Solar Photovoltaic Archives


July 05, 2017

The New US Solar Trade Dispute

by Paula Mints

In 2012 SolarWorld, facing significant price and margin pressure from cells/modules imported from China, filed trade petitions in Europe and the US under section 337 of the 1930 Trade Act. As a refresher on the Trade Act of 1930; this was the infamous Smoot-Hawley Act which began as a protection for farmers but after much debate fed by many special interests it was eventually attached to a wide variety of imports (~900). Other countries retaliated with their own tariffs. The US trade deficit ballooned. Smoot-Hawley did not push the world into the Great Depression but it certainly was a card in the Depression playing deck.

In 1934, as part of the New Deal, President Franklin Roosevelt pushed the Reciprocal Trade Agreements Act through and the short reign of protectionism in the US ended.

Back to 2012, following an investigation, tariffs on cells and modules imported from China were put in place. Despite high anxiety in the US and Europe over potential price increases, and a highly divided solar industry prices did not increase significantly. In many cases, for larger buyers, the tariffs were absorbed.

Goal of action: Attempt to correct the import/export solar panel imbalance.
Result of action: Aside from industry participants and observers lining up on one side or the other it was Business as Usual. Prices increased slightly for smaller buyers and did not decrease as rapidly for smaller buyers.

In 2014 SolarWorld amended its original petition to include cells imported from Taiwan. Significant tariffs were put in place. Despite renewed high anxiety in the US over potential price increases, prices did not increase significantly. In many cases, for larger buyers, the tariffs were absorbed.

Goal of action: Attempt to correct the import/export solar panel imbalance.
Result of action: Despite angry shouts from both sides of the dispute (for and against) it was business as usual again. In old fashioned measurement terms, the needle on prices barely budged for larger buyers, and though prices increased for smaller buyers this was sometimesoffset by manufacturer or distributor sales on inventory. In late 2016 China slowed it exploding market sending global PV capacity immediately into an oversupply situation. Overnight prices crashed and margins collapsed. To support current production manufacturers began selling future production to large buyers at extremely low prices. Price decreases were in some cases available to buyers of smaller quantities.

Prices, in some cases, dipped below $0.30/Wp, lower than the price of a cell and below the cost of wafer-to-cell-to module production. Manufacturers, trapped in a spiral of buyer expectations and low margins, doubled down by selling future production to large quantity buyers in the $0.30/Wp to $0.40/Wp range.

Goal of action: Concerning the significant price drops, this was an attempt to sell off manufacturer inventory and it went awry. The goal of future pricing was to support current production.
Result of action: Lower prices for cells and modules for all buyers and extended unprofitability for manufacturers leading to a new round of manufacturer consolidation and creating a perfect situation for new tariffs and other government actions on imports. Meanwhile, sales of future production at low prices trapped manufacturers in a downward pricing spiral.
Figure 1 offers average prices, average costs and shipments from 2006 through 2016. Average prices and costs are the weighted average price (or cost) represent a global weighted average of the price paid for modules or the cost of manufacturing modules during a specific period. 

mints trade war fig 1.png

In April 2017 US-based (and 63% Chinese Owned) monocrystalline cell manufacturer Suniva filed for bankruptcy and shut down its cell and module facilities in the US. Simultaneously it filed a new petition under Section 201 of the Trade act of 1974 asking for a 0.78/Wp minimum price on all crystalline module imports and an additional $0.40/Wp tariff on imported crystalline cells.
The Trade Act of 1974, in theory, was designed to expand US manufacturing participation in global markets and reduce trade barriers. It also – and this is important – gave the President broad fast-track authority.  Under it the US president can give temporary relief to an industry.  Gerald Ford, who became the 38th president after the resignation of Richard Nixon, was president at the time.  The Trade Act of 1974 was deemed necessary because it gave the president a stronger negotiating position during the Tokyo multilateral trade negotiations. It was set to expire in 1980 and has been extended several times. President Bush used Section 201 in 2002 to increase tariffs on some steel imports to the US.

Section 201 of the 1974 Trade Act sets a higher bar for petitioners than the previous trade dispute.  The injury must be serious. The ITC (US International Trade Commission) has 120 to 150 days to report its findings to the president.

In early May SolarWorld Germany (SRWRF) declared itself insolvent and its US subsidiary while stating it would continue operations filed its intent to lay off its employees.  In late May SolarWorld joined Suniva’s petition.  
Goal of action: The goal of the latest petition seems to be to make a statement.   Result of action: Suniva is unlikely to survive. SolarWorld may pull itself out of danger.  US cell manufacturing is already comatose.  The most likely result will be higher prices for all participants. Should the petition be made retroactive for any period it will cause margin distress for US installers, developer and EPC. 
Nota bene, the 2012/14 petitions established a date for the tariffs to be implemented that took into account the timeframe required to investigate. That is, the tariff would go into effect at an earlier date than the decision.  The current tariff minimum import price petition does not include a date marker but this it is by no means certain that an earlier date wouldn’t be established if the proceedings go forward. The ultimate decider in the current case is President Trump.

Who did the earlier tariffs benefit? 
Several years later the solar industry still takes sides concerning the 2012 and 2014 trade dispute. Concerning the US, the 2012/2014 dispute did not lead to an increase in US cell manufacturing. One reason for this is long timeline from installing equipment, through pilot scale production to commercial activity.  It takes time. It takes money.  The decision to invest time and money in a vulnerable incentive-driven market is nontrivial. 
In 2016 the US had 1% of US cell manufacturing capability and 1% of module assembly capability.  The cell is the electricity generating component of the module without which the module is just a frame. Module assemblers buy cells. As the US has significantly more demand than it does crystalline capacity US module assemblers must import cells. Table 1 presents US cell manufacturing capacity, shipment and US market demand from 2011 through 2016. 
mints trade war table 2.png

Observing Table 1, US manufacturing capacity remained flat during the period from 2011 through 2016 viewed through the lens of compound annual growth. On the face of it, the US supply and demand story seems clear, however, looking closer bumps in the supply/demand road are apparent.  To understand the market, the macro view, represented by compound annual growth rates, is informative, but the bumps in the road, that is the detail, are even more important.

mints trade war table 1.png

Table 2 offers a bumpier view of US supply and demand during the period after the first tariffs in 2012.  In 2013 US capacity to produce cells, again, the electricity generating component of the module, decreased by 16% decreasing again in 2015 by 9%.  In 2013 shipments decreased by 9% before seeing a 6% recovery in 2014. 
Demand, meaning modules acquired from all countries, increased by 70% in 2013, 40% in 2014, 25% in 2015 and 73% in 2016. Demand during this period and for the foreseeable future (assuming no changes) was and is primarily driven by the ITC.
In 2015 US capacity to produce cells increased by 60 percent as manufacturers brought new capacity online. Shipments increased by 38% primarily to serve the growing US market. Despite new capacity the US still could not serve its own market.  The new capacity that was available in 2015 was additional, that is, brought on line or added by manufacturers currently operating. It takes years, decades in many cases, to add new manufacturing capacity.  The only way new capacity can be brought on line in a country is to truncate the pilot scale to commercial production timeline. When manufacturers move too rapidly through pilot scale production the result is almost always poorer quality.

Table 3 offers four scenarios for 2017, low, conservative and accelerated. Table 3 provides two conservative scenarios based on manufacturing capacity. The reason for this is that though SolarWorld will likely shutter some capacity and lay off employees it may survive the year as it has done before. Should installers become anxious about SolarWorld’s survival and stop buying its modules the ripple effect of this would ensure the company’s failure. 

mints trade war table 3.png

The direct goal of the current tariff/minimum price action is murky. Following its bankruptcy Suniva took investment with the caveat that it file the petition. The goal of protecting US manufacturing is difficult to support as the US has very little cell manufacturing and cannot serve its own market. The US has more module assembly capacity but must buy cells to assemble from other countries. The petition affects crystalline cells and not thin films, at least for now. There is not enough global thin film capacity to serve the US market. 
Should the current tariff petition be enacted prices for cells and modules all demand side participants will increase and US manufacturing will not become more robust. The only to increase US cell manufacturing is to invest overtime and reward buyers to choosing US produced cells and even then, other components will need to be imported.

What the trade petition means to you
End users: It is highly unlikely that system prices will increase. Expectations for low system prices are cemented in (and highly publicized). End users do not have to choose to install solar. End users have buying power. 

