet production, efficiency, and sales milestones.

OK, I’ll jump out on a limb and predict Nanosolar will line up further investment or be acquired and survive 2013.

 HCPV (High Concentration PhotoVoltaics)

In 2012, I said:

I predict at least 100 MWp (MegaWatt-peak) of HCPV will be installed in 2012.

Grade: Fail

It could have been close, but I’m not counting the 50MW CPV Power Plant in Golmud, Qinghai, China, listed by Suncore Photovoltaic Technology Company Limited as “Grid-tied: Will be the first Quarter of 2013”. Suncore is a Sino-US joint venture between San’an Optoelectronics Co., Ltd. (SHA:600703) and EMCORE Corporation (NASDAQ:EMKR).

In 2013, I believe Soitec SA (EPA:SOI) will become =the= HCPV market leader based on project pipeline and installations leveraging their state of the art concentrator photovoltaic module manufacturing capacity in San Diego and Germany.

 Oil and Natural Gas

On crude oil, I said:

Once again I’ll predict oil will stay below $135 per barrel through 2012 barring a force majeure event including tensions with Iran over the country’s nuclear program. I don’t believe rumblings of oil prices dipping to $85 per barrel or even $70 per barrel unless the global economy tanks into recession.

Grade: Fail

According to U.S. Energy Information Administration (EIA) data, 2012 per barrel oil prices ranged from $83.59 to $111.26 per barrel through November 2012 across domestic and imported supply so there was a brief dip below $85 per barrel for Domestic First Purchase Prices.

Oil and gas price forecast for 2013” by Chris Nelder for SmartPlanet has a detailed analysis with both WTI (West Texas Intermediate) and Brent average crude oil prices forecasts.

I’ll predict oil will stay above $79 per barrel throughout 2013 unless the global economy tanks into recession referencing the same EIA data. I’ve got to get bailed out by these caveats sometime?

Of course, natural gas prices are even more important from an electricity generation and new capacity addition perspective especially in the United States. In the post mentioned above, Mr. Nelder said:

My forecast is for gas prices to approach $4 by the end of 2013, simply because unprofitable endeavors don’t go on forever and after two years this one feels about played out.

Mr. Nelder also believes the $4 per mcf (1000 cubic feet) natural gas price will reverse the trend resulting in some power generation switching back to coal.

 PV Industry Shakeout

As the PV industry shakeout intensifies in 2012, even more companies across the value chain will fail than in 2011. I predict at least one of the CIS/CIGS start-up companies listed in the PV Blog Poll will fail in 2012.

Grade: Pass

Well, I could have said several. As recapped in CIGS PV Poll Results and Analysis, Soltecture, once known as Sulfercell Solartechnik, began insolvency proceedings in May. AQT Solar put its assets and intellectual property (IP) up for sale in August after promising to commercialize CZTS (copper zinc tin sulfide) technology by 2013.

With “Global Solar Energy Continues Operations and Pursuit of Strategic Alternatives” in December, “Global Solar had reduced its work force by about 70% to preserve operational and production flexibility.” So the Global Solar soap opera continues.

Not content with a single choice, I’ll prognosticate Global Solar will cease operations, and SoloPower will fail to meet it’s milestones to tap the $197 million US Department of Energy (DOE) Loan Guarantee under the 1705 Program in 2013.

PV IPOs (Initial Public Offerings)

I said:

I don’t believe a western PV module manufacturer will IPO in 2012. Outright acquisitions or majority stake strategic investors are far more likely possibilities.

Grade: Pass

Wow, that was a pretty wimpy prediction! The only solar IPOs in 2012 were Enphase Energy, Inc. (NASDAQ:ENPH) and SolarCity Corporation (NASDAQ:SCTY) after both reduced the price range in order to make the respective IPOs happen.

Following the downstream trend, I’ll predict Sunrun Inc., Clean Power Finance, or perhaps Sungevity Inc. will IPO in 2013.

 My 2012 “Out There” Prediction

So I said:

In a multiyear “Out There”, I predict the General Electric Company (NYSE:GE) will either divest it’s majority investment in thin film PV manufacturer PrimeStar Solar or move production offshore by yearend 2014 when they come to their offshoring, portfolio theory, photovoltaic senses.

Grade: Incomplete

Before the 4th of July, the General Electric Company (NYSE:GE) laid off workers and placed their Colorado CdTe solar manufacturing plans on hold in order to develop the next generation of CdTe (Cadmium Telluride) technology with at least 15% module efficiency. As I have said to those who will listen, be careful with the word success in connection with solar companies such as “Another SunShot Success: GE to Make PrimeStar Solar Panels at New Colorado Plant” by Minh Le, DOE Program Manager, Solar Program.

So far, no CdTe follower has succeeded. Will GE wise up and just acquire First Solar already if they favor CdTe thin film solar so much? That’s a question, not a prediction!