Residential Installers: This group will feel the squeeze stuck between buyers who do not have to choose solar and distributors/manufacturers who will likely pass on higher prices.  Warning, however, though the current petition does not set a date for tariffs it still could.   Distributors: This group will face higher prices but can usually pass on at least part of the cost to installers.  As with installers, though the current petition does not set a date for tariffs it still could.    

Developers and EPC: Price increases will be smaller for this group but there will be price increases and slower decreases. Thin film manufacturers will be free to raise prices, though as there is not enough thin film capacity to fulfill current demand supply constraints are likely. As with installers and distributors, though the current petition does not set a date for tariffs it still could.       

US Module Assemblers: Prices for crystalline cells will increase and this group will have to pay them to stay in business. Margins will feel the pain and it will be difficult to pass much of the price premium to customers  Investors and Developers: With low PPA bidding the norm, higher prices for modules will affect profitability. If the modules have already been purchased beware of retroactive pricing – not in place yet but you never know. If modules have not been purchased you will pay more per Wp. 

Thin film manufacturers: This group is probably secretly (or not so secretly) hoping the US minimum price and $0.40/Wp tariff on crystalline cell imports is enacted. Why? – no more price pressure. Expect prices for thin films to increase almost immediately while supplies remain constrained.  High end monocrystalline providers such as LG and SunPower: These manufacturers have already met the minimum price but may get hit with the $0.40/Wp on imported cells.  If so, these manufacturers will have to absorb the tariff.   

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.

June 22, 2017

Power REIT: No News Is Good News

Tom Konrad Ph.D., CFA

I first wrote about Power REIT (NYSE MKT:PW) in 2012, when the tiny real estate investment trust unveiled its plans to become what would have been the first Yieldco by investing in the land underlying solar and wind farms... before the term 'Yieldco' had even been invented.  In the years since, the company made some progress buying land under solar farms.  According to the most recent shareholder presentation, they now own land under seven solar farms totaling 601 acres and 108 MW, in addition to their legacy railroad asset. 

These assets produce Core Funds From Operations (FFO, a cash flow metric commonly used in among REITs as a measure of the company's ability to pay a dividend) of $0.60 per share. When the dividend is reinstated (more on that below) we can expect that it will be between 70% and 100% of Core FFO, or $0.40 to $0.60 per share.  As a microcap REIT, I would expect the yield of be in the 7 to 8 percent range, justifying a stock price of between $5 and $8.50.  The stock has recently been trading at the low end of this range, or $6.50 to $7.00.

Other Yieldcos (the mostly non-REIT companies that invest in solar and wind farms and use the cash flow to pay dividends) currently have yields between 4% (NextEra Energy Partners (NYSE:NEP)) and 7.5% (8point3 Energy Partners (CAFD)). As I recently wrote, I believe CAFD's dividend is unsustainable, so 7.5% is a good high end estimate for the yield on a microcap Yieldco.  When PW resumes its dividend, it should be worth $6 to $8 a share if valued as a Yieldco.

A Yieldco Wrapped in a Legal Enigma

Based on its potential to pay a dividend, Power REIT seems fairly valued or mildly undervalued. 

But nobody is looking just at the potential dividend.  The big story about Power REIT is its appeal in a civil case against the lessees of its railroad asset.  I'm not going to spill any more ink about this legal case, as I'm not a lawyer and I have no idea what the chance of a successful outcome might be.  What I do know is that, if the appeal fails, Power REIT is reasonably valued today.  I also know that if Power REIT were to prevail in any way, the benefits to shareholders could be enormous.  The debt that the lessees owe Power REIT (but which they claim is not payable) is worth more than Power REIT itself.  Add in legal fees and back interest, and it's easy to see the stock price tripling.  You can read about the details of the case in one of my articles here, or a more recent piece by an attorney (Al Speisman) who thinks Power REIT has a good chance of winning, here.

Why No Ruling Yet?

There is no set time frame for an appellate court ruling, but the case has now been under consideration for five months.  To me, that means that there are at least some aspects of the case that Third Circuit Court of Appeals finds hard to decide.  If the case were simple, the Court could have ruled already.

A case that is hard to decide must have a chance of going either way.  That means the judges must be considering overturning at least part of the District Court's ruling (which went almost entirely against Power REIT.)

The debt (settlement account) is worth about $9/share.  Legal costs (which Power REIT argues are reimbursable under the lease are another dollar or two per share.  Back interest could dwarf everything else, but I consider the chance of Power REIT being awarded any back interest to be low.  There is also the possibility that PW will have an opportunity to sign a new lease for the railroad, which could also benefit the company.

What are the chances of Power REIT winning anything in its appeal?  We don't know, but those chances seem to be rising the longer the Court of Appeals takes to rule.  Denying Power REIT's appeal might have been an easy decision.  Overturning part or all of the District Court's ruling requires more deliberation.  The Federal judges are still deliberating.

No news is good news. 

The upside is measured in stock price multiples.  Should we expect a double?  A triple?  Or "just" a 50% increase?  The chances of upside are increasing.  At the current price, the downside is minimal.  There could even be some upside from increased certainty around the company's future and tax write-offs in the case of a loss.

What's not to like?

Disclosure: Long PW, PW-PA, NEP.  Short calls on CAFD.

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.

June 14, 2017

Should I Sell My Mutual Fund To Go Solar?

by Tom Konrad Ph.D., CFA

An enthusiastic solar volunteer recently asked me: “What can I invest in to prepare for the next financial crisis?”

The situation made the question deeply ironic. The woman asking me was trying to help people invest in solar systems through Solarize, a nonprofit, community-sponsored group buying and discount program. Our town of Marbletown, New York and the neighboring towns of Rochester and Olive have just launched Solarize Rondout Valley, a campaign open to residential and commercial building owners in Ulster County.

Solarize campaigns are designed to make it easier and cheaper to go solar. While defensive stock market investments are my specialty, I can't think of a single financial investment that combines the expected high returns and relatively low risk of a home solar system. 

Just like buying value stocks when they are cheap, buying your solar system at a discount through Solarize or a similar program only increases the expected returns while lowering the risk. Solarize Rondout Valley offers a 14 percent discount compared to installers' standard prices. The installers can afford this discount because volunteers help them reach new customers.

Customer acquisition costs make up nearly 17 percent of the cost of a typical home solar system. The customers benefit because it boosts their returns. Even New York state and the federal government benefit, because lower prices reduce the size of tax credits, which are currently 25 percent and 30 percent of the purchase price of the solar system, respectively (capped at $5,000 for the state credit).

It turned out that my fellow volunteer had a roof she thought would be great for solar, but was hesitant about signing up herself. I told her solar was one of the best investments I know of for a financial crisis, because it will still be generating the same amount of electricity and savings, no matter what the markets do. And I asked her what sort of payback she thought she was getting from her mutual funds.

Two minutes later, she was our next signup for a free home solar assessment.

If you finish this article, live in Ulster County and own a home without solar, I'm betting you will be our next registrant. But even if you don't have a Solarize campaign going on near you, this article should give you the tools you need to evaluate any installer's bid as a financial investment.

Investment criteria

When considering any investment, most professional investors focus on these criteria:

 1.    Expected return, or how much you expect to make on your investment.

 2.    Risk, which has two components:

 a)    The likelihood of things going wrong

 b)    The expected losses if things go wrong

 3.    Liquidity/cash flow: Can you get your money back when you need it?

Many professional investors, including myself, also focus on the moral aspect of our investments, but I will not focus on that variable here. If you think it's important to promote your local economy or reduce carbon emissions, it's clear to just about everyone that a home solar installation is the best choice. The financial comparison is a lot less readily discernible, so that is what I will focus on here.

A note on mutual funds

There are more mutual funds than anyone can count, so, for simplicity, I will focus on two that readers are most likely to own. According to Investopedia, the two biggest mutual funds this year are the Vanguard 500 Index Fund Admiral Shares (VFIAX) and Fidelity Government Cash Reserves (FDRXX). These funds hold more investor money than any other mutual funds. Even if you do not own either of these funds, most investors own something similar.

VFIAX is a stock market index fund, designed to mimic the return of buying a proportionate share of the entire market. For the purposes of this analysis, most funds that contain the words “stock market index” in their name will have substantially similar investment characteristics. If it makes sense for you to sell VFIAX to invest in home solar, it will make sense to sell any of these other stock market index funds for the same reasons.

FDRXX is a money market fund, and almost every investor owns some money market or short-term bond fund in their portfolio. If it makes sense for you to sell FDRXX to invest in home solar, it will make sense to sell any of these other money market or short term bond funds for the same purpose.