Who ever said tough Pass/Fail grading was easy?

DISCLOSURE: No position in any of the stocks mentioned.

Edgar Gunther is a photovoltaic enthusiast who researches and pens the GUNTHER Portfolio (where this article was first published) under the Photovoltaic Blogger moniker. The GUNTHER Portfolio is an eclectic collection of niche Blog posts about solar photovoltaic technologies, companies, industry developments, and occasional energy politics sprinkled with insight, analysis, and irreverent commentary.

February 06, 2013

First Solar's New Mexico Project: The Parity and the Pain

James Montgomery

Unusually public details about a newly signed solar project deal in New Mexico raise some interesting questions about the purchasing power of solar energy, how close it's getting to grid parity -- and just how much pressure is on upstream suppliers to fulfill that objective.

First Solar (FSLR) has acquired a 50-megawatt (MW) solar power project in New Mexico from the solar division of Element Power. The deal is billed as the state's largest solar project; it also, according to some unusually public information revealed in a regulatory filing, raises some interesting questions about the purchasing power of solar energy.

The Macho Springs Solar Project is on land leased from the New Mexico State Land Office in Deming (Luna County); it's expected to be completed in 2014. (Element Power also has a 50-MW wind project at Macho Springs, selling power to Tucson Electric Power.) Electricity will be purchased by El Paso Electric, which had sought more electric peaking resources for its current energy mix. In a statement, the companies said the project's PPA is still subject to regulatory approvals, which is expected to happen "in the first half of 2013."

In fact, a regulatory filing from the New Mexico Public Regulatory Commission (PRC) is already loose in the wild, revealing exactly what El Paso Electric is paying: 5.79 cents per kilowatt-hour (kWh). That's almost a third of the price that thin-film solar PV projects typically sell for (16.3 cents/kWh), says Bloomberg New Energy Finance, and less than half the 12.8 cents/kWh average price for new coal plants. That's also roughly half of what First Solar will get for its marquee solar projects: Antelope Valley, Topaz, and Agua Caliente, points out Maxim Group analyst Aaron Chew. (We obtained a copy of the official document; but a quick Google search will reveal it too.)

Bloomberg points out that El Paso Power will be submitting more information about whether any renewable energy credits are being applied to the deal to lower its cost. In an interview, Chew points out that New Mexico's performance-based incentives (PBI) will probably add 2-4 cents/kWh. Assuming manufacturing cost targets of $0.60, plus $0.80 adding in balance-of-systems costs, that suggests a system price target of $1.50/W. But don't forget to factor back in the undisclosed price that First Solar paid for this project in the first place, Chew points out. "It is hard for us to fathom how it could possibly build this project profitably," he says.

Paula Mints, founder and chief market research analyst at Solar PV Market Research, says PPA prices were ranging from 8-14 cents/kWh in 2012. Even on the high-end that's a tough pill to swallow for suppliers; at the low end it's brutal. Meanwhile, she points out crystalline silicon modules have been selling in the $0.65-$0.75/W range -- roughly the same, and with higher efficiency, than First Solar's manufacturing costs alone.

We've contacted First Solar for clarifications, though they've already publicly declined to comment on the details of this deal. The project will use First Solar's thin-film panels, since the company only does EPC for projects using its thin-film technology. To that end, Chew points out that First Solar's project pipeline is stocked for probably a year and a half, but he calculates that with the company's current capacity (1.6 GW, averaged to 450 MW a quarter) it needs to keep pulling in a lot more deals -- and maybe is willing to make a little less in this deal, or is making up the difference with other projects, to keep its factories humming.

Still, the big takeaway from this new deal is that El Paso itself "is still only paying six cents for solar out of pocket," Chew notes. That means two things: yet more evidence that solar energy is becoming more attractive and competitive; and that the economics are becoming severely compressed on the manufacturing side, even more than we knew.

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

February 03, 2013

New Loans For LDK and Canadian Solar Just Band-Aids

Doug Young

Stock Band-Aid Image via BigStock
  A couple of items from the struggling solar panel sector are showing how the industry is limping forward, receiving minor rescue loans to continue funding operations while manufacturers await a bigger rescue package from Beijing. I can only guess that the bigger package, which has been talked about for much of the last half year, will finally be rolled out by the middle of this year. That will finally allow the industry to try and put itself on more sustainable long-term footing instead of continuing to limp forward in this current state of malaise.

One of the latest news bits is coming from LDK Solar (NYSE: LDK), the unhealthiest of the major Chinese players, which announced it has just finalized terms for a 440 million yuan loan from the Beijing-backed policy lender China Development Bank. (company announcement) Meantime, healthier rival Canadian Solar (Nasdaq: CSIQ) has announced its similar receipt of a $40 million loan to help finance its construction of a new solar plant in Canada. (company announcement) Unlike LDK, Canadian Solar is also being quick to point out that it received the loan from a major western commercial lender, in this case Credit Suisse, rather than having to rely on handouts from Chinese policy lenders.