Example home solar installations

The economics of home solar vary widely depending on local and state incentives, future local electricity prices, installation cost, local climate and the angle and degree of shading of your roof. In my experience, a reputable local installer is likely to give you reliable estimates for all of these except for future electricity prices. 

As examples, I will use two fairly typical installations using prices from Solarize Rondout Valley. The first system is a best-case scenario, installed on a house with a large, open section of roof with moderate tilt oriented at least a little south and with limited shading. A 5-kilowatt installation using 18 panels and 320 square feet of roof space will cost $3 per watt ($15,000) before state and federal tax incentives at the discounted Solarize price. The New York state tax incentive is 25 percent of installation cost up to $5,000, while the federal Investment Tax Credit is 30 percent, so the net cost after incentives for this installation will be $6,750. Because of the orientation and limited shading, this array will produce about 1,300 kilowatt-hours per year, per installed kilowatt (6,500 kilowatt-hours total) in Ulster County. Call this System A.

On the other end of the spectrum, consider a 7-kilowatt array on two sides of a building with the panels facing due east and west, and with some shading. The customer has high electricity usage and wants to get as much production out of the given roof space as possible, and so opts to use 19 of SunPower's (SPWR) highly efficient 360-watt AC panels using only 340 square feet of roof space. Each of these panels has its own microinverter to best handle the shading. While this installation will probably still produce 7,000 kilowatt-hours per year (1,000 kilowatt-hours per year, per installed kilowatt) despite the less-than-optimal conditions, the premium SunPower panels will cost $4 per watt, or $28,000 before tax incentives. After tax, the system will cost $14,600. Call this System B.

To find out the financial returns, we also have to make assumptions about the price of electricity saved. I will use 14 cents per kilowatt-hour, increasing at a rate of 1 percent for the next 25 years. This is more conservative than most installers' assumptions of annual electricity price increases of 3 percent or more, but I find it pays to be conservative when making investment decisions.


With these assumptions, we can use an online return calculator such as PVCalc. Below are the assumptions for System A, as I entered them into PVCalc.

I assumed a 25-year life, 1,300 kilowatt-hours produced and skipped the “own consumption," as well as "feed-in tariffs" and "tax" sections -- which do not apply in New York state. Setup cost is the cost per kilowatt after tax incentives ($6,750 for 5 kilowatts), and financing is 100 percent the customer's funds, because we are considering selling a mutual fund to pay for the system.

(Note that the euro '€' symbol is displayed by default in this European calculator under levelized cost, even though the levelized energy cost displayed is actually $0.076, not €0.076.)

PVCalc gives the following results for System A.

System A Results

I think the most useful factors here are “levelized energy cost" and internal rate of return (IRR). 

The levelized energy cost of 7.6 cents per kilowatt-hour is far below the price we pay for retail electricity in New York. IRR is a financial measure that allows us to compare the system on an apples-to-apples basis with fixed price investments that bear interest, such as CDs, bonds and money market funds like FDRXX. An IRR of 12.7 percent is a better return by far than you can find on any investment available to the retail public.

The economics of System B are less attractive because we're paying for an additional panel and more expensive panels in order to produce only a little more electricity than System A on a suboptimal roof.

Still, System B may be a better bet than many mutual funds. Here are the results from PVCalc.

System B results
You will note that the levelized energy cost is close to break-even at 14.9 cents compared to the 14 cents, plus the 1 percent annual increase I used for this scenario. That said, the IRR is 4.3 percent, meaning that it is still worth considering selling a money market mutual fund like FDRXX to buy this system. FDRXX has a yield of just 0.1 percent. So as long as the risks and limited liquidity of a home solar system (discussed below) are acceptable to you, it will make financial sense to sell a money market mutual fund like FDRXX to buy System B.

It is more difficult to gauge the expected return of a stock market mutual fund like VFIAX, but over 25 years, it is possible to come up with some reasonable estimates. Since we are looking at a 25-year life of the solar system, we should consider a similar time period for our mutual funds. Historically, long-term stock market returns have been driven by the valuation of the stock market at the beginning of the period. One widely used valuation measure is Robert Shiller's cyclically adjusted price-to-earnings ratio (CAPE). The CAPE is currently high by historical standards, meaning that stock market and VFIAX returns for the next 25 years are likely to be below par. 

Extremely long-term stock market returns have been in the 9 percent to 10 percent range, but a CAPE this high has usually preceded long periods where returns have much lower, like in 1929 and 1966. The CAPE was even higher in 2000, and stock market annual returns have been around 3 percent over the past 17 years. With these past results as a guide, we can expect long-term stock market returns to be between 3 percent and 8 percent over the next 25 years.

From this we should subtract the expense ratio of a mutual fund, which is a negligible 0.1 percent for VFIAX, but could be much higher for other stock market mutual funds. We should also reduce the return to reflect the expected tax on dividends and capital gains of about 15 percent. All together, the expected return for VFIAX is between 2.5 percent and 7.5 percent. People in high income-tax brackets should reduce these expected returns even further.

If you are worried about future stock market returns, even the mediocre 4.3 percent expected annual return from System B looks good against a 2.5 percent after tax return for VFIAX. If you are a stock market optimist, you should jump at the chance to sell VFIAX if you can get the expected 12.7 percent annual return from System A, but you will probably find System B less enticing.


Risks for mutual funds

Expected return is not the only consideration; we also need to consider risk. Stock market mutual funds like VFIAX are known to be risky, and in the next 25 years, we can reasonably expect to have one or two financial crises like we saw in 2001 and 2008. Given the high CAPE ratio discussed above, a bear market in the next few years seems more likely than not. 

Over long periods, the stock market does tend to make up for past losses, so a 2.5 percent annual return for VFIAX over the next 25 years is a reasonable worst-case scenario. 

The attraction of a money market mutual fund like FDRXX is the limited downside. The fund should be able to pay its 0.1 percent interest without losing value (at least before inflation) over the next 25 years. The biggest risk for FDRXX is actually inflation itself. If inflation accelerates, and short term interest rates do not keep up, the real value of FDRXX will fall faster than the dividends it pays can make up for. Even if dividend payments rise to keep up with higher inflation, these are taxable, and they are very likely to continue to fall short of inflation after tax.

Given the the country's high debt, and the Trump administration's stimulus plans, rising inflation is quite possible. If it does rise, the interest paid to holders of FDRXX should rise with it.  Since that interest is taxable, rising inflation will lead to small net losses for holders of FDRXX.

Risks for solar

Unlike FDRXX, a solar installation should benefit in the high-inflation scenario, since electricity prices and savings should rise with inflation. Nor should a prolonged stock market downturn hurt the returns from a solar installation. Another way to put this is that, as investments, solar installations have the attractive property of holding their value when financial investments are falling. This makes investing in even a relatively unattractive solar installation like System B a good way to diversify a larger investment portfolio.

The main risks for solar installations are falling electricity prices, the chance that the system breaks down, and the chance it is damaged in a house fire and insurance does not cover its replacement. There is also regulatory risk: the chance that regulators may change the way solar owners are paid for the electricity they generate.

The breakdown of solar risks

Falling electricity prices

Lower electricity prices equate to lower savings from solar. Most people assume that electricity prices will continue to rise over the long term, as they always have in the past, but this may not be a valid assumption. The falling prices for renewables and, perhaps most importantly, natural gas have been causing electricity prices to fall in recent years, and renewable energy technologies like wind and solar are almost certain to continue their price declines. These price declines are likely to be at least partially offset by the need to repair and expand our aging electric transmission and distribution infrastructure. How these two trends will balance is hard to predict. 

A scenario where we see electricity prices continue to fall as fast as 1 percent per year seems quite possible. If we put this 1 percent annual decline into PVCalc, the IRR of each system falls by 2 percent. The IRR for System A becomes 10.7 percent, which is still pretty hard to beat. The IRR for System B falls to an unattractive 2.2 percent, but this is still better than we can expect from a money market mutual fund like FDRXX.


Most home solar systems come with warranties. Solar panels usually have a 25-year power warranty that guarantees that electricity generation will not fall too much faster than expected. The expected return calculations already account for some degradation, the rate of which is specified in the “degradation” field of PVCalc. The rest of the system usually carries a 10- to 12-year product warranty, and the electricity produced in the first years of a solar system is the most important in determining the expected return. 

If, for instance, in the highly unlikely case that System A were to break down and be completely worthless after 15 years, we can see the effect on return by putting 15 into the “useful life” field. In this case, the IRR of System A falls only to 10.2 percent from the initial 12.7 percent, still a far better return than we should expect from a stock market mutual fund over the next 15 years.