Let's start with a look at LDK, which is currently in the process of a slow-motion takeover by the Chinese government. LDK recently "sold" one of its most problematic assets to a state-run entity, and also last fall "sold" 17 percent of itself to a consortium of mostly state-owned firms in exchange for a desperately needed $23 million in cash. (previous post)

I use quotation marks around the word "sold" in both cases, since neither of those 2 deals ever would have happened on the free market, and the only reason they happened at all is most likely because the buyers were ordered to make their "purchases" by Beijing. For anyone who hasn't done the math, this latest LDK loan of 440 million amounts to a relatively modest $70 million, which is perhaps enough to fund LDK's money-losing operations for a few months.LDK says the money will be used to upgrade one of its polysilicon plants, though I suspect much of the funds may end up going to other more practical uses like paying employee salaries.

Meantime, Canadian Solar says its $40 million loan from Credit Suisse will be used to finance its purchase of 4 solar plants under construction in Canada. This kind of solar plant construction is relatively common, which sees third-party builders construct new plants in cooperation with a big panel supplier like Canadian Solar. The panel maker, in this case Canadian Solar, would then typically purchase the plant upon its completion, and try to sell it to a commercial power producer.

But in this case, the builder apparently ran out of funds before the completion of construction, forcing Canadian Solar to announce it would step in to buy the plants before their completion. (previous post) While Canadian Solar should be commended for financing its deal from a private commercial lender, the fact remains that it and the rest of the sector are facing growing financial pressure due to their massive losses amid the industry's current state of oversupply.

Look for a few more of these "band-aid"-style loans to be announced over the next few months as companies look for ways to keep funding their operations. But in the meantime, all eyes will be on Beijing as everyone looks for the central government to announce its bigger industry-wide bail-out package by the middle of the year.

Bottom line: New loans for LDK and Canadian Solar represent short-term fixes for the companies, as everyone awaits a broader rescue package from Beijing.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

January 19, 2013

Chinese Solar Stock Rally Looks Unsustainable

Doug Young

clouds blue
Clouds linger despite solar rally
After more than a year of coming under constant assault, shares of solar panel makers have suddenly received an unexpected boost from investors who are suddenly showing renewed interest in the battered sector. Many are attributing the sudden surge in solar stocks to growing signs that China will soon embark on a massive building spree of new solar power plants, which should theoretically provide a major new business opportunity for solar panel makers who have been posting massive losses for more than a year now.

What's most interesting to me is the fact that investors also seem to believe that most solar companies will emerge from an upcoming restructuring without having to declare bankruptcy -- a process that usually results in all of a company's publicly listed shares becoming worthless. This assumption seems a bit optimistic in my view, especially for some of the weaker companies that are almost certain to be taken over by state-run entities before the current industry restructuring is finished. If and when that happens, holders of the companies' publicly listed shares are likely to take a major hit, losing most or quite possibly all of their investment.

All that said, let's take a look at the latest headlines, which have 2 of the weakest players -- LDK (NYSE: LDK) and Suntech (NYSE: STP) -- both recently announcing that they have regained compliance with New York Stock Exchange listing rules that stipulate all company shares must trade at $1 or more. (Suntech announcement; LDK announcement)

I'll admit that I hadn't followed the stocks too closely since shares of both companies went below the $1 level last fall, so I went to look and see when both Suntech and LDK declared reverse share splits that most companies in their situation usually perform to bring their share prices back up above the $1 mark. But after extensive searching, there was no sign that either company had done such a reverse share split.

Instead, it was investors who helped each company back into compliance with NYSE listing rules by more than doubling the value of both Suntech and LDK shares over the last 2 months. Suntech shares now trade at about $1.75, after moving below the $1 mark last September and trading as low as 77 cents each in November. Similarly, LDK shares now trade at about $2, again after falling as low as 71 cents last fall.

Another company that fell below $1, JA Solar (Nasdaq: JASO), actually did have to perform a 5-for-1 reverse share split to bring its stock back above the $1 mark. But even JA Solar has seen a rally in the last few weeks, and and its current price of $5.39 per share means the recent rally would have lifted its share price above the $1 mark even without the reverse share split.

In a sign that the industry is indeed still going through a major shake-up, JA Solar has announced that its chairman is taking over the role as CEO, again showing that this is hardly an industry that is worthy of serious investment again just yet. (company announcement) But for some reason, investors seem to be ignoring the fact that this industry is still highly troubled and are suddenly buying solar shares again.

To all of those people who have recently purchased solar shares on hopes of a major turnaround, I would warn that the bloodbath isn't over just yet and I still do believe that many of the companies will ultimately get taken over by Beijing and other Chinese government entities. Those new masters will then demand the cancellation or severe dilution of all publicly listed shares as part of any rescue plan. When that rescue comes, Suntech and LDK are likely to be among the first to receive bailouts, prompting major sell-offs in their shares that will once again see them tumble below the $1 mark.

Bottom line: A recent rally in solar shares looks unsustainable, with investors in many companies likely to lose most or all of their money after a Beijing-led rescue plan gets announced.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

January 18, 2013

New Ways to Invest in Solar Like Buffett

Tom Konrad


Over the last couple of years, investors who were hoping to do well by doing good have gotten bad sunburns.  Since the start of 2011, the two ETFs which track the solar sector, Guggenheim Solar (NYSE:TAN) and Market Vectors Solar Energy (KWT) are down 74% and 75%, respectively, even after the large jumps up in the first week of the year.

That jump was in large part caused by the January 2nd purchase of two large solar projects by Warren Buffett controlled MidAmerican Solar from Sunpower Corporation (NASD:SPWR.)

You might wonder, Why would a famously cautious investor like Warren Buffett invest in a sector with such a lousy track record?

The Difference Between Solar Manufacturing and Solar Projects

The question is a bit of a red herring.  As a value investor, Buffett often invests in companies that have had poor price performance: that’s where great values come from.

More importantly, MidAmerican Solar is not buying Sunpower the company (down 41% since January 2011), but two of Sunpower’s solar projects.  The economics of solar manufacturers and solar projects could not be more different.

Solar manufacturers like Sunpower face fierce competition and have little pricing power for their mostly undifferentiated products (solar cells and modules.)  Worse, the prices of these products have been declining rapidly, squeezing margins.   They also have little control over the prices of their raw materials, which means they find it difficult to pass price declines on to suppliers.  While offerend with the best intentions, changing incentive regimes lead to boom and bust cycles for panel sales.

Solar farms and developers face a much different pricing landscape.  The price of solar panels (one of their largest costs) has been falling rapidly, and many governments are working to cut the balance of system and soft costs such as permitting which are becoming a relatively large part of their cost structure.  More importantly, they almost always sell power under long term contracts, providing a predictable income stream.  Incentive regimes are also more stable, with projects’ incentives often fixed when the project is built.

The better economics of solar development has not been lost on solar manufacturers, many of whom have been developing their own projects.  It was two such projects that MidAmerican bought from Sunpower.

Invest in Solar Like Buffett

Until recently, small investors’ ability to invest in solar projects was limited to putting solar on the roof of their homes.  And this was a viable option for only a few: they had to own a home with a suitable, un-shaded roof, live somewhere with a favorable incentive regime, and be able to come up with several thousand dollars (sometime tens of thousands of dollars) up front.

Fortunately, new options are rapidly becoming available.

Mosaic’s Model

Mosaic allows small investors to invest in debt backed by revenues from solar projects.  Mosaic acts much like a bank would, if many banks were interested in funding relatively small solar projects.  It first conducts due diligence on a project to assure itself that project risks are acceptable.   Such risks include the creditworthiness of the power buyer, site design, quality of the equipment, weather and insurance adequacy.

If a project passes muster, Mosaic offers a loan against the revenues from the solar PPA or solar lease.  Mosaic then funds this loan by parceling it off to the small investors on its platform, with a minimum investment of only $25.  Mosaic passes most of the interest on to the investors, and keeps a slice to pay for its costs.   The five projects offered on Monday offered a 4.5% return to investors, with 1% retained by Mosaic out of a 5.5% loan, and had terms of between eight and ten years.

24 hours after they were made available on Mosaic's site, only this project in San Bruno had not been fully allocated to small investors.

With long term CDs currently offering less than 2%, these investments are proving very popular.   As I write, barely 24 hours after the projects were listed on Mosaic’s website, the ones open to small investors are almost fully subscribed, with only $12,475 left unallocated on the largest of the three projects, a 102 kW project on an affordable housing complex in San Bruno, CA.

Because the SEC has not finished writing the rules that would allow crowd-funding under the JOBS Act, these investments were only available to residents of California and New York state, when the Mosaic team has been working with state securities regulators.   Mosaic chose to work with these states because that is where most of the investors who had signed up for their platform live.

Mosaic also launched two projects available nationwide to “accredited” (i.e. wealthy or high income) investors nationwide.  Such investors are presumed to have the resources to better evaluate investments than small investors, and so Mosaic was able to offer them a wider range of projects.

On behalf of an accredited investor, I was able to review these two projects as well as the three open to small investors.  One was very similar to the three projects available to small investors, with the exception of a slightly shorter duration of eight years, compared to nine years for the others.  The final project stood out, in that it is larger than the other four projects combined, and is located in New Jersey, rather than in California.  It also had the longest term, of twelve years for the loan.