Part of the reason System B was more expensive was that it was made with SunPower AC panels, which come with a comprehensive 25-year warranty on all of the expensive system components. Hence, if System B were to fail during the 25-year useful life I assumed (and it will likely last longer), it could be fixed under warranty.

House fires

Including an annual insurance premium of 0.5 percent of the initial system cost reduces the expected return for System A to 11.2 percent. In that scenario, the expected return for System B changes to to 4.0 percent from 4.3 percent, so the cost of insuring against property damage to a solar system is manageable. Such insurance makes sense if the solar system is accounts for a significant portion of your net assets.

Regulatory risk

In the stock market, companies often deal with regulatory risk. Large importers like Walmart are worried about President Trump's proposal for a “border adjustment tax,” because it would increase their costs. A recent petition filed by bankrupt Suniva with the International Trade Commission could result in a 40 cents per watt tariff levied on solar cells imported into the U.S. This worries solar financiers and residential solar installers.

The recent rise of stock market index mutual funds like VFIAX since the election also has to do with regulation, namely, the anticipation that regulations will be reduced and businesses will become more profitable. If those reforms fail to happen or the profits fail to materialize, the market and mutual funds will fall.

Regulatory risk can also affect the value of a home solar system by changing the expected future payments. Net metering and other payment structures to compensate homeowners for the power they send to the grid are created by state regulators, and what regulators give, regulators can take away. Although state utility commissions have a great deal of power to change rates, they are generally appointed by elected state officials. As such, they are subject to political pressure, and usually avoid actions that will be unpopular with a large number of voters. Yet they also have a mandate to ensure the financial stability of the utilities they oversee. This can lead to unpleasant surprises for solar customers if utilities persuade regulators that their financial health is at risk.

The most stark example of regulatory risk for solar was when the Nevada Public Utilities Commission reduced solar customers' payment for net excess generation by three-quarters in December 2015. The commission also tripled fixed charges -- and retroactively applied all of these changes to existing solar customers. For someone considering investing in home solar today, it is the fact that the change was retroactive which should be most disconcerting, since the possibility of a future retroactive change makes it impossible to accurately estimate the future returns for solar.

Any possibility for a retroactive change should concern homeowners considering going solar, but the Nevada example should be comforting to many. This is because it is the exception that proves the rule: No other state regulator has ever retroactively reduced payments for existing solar customers. Moreover, the public outcry was such that the retroactive aspects of the ruling were eventually reversed.

Although regulatory risk is generally low for home solar, it does vary from state to state. The safest states are those like New York that have recently reached decisions regarding the compensation for home solar.  The New York PSC recently ruled that existing residential solar customers could keep net metering for the life of their systems, while homeowners who install solar over the next five years would benefit from net metering for 20 years. The certainty of receiving net metering rates for 20 years should be sufficient for New York homeowners to make an informed investment decision.

Most homeowners should be fairly confident that whatever rules apply to their system at the time it is installed will last (at least for them) a long time. But there is still some chance of retroactive changes. The reason the Nevada regulators' action was so drastic was that the rapid growth of solar caught them by surprise. State regulators that are currently planning ahead for the time when solar takes off in their state should be able to manage a more orderly transition to new rules that adequately address both the costs and benefits of adding large amounts of residential solar on the grid.

All told, regulatory risk should be less of a worry for home solar customers than for owners of stock market mutual funds like VFIAX. Money market funds like FDRXX have minimal regulatory risk; however, it is even less than that of solar.  

Opportunity cost and timing

If you are considering selling a mutual fund, opportunity cost is the risk that it will go up in price after you sell. Nobody likes to sell today, only to find that they could have sold for a lot more at a later date.  Conversely, the opportunity cost of not selling a mutual fund is that the price of the fund may fall before it is sold.

For a homeowner installing solar, opportunity cost is the risk that the cost of home solar installations will fall after they sign the contract. The opportunity costs of not installing solar are that the cost to install a solar system might go up, or that the compensation and incentives may fall.

Although the costs of solar installations have been declining over the long term, in the shorter term, prices seem more likely to rise than fall. The Suniva petition mentioned above could add 40 cents per watt to the cost of solar cells manufactured outside of the U.S. within the next year. Since the U.S. no longer has a significant manufacturing base, that cost will directly increase the cost of a solar installation. 

The Trump administration and Congress are also planning on tax reform in the near term. The largest solar incentive, the 30 percent Investment Tax Credit (ITC), could be a target for cuts in order to pay for Republicans' tax priorities. It is very unlikely that tax reform will be retroactive, so solar installations completed in 2017 should still be able to benefit from the ITC. Even if the ITC is not cut as part of tax reform, it is currently scheduled to phase out between 2019 and 2021.

State incentives for solar may also decline in the near term. In New York, the NY-Sun state incentive for solar installers is set to decline from its current 40 cents per watt to 20 cents sometime this summer. Your solar installer should be able to tell you what is happening with incentives in your state, although what they say should be taken with a grain of salt, since they have an incentive to exaggerate any upcoming declines. There are also other resources. DSIRE, for instance, offers a comprehensive database for both state and federal renewable energy and energy efficiency incentives.

Finally, for people in my home Ulster County or nearby Orange County who are currently or about to sponsor group buying discount campaigns like Solarize, these campaigns only run for three months. The discount will end on July 31 in Ulster County and September 1 in Orange County.

All told, the medium-term trend for the cost of a home solar installation is likely to be up.

While the price of a money market mutual fund like FDRXX does not change over time, the price of a stock market fund like VFIAX will rise or fall with the market as a whole. Two widely used methods for evaluating the near-term risk/reward of the stock market are the CAPE ratio discussed in the expected return section and the VIX, or Volatility Index. 

The CAPE ratio is currently high by historical standards, meaning that the risk of a stock market decline is greater than usual, while the chance of the stock market going up in the near term is lower than usual.

Conversely, the VIX is usually high when stock prices are low, and low when stock prices are high. In mid-June, the VIX was trading around $10.50, which is lower than it has been at any time in the last 10 years. It is currently lower than it was at any time since before the financial crisis in 2008. As the VIX fell to its recent low from a 2008 high, VFIAX has risen 167 percent, or a compounded 12 percent per year for the last eight and a half years.

In terms of timing and opportunity cost, taking money out of mutual funds and putting it into solar seems like an excellent risk/reward tradeoff in June 2017.


The biggest downside for a home solar installation is liquidity. The only way to get your money out of a solar system is to sell your home, or wait for it to come back to you over time in utility bill savings. The great virtue of mutual funds is that you can sell them and get cash within 24 hours. If you expect to need the money you have in mutual funds in the next few years, you are better off using some other sort of financing such as a loan to pay for your solar system than selling your mutual funds.


For a homeowner looking for a long-term investment, or one with money in mutual funds looking for more attractive investments, home solar is an excellent choice. For many homeowners, it offers very attractive returns compared to almost any mutual fund. Since every solar installation is different, finding that expected return is best done using a dedicated solar or other financial calculator, such as PVCalc. 

While a higher expected return is often a good reason to invest in solar, there are usually other important considerations. People who expect to need the money they are investing in the next few years should avoid difficult-to-sell investments like solar. 

Most other considerations favor a solar investment over most mutual funds:

  • Stock or equity mutual funds are generally considered much more risky than a home solar installation.
  • Gains from mutual funds are taxable, while electricity bill savings from solar are not.
  • Current stock market indicators show greater-than-usual risks and lower-than-usual potential rewards.
  • While the price of solar is likely to decline over the long term, recent sharp declines and political and regulatory risks mean that solar installations could easily become more expensive over the next few months or years.

You may not own a home, or your roof may be shaded, in need of replacement, or otherwise unsuitable for solar. If it is, a reputable solar installer will tell you so. 

If your roof is right for solar, there may never be a better time to sell your risky mutual fund and put it in something that is as safe as houses: a home solar system.

Tom Konrad Ph.D., CFA is the editor of and an investment analyst specializing in environmentally responsible dividend income investing. He is Chair of the Environmental Conservation Commission for the Town of Marbletown , New York.