As I write, the smaller of the two accredited-only projects is 96% funded, but the large project is only 15% funded.  Nevertheless, I would be surprised if Mosaic fails to fully fund the large project as well.  With more to choose from, accredited investors most likely did not need to rush to get in to projects, as smaller investors did.  (UPDATE: At noon on Jan 8th, the day after launch, all of Mosaic’s offerings except except the large New Jersey project were fully funded.)

Risks and Rewards

The accredited investor I was working with eventually chose not to invest.  While a 4.5% 10 year CD would be a very attractive investment, Mosaic’s offerings are not as low risk as CDs, which are FDIC insured against loss of principal.  Although it appears that Mosaic does an excellent job managing risk, that is nothing like a guarantee.   Since she is able to accept a high degree of risk, she has other attractive investment available.  For example, Power REIT, mentioned above, isriskier than Mosaic’s offerings and currently yields only 4%, but has the potential of significant upside and tax advantages.

A small investor may also have more attractive options, the most common of which is paying off debt.  While interest in a Mosaic solar investment will be taxable, the interest saved from paying of a car loan or credit card debt is saved from after-tax money, and so is essentially tax free, which makes paying down debt at interest rates of 4% more more clearly more attractive than the 4.5% on offer from Mosaic.

Yet Mosaic investments are less risky than most stocks and mutual funds, and provide relatively attractive returns in the current environment.  For an individual without debt to pay off, these seem like attractive investments.

Mosaic President Billy Parish told me by email that the company is working on making its investments available in tax-sheltered accounts such as IRAs.  That would make Mosaic’s offerings attractive to more people, including the accredited investor I was working with.

Not that I expect a Mosaic IRA offering any time soon.  With these solar investments selling like hot cakes, Mosaic’s priority is almost certainly to bring more quality projects to its platform.

Finding more investors seems to be taking care  of itself.

Disclosure: Long PW

This article was first published on the author's blog, Green Stocks on January 8th.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

January 11, 2013

First Solar, Intermolecular Pushing Thin-film Solar PV Materials R&D

James Montgomery

logo[1].gifFirst Solar (NASD:FSLR) is arguably the leader in thin-film solar photovoltaics (PV). It's relentlessly inched up conversion efficiencies of its cadmium-telluride (CdTe) technology, while chipping away at manufacturing costs (now at $0.67, reported in November).
Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

January 09, 2013

Mega-Solar Matchmaking in California

James Montgomery

KD501Flexing its billion-dollar muscles once again in the renewable energy space, MidAmerican Energy Holdings Company (famously backed by Warren Buffett's Berkshire Hathaway Inc. [BRK-A and BRK-B]) is buying two co-located solar projects in California from SunPower [SPWR], billed as the world's largest permitted solar PV power development. The deal for Antelope Valley Solar Projects (AVSP), totaling approximately 579 megawatts (AC) combined generation capacity, is for an unspecified amount between $2-$2.5 billion.
To SunPower president Howard Wenger, this deal represents no less than "a historic milestone for the energy industry." Cost-competitive with natural gas peaker plants, the AVSP projects define "a perfect example of how scale is driving cost reduction."

The Facts About AVSP

SunPower has been developing the two co-located AVSP projects for four years, on 3230 acres of private property in Kern and Los Angeles Counties near Rosamond, CA: the 309-MW (AC) "AVSP 1" owned by Solar Star California XIX; and the 270 MW (AC) "AVSP 2" owned by Solar Star California XX, which according to SEC filings includes the option to develop another 49-MW facility, dubbed "AVSP 3." (There is no relation to the similarly named 230-MW Antelope Valley Solar Ranch One project, developed by First Solar and sold in 2011 to Exelon, which is planned to be fully operational by late 2013.) AVSP will incorporate SunPower's own Oasis power plant modular solar technology, high-efficiency solar panels, and trackers to boost energy capture. The company will be the engineering, procurement, and construction (EPC) contractor, and operate and manage the facility under a 20-year services agreement.

AVSP has secured final conditional use permits and has completed full environmental review pursuant to the California Environmental Quality Act. Both projects are under two 20-year power purchase contracts with Southern California Edison (SCE); grid connection will be through the Whirlwind Substation being constructed as part of SCE's Tehachapi Renewable Transmission Project. Construction of the plants, which will create 650 jobs, is slated to begin in 1Q13 and completed by the end of 2015.

A snapshot of MidAmerican Renewables' project portfolio:

Solar: 1.271 GW

- AVSP 1 & 2; the 550-MW Topaz project in San Luis Obispo County, CA; and a 49% stake in the 290-MW Agua Caliente project in Yuma County, AZ

Hydro: 5 MW

- A 50% ownership in the 10-MW "Wailuku" project on the eastern coast of the island of Hawaii

Wind: 381 MW

- Recent acquisitions of the 168-MW Alta Wind VII and 132-MW Alta Wind IX projects in Kern County, CA; and the 81-MW Bishop Hill II project in Henry County, IL

Geothermal: 174 MW

- Projects primarily in the Salton Sea area of Southern California's Imperial Valley

SunPower: Balancing the Equation

From the beginning, SunPower’s plan for AVSP has been to develop the projects, get them financed (including finding an equity owner), and then building and operating the projects with its own technology. With AVSP’s size and scope, the company specifically was seeking a partner "with a strong balance sheet, who understood the economics and importance of renewable energy," according to SunPower president Howard Wenger. The bidding process was well underway by mid-2011, with "very strong" initial interest from prospective financiers — “We were very pleased with the level of interest and quality of companies and offers,” he said.

Projects of this size and scope are getting harder and harder to come by, and  developers such as SunPower, First Solar, and SunEdison are finding it tougher to refill their pipelines, especially ones with the same favorable economics. "They're selling projects that were priced a couple of years ago when modules were expensive," points out Shawn Kravetz, president of Esplanade Capital LLC. And now they're being delivered in an environment where module costs are much lower and likely will continue to go down for the next year or two. He thinks 2013 will be "an unusually robust year" for those big solar project developers that secured projects over the past several years, but as they try to replenish their pipelines, "high price and low costs — that's not happening anymore."

SunPower in particular needs to keep feeding that downstream business, asserts Kravetz, due to its relatively high-cost manufacturing operation vs. a host of ruthlessly low-cost competitors (think Tier-1 Chinese firms including Yingli [YGE], Suntech [STP], Trina [TSL], and JA Solar [JASO]). As more of these large profitable projects are harvested, that upstream exposure will weigh even more heavily, especially in a solar market that promises to remain challenging for the next year. Stifling cost pressures is rough on the upstream, but makes the financial equation more attractive on the project development side of the equation.

Perhaps most importantly for SunPower: this deal represents a vote of confidence from an up-and-coming energy player with the desire and ability to invest substantially in renewable project development. “MidAmerican Solar’s decision to invest in these projects underscores the bankability and long-term strength of SunPower’s business,” Wenger said. (Investors agreed, spiking the company’s stock nearly 50% with 24 hours of the deal, though they had pulled back about 12% a few days later.) And as Kravetz points out, this isn’t exactly the inimitable Warren Buffett stamping his approval of solar stocks, but “it’s a company owned by him, saying these are energy projects that are a good investment.”

MidAmerican: Sealing the Deal

In Jan. 2012, MidAmerican Energy formed a new unit, MidAmerican Renewables LLC, to manage and grow its renewable energy interests — and the company has professed, and proved, its appetite for renewable energy investments from Day 1. After one year, MidAmerican Renewables' total portfolio of owned assets, including solar, wind, geothermal, and hydro, now exceeds 1.83 GW, including the AVSP projects (see sidebar). That's more than twice the size of the parent group's 872 MW in natural gas energy generation projects.

These AVSP projects satisfied MidAmerican's criteria checklist for any renewable energy generation investment: "All the critical things we look for were there," explained Paul Caudill, president of MidAmerican Solar. It's an area with good solar insolation and a good weather record. There is available land and land that can be permitted. Transmission access is suitable for a grid-type plant, with both existing infrastructure and commitment for network upgrades, Caudill explained; the Whirlwind Substation is "well underway so we know where they are at," and the Tehachapi interconnection "also has very good progress." (MidAmerican was already familiar with the local transmission infrastructure; its recently acquired "Pinion Pines" wind projects, formerly called Alta Wind, are also located in Kern County.) Additionally, there are deals in place with California ISO and a buyer in Southern California Edison.

One other aspect of AVSP's profile was attractive: it used SunPower's technology, which is different than the First Solar thin-film (cadmium telluride) technology used at MidAmerican's Topaz and Agua Caliente projects. "We saw diversification as a strong point," Caudill said. That "diversification" could put MidAmerican in an excellent position to evaluate performance of two competing solar PV technologies on a grid-scale playing field: SunPower's higher-efficiency modules with trackers, vs. First Solar's thin-film panels that have lower conversion efficiencies but perform better in high-temperature environments. MidAmerican, however, rejects that idea, saying they see "tremendous benefits" in having both technologies at its disposal, and it follows the parent company's pattern of using different suppliers — for example, two types of wind turbines (Siemens and GE) incorporated into its wind projects in Iowa.

Beyond "Megaprojects," Going Distributed?

To feed its ravenous appetite for renewable energy projects, MidAmerican keenly tracks what has been "a tremendous amount of development in solar and wind in the past few years," particularly outside of California, Caudill says. "We're very in tune with the industry and where the good markets are." MidAmerican currently has "a fairly sizable pipeline of projects" that it is evaluating; "we're comfortable that there are good solid assets out there."