April 28, 2017

New Energy Exchange Limited Has A Market Cap of $3 Million, But Owns $54 Million of Liquid Stock

Esplanade Capital Issues Open Letter to the Board of New Energy Exchange Limited -- Urges the Company to Reregister with the SEC to Maximize Value for Shareholders

Esplanade Capital LLC, a significant shareholder of New Energy Exchange Limited (OTC PINK: EBODF), announced today that it has issued an open letter to the Board urging the Company to reregister with the SEC in order to maximize value for shareholders. The full text of the letter follows:

April 25, 2017

New Energy Exchange Limited (f.k.a. Renewable Energy Trade Board Corp.)
Board of Directors
Shun Tak Centre West Tower
Unit 1407
168-200 Connaught Road
Central, Hong Kong

Dear Members of the Board of Directors (the "Board"):

Esplanade Capital LLC ("Esplanade" or "We") urges New Energy Exchange Limited (the "Company", "EBODF", or "NEX") to reregister with the U.S. Securities and Exchange Commission (the "SEC") in order to maximize value for shareholders.

Having exercised extensive due diligence since 2013, We have verified that EBODF retains a $54 million equity position in a liquid $3 billion enterprise value, publicly traded company in Hong Kong. This stake compares to EBODF's current microscopic market capitalization of $3 million. In addition, We can also confirm that EBODF owns two Italian solar assets worth at least ~$32 million.

While we believe EBODF is carrying significantly more asset value, including operating solar power plants in China, Europe, and the US, and indeed some, albeit potentially modest, liabilities, we cannot fully corroborate these balance sheet items precisely due to EBODF having deregistered and "gone dark" in 2013. By reregistering, EBODF will provide shareholders an accurate inventory of its assets and liabilities while likely revealing an even greater mismatch between market and book value.

Through the management of Esplanade Capital Partners I LLC and Esplanade Capital Electron Partners LP, We and our affiliates have maintained a significant position in EBODF since 2013. As background, Esplanade was founded in 1999 and has been investing in the solar sector since 2004.

In fourteen years of solar investing, We have never encountered an opportunity as obscure and undervalued as EBODF. After discovering EBODF, an unregistered (since March 2013) but U.S. publicly-traded company, through our deep, global solar network, we conducted multidimensional due diligence through management meetings in New York, Hong Kong, and Shanghai, analysis of EBODF legacy SEC filings, and careful dissection of Stock Exchange of Hong Kong Limited ("HK Exchange") filings from sister-company United Photovoltaics Group Limited (686 HK), a leading solar independent power producer controlling ~1.4 gigawatts of solar power plants in China and the UK and wielding an ~US$3 billion enterprise value.

As context, We define the verifiable assets as EBODF's 335,683,070 share stake in 686 HK validated through HK Exchange filings as of April 19, 2017 and two Italian solar power plant assets acquired in June 2014. To wit, shares of 686 HK, EBODF's largest verifiable asset, have appreciated ~71% in 2017 while the Company's shares remain largely unchanged.

Share price vs holdings

After privately imploring management to reregister with the SEC and file updated financials to no avail, We have exhausted our patience and are forced to bring this matter to the public. The status quo cannot persist as shareholder value is being squandered.

For the sake of transparency, we are including details on the verifiable assets since most investors likely haven't reviewed the HK Exchange filings outlining EBODF's 686 HK stake and industry press detailing EBODF's acquisition of two Italian solar power plants in June 2014.

EBODF owns 335,683,070 shares of 686 HK (~4.5% of shares outstanding) as confirmed by a HK Exchange filing on April 19, 2017 (see page 5).

EBODF's stake in 686 HK is worth ~US$54 million at current market values. Other major holders of 686 HK include China Merchants New Energy Group (a massive China state-owned enterprise controlling 26.8% of 686 HK and ~17% of EBODF), ORIX Asia Capital (a US$95 billion Japanese asset management company controlling 14.4% of 686 HK), and the Asian Development Bank's Asia Climate Partners (the US$150 billion regional development bank controlling 4.5% of 686 HK) all of whom invested ~US$167 million alongside EBODF in 686 HK in March 2017.

In that March 2017 686 share subscription, EBODF purchased 68,799,449 shares of 686 HK at HK$0.5814 per share (see "subscription price" on pages 18-21) versus 686 HK's current share price of HK$1.25 thereby creating ~$6 million of equity value for EBODF shareholders in this single transaction (greater than twice the entire market capitalization of EBODF today).

In terms of the Italian solar power plant assets, EBODF acquired two projects comprising 13.1MW in June 2014. Based on the remaining subsidies and cash flow for each project, we estimate these two assets are worth at least ~US$32.0 million.

shareholding in 686HK

Whether simply a US Dollar denominated tracking stock for 686 HK or a solar independent power producer, EBODF is deeply undervalued and must reregister to maximize shareholder value and minimize the valuation gap.

Esplanade welcomes the opportunity to discuss the path forward directly with the Board.


Shawn W. Kravetz

cc: Alan Li Shan (electronically), Maggie Qiu Ping (electronically), Lu Zhenwei (electronically)

Esplanade Capital is a Boston based investment management firm founded in 1999 to manage capital for a small number of like-minded families, private investors, and institutions

March 03, 2017

Can Panasonic Produce High Efficiency Solar Modules at Tesla's Gigafactory 2 in 2017?

EDITOR'S NOTE: Yesterday, Tesla (NASD:TSLA) announced that it has no intention of using Silevo's technology at "Gigafactory 2," the former Silevo facility in Western New York, now owned by Tesla through its acquisition of SolarCity.  This makes some background on Panasonic (Whose technology Tesla plans to rely on instead) in this month's Solar Flare particularly relevant.

Panasonic recently announced that the New York Facility would be operated under the name Panasonic Eco Solutions Solar New York America (PESSNYCA?) and that equipment will be installed and production will begin by summer 2017.

In 2014 SolarCity acquired Silevo and broke ground on its New York Giga-factory promising that it would begin high volume production as early as 2016. This was an announcement doomed to retraction from the outset given that breaking ground and construction are not synonymous.

In 2015 SolarCity announced that it would produce modules in its New York facility by 2017 that would be 30% more efficient than the modules it was currently producing even though it was not producing any modules at the New York facility and Silevo was operating as a module assembler in China. Also in 2015 SolarCity leased the former Solyndra manufacturing facility in Fremont a move that at least finally (finally) got rid of the Solyndra sign and the constant reminder of this fiasco.

In 2016 SolarCity announced that the champion modules produced in Fremont by Silevo had reached 22% conversion efficiency. Note, champion efficiency and commercial efficiency are not the same thing. Given the 2015 announcement that it would increase its nonexistent module efficiency by 30%, did SolarCity mean that in 2017 it would produce modules of >28% efficiency in New York using the Silevo technology? This is both unlikely and, well, it’s more than unlikely. And now SolarCity/Tesla and Panasonic have announced that Panasonic will produce high efficiency cells and modules in New York by mid-2017. This is also unlikely.

Well, it’s more than unlikely.

Comment: Panasonic’s cost structure is not a good fit for manufacturing in the US. Given the crash dive in prices and the forces holding prices down it is difficult to see the new announcement in a positive light.

Lesson: This latest announcement may end up to be no more than an announcement but it will be repeated as progress before PESSNYCA turns out even one module. The lesson is not to put too much credence in announcements or in long company names that cry out to be acronym-ized.

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 in SPV Reaserch's monthly newsletter, the Solar Flare, and is republished with permission.

February 04, 2017

What Happened To Solar In 2016, And What To Expect In 2017

by Shawn Kravetz, Esplanade Capital

What happened to solar industry fundamentals in 2016?

  • Global demand shattered records growing ~40% to ~80 GW
    • The U.S. grew ~75% to ~14 GW with solar accounting for 40-50% of new generation capacity in 2016 (vs. close to 0% in 2004 when Esplanade started investing in solar.)
    • China installed 34 GW, a massive but volatile figure with record H1 installations giving way to an air pocket in the third quarter followed by a fourth quarter rebound
  • Solar now competes against natural gas, coal, and other wholesale electricity sources not just in the US but throughout the world
    • Bloomberg New Energy Finance estimates that utility scale solar produceselectricity at ~$45/MWh with no fuel price risk versus coal at $50-$90/MWh
    • Major global corporations such as Apple, Google, Amazon, and Wynn Resorts are shifting almost entirely to renewable sources to power their energy-intensive businesses

Why did solar indices get halved in light of record demand?