But those attractive multihundred-MW megaprojects like AVSP, with proven technology and PPA(s) in hand, are increasingly hard to come by -- so MidAmerican is looking to add other types of projects that make sense. "We don't sit down and say, 'we have to invest in a plant that's 100 MW or greater or we're not interested,'" Caudill said. MidAmerican's sweetspot for future renewable project development, Caudill said, "could be substantially smaller than we see today." He expects over the next few years the company will pursue more projects in the 40-MW to 60-MW range, which have their own attractive features: they require less land use, transmission requirements aren't as stringent, and of course costs are lower. And the convergence of costs coming down, energy prices going up, and the economy picking up momentum, he said, opens up emerging markets in areas not traditionally seen as "solar states," in places such as Tennessee and Georgia.

And that likely includes forays into distributed generation deals, Caudill pointed out. He envisions growing involvement in "behind-the-meter projects," working with local utilities and businesses to offset carbon footprints and compete at peak power needs. "The distributed generation market, once it gets fleshed out, could be very strong," he said.

The bottom line for MidAmerican is identifying places where rates are high at peak and that are squeezed on the generation side, Caudill says. "Those drive the market. It's hard to say where we end up next — but I feel strongly that there are opportunities out there."

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

Want to learn more about solar match-making, which companies are getting into solar and which are exiting? Come to Solar Power-Gen next month and check out our plenary session: Who is Buying Whom and Why? More information about the show is here.]

January 04, 2013

Banks Cool on Solar, Beijing Steps In

Doug Young

A few of the latest headlines reflect a cooling appetite by banks for funding solar energy related projects, creating a worrisome vacuum that Beijing may need to fill as it seeks to stop struggling sector from sinking further still. Two of the latest such headlines look like particular cause for worry, with Canadian Solar (Nasdaq: CSIQ) taking over financial responsibility for a solar power project from one of its construction partners for unspecified reasons that I suspect are related to waning interest by banks in funding such projects. (company announcement) Another similar recent domestic media report says that a Chinese company that insures solar panel sales has just made its biggest-ever payment to JA Solar (Nasdaq: JASO) after the panel maker couldn't collect payment from one of its overseas customers. (Chinese article)

Both of these pieces of news seem to point to the fact that banks are quickly losing their appetite for funding new solar power plant construction outside China. That could lead to a rapid slowdown in the building of new projects and create even more headaches for the already oversupplied sector.

Meantime, I would be remiss not to mention the latest news from the largely insolvent LDK Solar (NYSE: LDK), whose state-led bailout and takeover has taken another step forward with the "sale" of one of its most problematic assets to what appears to be a state-run entity. (company announcement)

Let's start off this solar round-up with a look at the latest overseas-related news that may point to rapidly evaporating financing for new solar power projects in the key North American and European markets. One report has Canadian Solar, one of China's leading solar panel makers, announcing it has purchased 2 solar power projects being built in Canada by MEMC Electronic Materials' (NYSE:WFR) SunEdison division for about $38 million.

This kind of relationship has become commonplace in the sector over the last few years, with panel makers like Canadian Solar often working closely with plant builders like SunEdison to construct new projects. In these cases, the plant constructor like SunEdison obtains financing for the project, then builds the plant with panels supplied by its partner, in this case Canadian Solar. When the project is complete, the panel supplier would then typically help the constructor find a long-term buyer for the project.

But in this case, SunEdison has apparently sold the 2 projects back to Canadian Solar midway through the construction process rather than waiting for the projects to be complete, putting an unwelcome new financial burden on Canadian Solar. It's hard to know what led to this development, but I suspect that SunEdison was having trouble financing the deal, possibly due to waning interest from its local lenders.

Moving on to the JA Solar case, Chinese media are saying an insurer recently paid the company a record $5 million in compensation after an overseas buyer failed to pay for panels that it received from JA. The report doesn't contain any detail on who the buyer was or why the reason for the default, but it does point out that the market has taken a strongly negative turn recently for Chinese companies that insure overseas panel sales.

Lastly, let's take a quick look at LDK, which announced the sale of its LDK Anhui unit to a Shanghai-based company that I suspect is state owned and acting on government orders. The buyer, Shanghai Qianjiang Group, is buying LDK Anhui for 25 million yuan, even though LDK Anhui has negative net assets of $54 million, and had $485 million in outstanding bank loans.

The sale will help improve LDK's own balance sheet by relieving it of this problematic asset, as the company is slowly rescued by Beijing through this kind of state-led assistance that will ultimately see the company taken over by the government. Look for LDK's state-led bailout to continue and similar deals to follow for other panel makers, with cooling interest from foreign banks in financing solar sector projects only increasing the industry's reliance on funding from Beijing.

Bottom line: New developments indicate foreign banks may be losing their appetite for financing the struggling solar energy sector, putting an even greater onus on Beijing to bail out the industry.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

December 31, 2012

Solar Bits: LDK Woes, Hanwha Loan

Doug Young

A couple of news bits from the solar sector are showing at once how companies continue to struggle with fallout from the ongoing downturn even as some larger players continue to receive lifelines from Beijing. In the former category, floundering giant LDK (NYSE: LDK) has just announced an arbitration panel's ruling that it must pay hundreds of millions of yuan for equipment that it ordered at the height of the solar boom but which it no longer wants or needs. Meantime in the latter category, mid-sized player Hanwha SolarOne (Nasdaq: HSOL) has just received a major new credit line from a Beijing bank, becoming the latest to get state funding to continue its operations pending the roll-out of a larger industry overhaul plan.

Let's start out with LDK, which is in the slow and painful process of being taken over by the state as it struggles under billions of dollars in debt that it has no way to repay. The company has just announced that a Chinese trade arbitration panel ruled it must honor a contract it signed with a company called JYT Corp to buy equipment worth nearly 300 million yuan, or about $50 million, for making polysilicon, the main ingredient in solar cells. (company announcement)

LDK signed the deal in 2008 when polysilicon prices were soaring and it anticipated demand would continue to rise sharply as Chinese and other global manufacturers ramped up their production of solar panels. Of course anyone who follows the industry will know that soaring production led to a huge supply glut that caused prices to collapse starting early last year, leaving companies like LDK with commitments like this new equipment contract that they no longer needed.

Former industry leader Suntech (NYSE: STP) found itself in a similar situation when it became locked into a long-term agreement to buy polysilicon from MEMC Electronic Materials (NYSE:WFR) at prices that were extremely expensive after the market collapsed. (previous post) Suntech later negotiated an early end to the agreement, but undoubtedly paid tens of millions of dollars in penalties for the termination.

This latest $30 million penalty for LDK wouldn't normally be a huge liability for a healthy company in a healthy industry. But of course LDK is anything but healthy, and this sudden $30 million liability is the last thing the company needs as it tries to renegotiate its huge debt.

From here, let's move on to Hanwha, which has announced its receipt of a $475 million credit line from state-run Bank of Beijing to help it continue funding its operations. (English article) Ironically, the size of the loan is more than 5 times Hanwha's current market value, which has plummeted along with everyone else in the sector during the current crisis. But investors are clearly no longer looking at market values or even companies' long-term prospects, and instead are waiting to see what kind of bigger bail-out package will ultimately come from Beijing and whether their shares will be worth anything after the much-need retrenchment occurs.

We saw clear signs last week that Beijing is prepared to let smaller companies fail as it tries to clear out excess capacity at less efficient firms. (previous post) Perhaps investors sense this latest loan to Hanwha hints the company will ultimately be one of the survivors after the coming clean-up, since Hanwha shares rose 7 percent after the company announced the loan. But if I were a stock buyer, I wouldn't bet on receive much if any money for my shares when the bailout finally comes. More likely, most or all of these Chinese companies will be forced to reorganize under bankruptcy protection, wiping out all of their share value as part of the rescue plan coordinated by Beijing.

Bottom line: LDK's newest liability and Hanwha's new funding to continue operations both reflect lingering fallout in the struggling solar panel sector as it awaits a broader, Beijing-led bailout.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

December 20, 2012

Beijing Administers Tough Medicine to Solar Cos

Doug Young

Solar Injection photo via Bigstock
A report in Thursday's China Daily is providing the clearest indication yet that Beijing is delivering some tough medicine to many of the nation's smaller solar panel and polysilicon makers by letting them go backrupt to return the struggling sector to health. Up until now, much of the talk in China has focused on rescuing the money-bleeding sector through a comprehensive bailout plan designed to create about a dozen major players as the industry's backbone. But little has been said about the bankruptcies and closures that also need to accompany such a clean-up, in a country where state support due to local factors often allows companies to keep running even after they become hopelessly mired in the loss column.

The China Daily article, which isn't available online, starts off with the usual rosy headline "Solar industry to get jolt from new policies", and leads with discussion of a program that will allow more solar energy producers connect to then national electricity grid. But the discussion quickly turns a bit more pragmatic after that, saying the government will limit new projects to make both solar panels and polysilicon, the main ingredient used to make panels.

It's not until near the end of the article that we learn that more than 80 percent of China's top 43 polysilicon companies have stopped production due to the global supply glut. And it's not until the very end that an industry official is quoted saying that the government is working hard to help the industry, but that "the companies still need to rely on themselves and adjust their plans to the new changes."

Those words come from Meng Xiangan, deputy director of the China Renewable Energy Society, who was speaking at a meeting of the State Council led by outgoing Premier Wen Jiaobao himself. The presence of such influential people and the high level of the meeting means the discussion most like