  • The extension of the US solar investment tax credit late in 2015 ignited a sharp but short-livedDecember rally thereby starting 2016 at elevated levels
  • In April 2016, former industry darling SunEdison filed for bankruptcy casting a cloud over the sector including buyers of solar project assets
  • In June 2016, Tesla bid to acquire sister-company SolarCity in what many, including Esplanade, believed a bailout of another financially stressed former industry bellwether
  • Record demand catalyzed outsized midstream capacity expansions ensuring oversupply and supply chain price collapse in H2 16 as Chinese demand waned
  • Trump’s victory further torpedoed the sector at the end of 2016 as his campaign pronouncements against renewable energy injected further uncertainty into investors sentiment
  • Various policy and macroeconomic factors – most notably rising interest rates - also nipped at benchmark performance as well

What do we foresee in 2017 (big picture)?

  • Our intelligence suggests that Trump very likely ignores renewables (at least at theoutset) and certainly has not aired any plans to dismantle an industry that employs more than coal
    • While Trump presents medium-term risks to the status quo, we do not expect any meaningful changes in the near-term
    • In fact, the new administration has already publicly confirmed their preference to maintain current federal renewable policies
  • Globally, we expect front-end loaded demand in 2017 with perhaps the first annual decline in Esplanade’s history due to:
    • Chinese demand potentially exceeding record H1 2016 levels but likely to collapse after the June 30, 2017 subsidy step-down
    • US demand likely declining as utility scale procurement cycle resets after record 2016 installations
    • India emerging as the newest mega-market but only partially offsetting China and US headwinds
    • Japan’s gradual decline mitigated by emerging market growth
  • Like demand, we expect value chain pricing to remain relatively stable (and possibly up) in H1 2017 but face pressure in H2 as China demand wanes
  • Continued escalation in interest rates could factor slightly on 2017, but we estimate that current rates neither create nor destroy demand given that most solar debt is benchmarked to LIBOR not Treasuries
  • LIBOR has already increased 100-150 basis points since January 2014 while solar installations continued to break records in 2014-16 despite higher borrowing costs.
Shawn Kravetz is President and Chief Investment Officer of Esplanade Capital LLC, an investment management company he founded in 1999.  The firm manages private investment partnerships including Esplanade Capital Electron Partners LP, launched in 2009, which intends to be the world’s premier private investment fund dedicated to public securities in solar energy and those sectors impacted by its emergence.. 

December 28, 2016

What Just Happened: SunPower Struggles And Restructures

2016 was a wild year and not just for solar and after decades of reliance on government incentives, subsidies and mandates the global solar industry may be inured to unpredictability but the industry as a whole should be wary of global trends.  Solar PV expert Paula Mints looked at a number of the developments for solar companies in the December edition of  SPV Market Research's Solar Flare.  Adapted for, this series of articles is reprinted with permission.

The high efficiency monocrystalline cell pioneer and manufacturer SunPower (SPWR) began signaling its competitive struggle in early 2016 and over the course of the year it shifted its focus from utility scale (a sector in which it is not cost competitive) to rooftop deployment (a sector in which it is still not cost competitive), shuttered module assembly in the Philippines and laid off 1200 people, and acquired JV partner AUO’s stake in the 800-MWp cell manufacturing facility in Malaysia for $170-million paid over four years.

In December SunPower announced that it would shutter 700-MWp of its cell capacity in the Philippines and lay off an additional 2500 people. The cuts were attributed to cost cutting measures. During an interview with Reuters, SunPower’s CEO said: "We are planning for (price) stability, meaning they won't materially decrease or impair. They might be plus or minus a few percent, maybe 5 percent, on a high side 10 percent, so we expect stabilization, not necessarily price increase."

Translated the quote means that prices are un-competitively low and we fervently hope that they will not continue to fall and though we do not expect prices to increase and we frankly have no idea what stabilization means at this point.

What it means for solar: As the robot said repeatedly on the 1960’s TV show Lost in Space: Danger Will Robinson. SunPower’s struggles in 2016, and earlier, indicate that high quality may no longer command a premium. As with First Solar, SunPower finds itself in a situation where visibility into future market direction is clear (price pressure will continue) and where an appropriate strategy has yet to emerge.

As with First Solar (FSLR), solar industry participants should hope that this industry pioneer and respected high efficiency manufacturer rights the ship.

Previous articles:

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

December 27, 2016

What Just Happened: First Solar's Strategy Shifts

2016 was a wild year and not just for solar and after decades of reliance on government incentives, subsidies and mandates the global solar industry may be inured to unpredictability but the industry as a whole should be wary of global trends.  Solar PV expert Paula Mints looked at a number of the developments for solar companies in the December edition of  SPV Market Research's Solar Flare.  Adapted for, this series of articles is reprinted with permission.

Though First Solar (FSLR) indicated recently that 2017 would be a transition year there is no indication from the company’s behavior in 2016 that it knows where it is going.

The company has been restructuring since Q1 2016. Early in the year it pulled the plug on TetraSun, shifted focus from its EPC and its O&M businesses to a new strategic focus on module sales and community solar deployment. Recently it leapfrogged over its Series 5 module, which it showcased at the 2016 Solar Power International Trade Show, scrapping it to instead launch its Series 6 module. The company also an-nounced 1600 layoffs.

What this means for solar: Pardon the pun but First Solar would not be the first solar company to fail to read the market and stumble strategically.

It is easy to step back and suggest that a focus on module sales in an industry with historically painful price pressure is a mistake and to applaud an implicit admission that expansion via acquisition into crystalline may have been an unnecessary loss of focus from its core technology, CdTe.
The global solar industry is brutally competitive internally – and this is before the competitive effect of cheap natural gas is thrown into the mix. Solar industry participants should hope that this industry pioneer and largest thin film manufacturer globally rights the ship.

Previous articles:

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

December 26, 2016

What Just Happened: Solar Module Prices Drop To New Lows

2016 was a wild year and not just for solar and after decades of reliance on government incentives, subsidies and mandates the global solar industry may be inured to unpredictability but the industry as a whole should be wary of global trends.  Solar PV expert Paula Mints looked at a number of the developments for solar companies in the December edition of  SPV Market Research's Solar Flare.  Adapted for, this series of articles is reprinted with permission.

module prices through 2016.png

Over 60% of global PV cell and module manu-facturing is either in China or owned by Chinese manufacturers. At ~30-GWp China’s market for PV deployment is over 44% of global demand.

A parable of what happened to module prices in 2016 is as follows: A company has one primary customer. This customer buys close to 50% of the company’s product. The customer cuts its demand for the company’s product suddenly also indicating that demand the following year will be 50% of its previous level. Suddenly demand for the company’s product has fallen by 50% with the promise of a further significant decrease in demand the following year. The company has several choices: A) sit on inventory, B) find new customers to absorb the excess production, C) sell the product at a sig-nificant discount and reduce capacity to serve the current level of demand or D) all of the above.

Late in 2016 China’s government moved to control demand and several gigawatts of product flooded into the market at historically low prices. Manufacturers outside of China and some Chinese manufacturers reduced staff. The rapid drop in price was, as usual, celebrated by some as an example of progress. The chart above offers average module prices (ASPs) from 2006 through 2016 as well as the low and high module prices during 2016.

What it means for solar: Prices have already ticked up slightly but full price recovery depends on another record year for solar PV deployment in China. Meanwhile other manufacturers face some tough decisions concerning pricing strategy for 2017. It’s a bad time to be a PV cell and module manufacturer.

Previous articles:

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.

December 23, 2016

What Just Happened: Chinese Solar-Boom or Bubble?

2016 was a wild year and not just for solar and after decades of reliance on government incentives, subsidies and mandates the global solar industry may be inured to unpredictability but the industry as a whole should be wary of global trends.  Solar PV expert Paula Mints looked at a number of the developments for solar companies in the December edition of  SPV Market Research's Solar Flare.  Adapted for, this series of articles is reprinted with permission.

China’s 2016 market for solar deployment soars to near 30-GWp: Solar PV deployment in China ballooned in 2016 to double the goals of its government and make no mistake, globally solar deployment in 2016 would be 15-GWp lower if developers in China had not continued installing systems.

China serves as a perfect example of how the solar industry has behaved for decades. Developers in China have not been paid the FiT regularly, curtailment is high and yet developers (while complaining of unprofitability) continued installing systems. This is, again, a perfect example of solar industry behavior for decades. It is illogical and trying to understand why an entire industry would continue to act against its own self-interest could make a logical person’s head explode.

Solar industry participants – globally – should pay close attention to China’s economy. Recently the country’s bond market popped, debt is high leaving banks and companies vulnerable and the country’s shadow (grey) banking is close to out-of-control.
What it means for solar: The solar industry once again finds itself vulnerable to one big market much as in the mid to late 2000s when Europe consumed over 80% of module product. The excess of activity in China could come to an abrupt halt leaving the in-dustry overcapacity and desperate for a new multi-gigawatt market.

It is not too late for the solar industry to change. Growth for unprofitable growth’s sake is not healthy. Some business is not worth doing.

Previous article: SunEdison, First Solar, and SolarCity

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.

December 22, 2016

What Just Happened: SunEdison, First Solar, and SolarCity

2016 was a wild year and not just for solar and after decades of reliance on government incentives, subsidies and mandates the global solar industry may be inured to unpredictability but the industry as a whole should be wary of global trends.  Solar PV expert Paula Mints looked at a number of the developments for solar companies in the December edition of  SPV Market Research's Solar Flare.  Adapted for, this series of articles is reprinted with permission.

In 2015 SunEdison (SUNEQ) was still buying up companies, developing projects, sponsoring conferences and was viewed – though skeptically by some – as an industry leader. Now pieces of the company, including projects in various stages of development, are available for pennies on the dollar.

What it means for solar: For developers and investors looking for a good buy there is a lot available at, again, pennies on the dollar. Not all of SunEdison’s orphaned projects will be developed, and not all will be developed by the buying company, but many will be developed and at the bargain they were acquired may even be profitable.

SunEdison’s failure, one of poor executive decision making and lax, poor oversight, cast good people adrift. Most will find their way back to solar jobs and some will not. The true victims of the SunEdison debacle were its own employees.

SolarCity and Tesla (TSLA) merge their debts and companies.

No one should have doubted that Mr. Musk would prevail in the merger of one highly flawed business model and two highly leveraged companies. A SolarCity failure would have had repercussions far beyond those of SunEdison as employees and residential lessees and PPA holders would have been affected. This is not reason enough to cheer bad business, but it is something salvaged.

What it means for solar: As with Tesla’s non-announcement about its non-existent solar roof tiles and its non-enforceable MOU with Panasonic Solar, expect a lot of PR an-nouncements about upcoming product releases as well as a lot of slipped release dates. All this marriage of debt means for solar right now is, basically, nothing.

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.

December 12, 2016

Quick Take: What Sunpower Project Sales to 3rd Party Mean for 8.3 Energy Partners

This morning, SunPower (SPWR) announced that it had sold a majority interest in two solar projects totaling 123MW.  Owners of stock in SunPower's jointly sponsored Yieldco 8point3 Energy Partners (CAFD) might be wondering,
"Hey, shouldn't SunPower be selling these projects to CAFD?"
The Yieldco model has Yieldcos using inexpensive capital from income investors to fund the purchase of projects from their developer sponsors, which have more expensive capital because developing solar projects is riskier than owning already-developed ones.  In fact, one of the two projects in question can be found in 8point3's "Right of First Offer" or ROFO list in its last (Q3) earnings presentation:


The point is, at its current share price, 8point3 is not in a position to issue new stock to finance the equity portion of the projects in the ROFO list at prices that can be offered by their parties like the actual buyer, New Energy Solar.  In other words, CAFD does not have the inexpensive capital that the Yieldco model assumes it should.

Given the rapidly falling prices for solar modules, both Sunpower and 8point3's other sponsor, First Solar (FSLR) are not profitable, and their need for cash has had some investors worrying that its sponsors might force 8point3 to buy some projects at prices it cant afford.  This sale of projects to a their party helps alleviate that worry, and should give comfort to investors, like myself, who have been buying CAFD for its very attractive 7.6% annual yield.

That's the flip side of "expensive capital" for publicly traded securities: A high yield.  Get it while it lasts.

Disclosure: Long CAFD, FSLR.

November 09, 2016

The Implications Of Trump's Election For Solar

by Paula Mints

The US election will have an affect on the US climate policy potentially swaying it much more towards
conventional energy including fracking for natural gas and oil and away from deployment of renewables and
incentives towards this end. The Clean Power Plan as established is unlikely to survive and states will start pulling
back plans – not all states, but many of them.
  • The Three Branches of Government: The Republican Party now controls the Executive, Judicial and Legislativebranches of government this means that the agenda followed by the country for at least two years until the midterm elections and potentially for decades because of the Supreme Court will be that of the party in power.
  • The Supreme Court: The next justice will set the tone for the country on wide ranging cases including the Clean Power Plan
  • The Clean Power Plan: President Elect Trump has vowed to turn back all reforms and likely will – and – cases reaching the Supreme Court may not fare well.
  • The DoE and NREL: The new president will select the energy secretary who will set the direction, tone and budget at the DoE. Funding for solar and all RE is at risk.
  • The ITC: Though this is a bipartisan agreement and a law, it can be overturned. Best case, it continues as planned. Worst case it is overturned by the new president and congress.
  • The EPA: President Nixon, a republican, established the EPA so it is not a foregone conclusion that it’s powers will be decreased. However, the president appoints its administrator and the direction is likely to be far less focused on the environment than it has been.
  • The Paris Climate Change Agreement: President Elect Trump has made it clear that he plans to exit theagreement and he is likely to do so.

This is all against a backdrop of ongoing oversupply in the solar PV market.

  1. China: Along with decreasing its FiT rate and continued high curtailment, China has decreased its solar deployment goal from 150-GWp to 110-GWp by 2020 and increased coal production from 900-GW to 1100-GW by 2020. The goal is to install 60-GWp of DG, 45-GWp of ground mounted and 5-GW of CSP. At the end of 2016 China will have installed ~78-GWp of solar PV, only 15-GWp of which is DG. This means that China’s annual PV installations will be reduced from 15-GWp (~30-GWp in 2016) to ~9-GWp. This also means that manufacturers based in China are significantly overcapacity.
  2. Global Curtailment: Globally, curtailment is a trend and with low bidding on tenders also a global trend quality is a concern and margins will continue to be tight.
  3. India: Low bidding in India is a crisis and as a result, low quality will be a crisis. This incentive driven market is a bubble and this bubble will pop.
  4. Module Price Crash Dive: With the changes in China’s solar PV deployment goals the PV industry is now significantly overcapacity. Module prices will be held down throughout 2016 and well into 2017. Manufacturers outside of China and N-type manufacturers will feel significant price and margin pressure going forward.
  5. Low PPA bidding: Overcapacity means that it is a buyer’s market for modules and also means that developers of commercial (including Utility scale) solar PV must compete with developers from China. Basically, with solar deployment in China constrained in 2017 Chinese developers must seek out new markets. This will push tender bidding to new lows and will threaten profitability globally.

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 adapted from the SPV Market Research November 2016 quarterly call presentation and is printed with permission.

November 03, 2016

The Dangers of PR Driven Solar News

by Paula Mints

Few people understand the time, money and effort required to develop and manufacture high quality solar technologies.  We can blame this fact on a reliance on press releases for news about the solar industry.

Manufacturers drive these misunderstanding by not properly explaining that champion results are not analogous to or in many cases near commercial viability. The PERC, passivated emitter rear contact solar cell, now gaining market traction began its long trudge to commercial competitiveness in the mid-1980s. When manufacturers announce results without fully ex-plaining these results the effect is misleading and also furthers the illusion that breakthroughs are imminent.

Elon Musk’s recent announcement about his new and innovative solar roof – which turned out to be a fact-lite announcement of a solar tile product – is another example of press that calls attention to nothing that is either new, innovative or that deserves much press coverage in the first place.

Waiting for the next technology breakthrough is like Waiting for Godot, the play by Samuel Becket about the meaningless of life and where Godot never arrives. The definition of breakthrough in the solar industry is amorphous and essentially meaningless. In reality the many profound breakthroughs that have inched the photovoltaic industry forward to where it is today – undervalued for the very technology crucial to it, the solar cell – have taken decades.

Beware of company press releases announcing future plans or stating that a company is the leader in a space. For one thing there may be only one company in the space.

There is a lot of precedent for announcing future manufacturing capacity building and for referring to the future as if it were a fait accompli. In 2014 SolarCity (SCTY) announced to great fanfare its plans for the largest solar manufacturing facility in the US, a1-GWp c-Si facility in New York. Many industry participants and observers took the announcement as proof of a US manufacturing renaissance.

Blast from the past: In April 2011 GE bought PrimeStar, a 30-MWp, pre-commercial CdTe manufacturer based in Colorado for $600-million. In its announcement GE stated that they would build the nation’s largest manufacturing facility, a 400-MWp CdTe facility in Colorado. In 2013, after failing to commercialize PrimeStar’s CdTe technology, GE sold the startup’s technology assets to First Solar in a stock deal valued at $82-million. The moral of this example is that though planning for the future is crucial, announcing these plans as fact is most often a huge mistake.

Misleading PR driven solar news has trained readers to expect a constant stream of advancements and dulled the senses to the true nature of advancement. Technology breakthroughs are, as previously indicated, years and potentially decades from idea to prototype to champion result to pilot scale production to commercial competitiveness. Advancement is driven by repeatability that is, doing the same experiment or test again and again and again and again until an average result is achieve and can be repeated – again and again.

For example, in the mid-2000s companies such as Applied Materials (AMAT), Oerlikon and others tried to leapfrog over the historic development timeline by offering turnkey manufacturing so that new entrants eager to make a buck in the photovoltaic industry could avoid years of trial and error and jump almost immediately into commercial production. Years of announcements later the turnkey PV manufacturing model is rarely mentioned.

Solar conferences compound the problem by providing little in the way of education or actual facts about technology development. Better information is available at the scientific conferences such as the IEEE PVSC but at the 2016 PVSC in Portland, Oregon an executive from Solar Frontier spent fifteen minutes describing the history of the company and leaving out salient facts such as current production costs, average prices and the commercial efficiency of its commercial CIS modules.

At the 2016 Solar Power International Conference in September during a focus group several people said that they were bored with the solar cell, referring to it as a commodity and wondering when the next breakthrough would be announced.

PR driven news cycles train us to expect giant breakthroughs where we should expect hard work.  That leaves us bored even when that hard work is paying off.

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 in the October31st issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

November 02, 2016

The Commoditization of the Solar Industry

by Paula Mints

Philosopher, essayist, poet and novelist George Santayana said: Those who cannot re-member the past are condemned to repeat it.
The solar industry is expert at repeating its behavior and justifying the often devastating results by referring to them as the solar rollercoaster or, the solar coaster.

To be clear, the industry’s behavior is closer to a Shakespearean tragedy than it is to a carnival or theme park ride. People choose to ride rollercoasters because once the ride begins they lose control for a brief period. They can enjoy the feeling of being safely out-of-control for a brief time. On a rollercoaster the thrills and chills are temporary.

In the solar industry a downward swoop typically means lost money, lost jobs as well as the lost dreams of the solar workforce from one end of the value chain to the other. On the manufacturing side most participants have been in low to negative margin territory for far too long and this situation is not going to right itself in the current pricing climate.

Polysilicon manufacturers, under pressure for years, are unlikely to get relief. Manufacturer components and materials outside of China such as backsheets and EVA are giving up and exiting. Cell manufacturers and module assemblers are pressured to exit or cut corners.
The downward slope of the solar rollercoaster is not a fun ride.

Problems with margin squeeze and poor quality components are not new. When prices for modules began crashing years ago the industry as a whole had an opportunity to point out the effect this margin squeeze would eventually have on quality and competition. Instead, crashing prices were celebrated as progress.

To correct a situation wherein low margins affect buying decisions – polysilicon, consumables, backsheets, etc. – buyers need to be aware that their choices will eventually affect the quality of the modules and Balance of Systems (BoS) they buy and install.

Whether it is demand side participants buying components at prices that are too good to be true or it is supply side participants choosing to sell product at prices with razor thin or negative margins, choices are being made. Solar participants are not giving up control of their future, they have abdicated it.

The Commoditization of the Solar Industry

Solar panels are widely considered commodities these days. This is a misunderstanding of what a commodity is and is linked to a misunderstanding of the time, effort, science and engineering required to develop photovoltaic thin film and crystalline cells. It also misunderstands the nuance of module assembly.

In general, a commodity is a product that is produced and sold by many companies and that has no differentiating features. Electricity is a commodity. Copper and aluminum are com-modities. Ammonia is a commodity. Oil is a commodity. Shoes, purses, jeans and solar panels are not commodities.

Unfortunately as CdTe, CIS, CIGS, n-type monocrystalline and p-type multi and monocrystalline solar panels may or may not look different from each other the assumption is that there is no differentiation and they are thus commodities. The belief that the solar panel is a commodity is what led Applied Materials (AMAT), Oerlikon and others to assume that solar cells could be rapidly mass produced just like any other diode and panels churned out like so many LED television screens. Note again that those who believed this are no longer selling the concept of turnkey solar cell manufacturing lines.

Again, the assumption that solar cells – thin film or crystalline – are commodities ignores the science and the nuance and the decades of effort as well as the decades of experience re-quired to produce a commercial product.

The industry has effectively, though not correctly, commoditized itself by agreeing by virtue of its behavior to compete almost solely on price and by celebrating unreasonably low prices as progress. Industry participants have created the myth that the solar panel is a commodity simply by repeating that it is one and assuming that repetition alone renders something a fact.

Repeating something ensures that it will become repetitive, it does not confer legitimacy on the statement that is being repeated.

The Current Module Pricing Situation – Abandon All Hope, Those Who Manufacture Here

The reasons for the rapid decline in module prices globally are very clear and they are not based on progress in either cost reduction or conversion efficiency increases.
  1. China’s market out performed all estimates and manufacturers in China and Taiwan planned production around a 30-GWp market instead of a 15-GWp market. It is worth noting that the FiT had been paid slowly if at all and curtailment in China is high and thus PV deployment is not profitable.
  2. China’s government effectively slammed the door shut (as have other governments) to slow out-of-control building.
  3. As a result, between 3-GWp and 5-GWp of cell and module production was stranded in manufacturer and developer inventory.
  4. As a result a flood of low priced cells and modules are available.
  5. As a result of what is now overproduction prices are highly competitive and margin pressure is extreme.

Unlike the mid-to-late 2000s current low prices are not the result of an aggressive pricing strategy to capture share. The current low prices are the result of production to meet China’s ballooning market, the government abruptly let the air out of the balloon, and the cell and module inventory stranded in the wake of high levels of production and government actions to slow the domestic market.

Prices are falling daily and will continue to fall until the production that was meant to be in-stalled in China is worked down. Meanwhile, manufacturer capacity expansion plans are being pulled back and layoffs have begun.

The only manufacturers for whom this is good news are those who were not yet commercial. These manufacturers have been offered a face-saving way to shutter capacity. For commercial manufacturers – even in China – the pricing slide is akin to being a passenger in a plane that hits a never ending air pocket. Prices are plummeting, taking jobs, quality and future plans with them.

Forgetting high efficiency manufacturers such as SunPower (SPWR) and LG – though make no mistake these manufacturers are also feeling price pressure – the current average price for modules in the US is $0.48/Wp. The range, including high efficiency monocrystalline modules, is $0.35/Wp to $2.25/Wp.

The figure below offers price and shipment history from 2006 through a 2016 estimate. The global average is a weighted average all prices in a market throughout the year and is based on a representative global sample. Concerning the average price estimate for full 2016, it is the estimate based on the current situation and given the pressures could be $0.02/Wp to $0.04/Wp lower. Remember, price and costs are different beasts.

module prices and shipments 2006-16Meanwhile, Back on Planet Margin

Many people are working overtime to tie the current situation of low pricing and strained margins to the early 2000s. The situation today is, as previously discussed, different.

In 2004, the global PV industry entered a period of prolonged accelerated growth stimulated by the European feed in tariff incentive which spread quickly from Germany to other countries. In its early iterations, this incentive was simple and profitable and as such invited investors to take risks on non-commercial technologies. The utility scale (multi-megawatt) application was an outgrowth of investor interest in seemingly stable FiT returns.

During the early 2000s capacities to produce technology increased significantly while prices decreased significantly; for example, prices decreased by 42% in 2009 over the previous year, by 16% in 2010, by 23% in 2011 and by 45% in 2012.

Unfortunately, these price decreases were misunderstood as a sign of economies of scale and it was widely assumed that the industry had reached grid parity. This assumption was largely based the misunderstanding that price was closely correlated with cost and that price decreases represented progress. During this period of strong activity, manufacturers in China entered with aggressive pricing strategies that rapidly drove PV manufacturers into a pro-longed period of negative margins, company failures and consolidation.

As a result of this long period of price declines tariffs, domestic content requirements and minimum import prices were established in the EU, the US, India and Canada. These measures were unsuccessful in that these methods misunderstood the marketplace for solar PV cells and modules and did not take under consideration grey market activity.

Currently, module buyers are able to buy product at ever lower prices and enjoy some (probably brief) margin relief. This is particularly important for developers bidding into the highly competitive PPA market. The downside will be – again – loss of manufacturers who cannot withstand the current period and all the expertise that goes with them. Product quality may also suffer as manufacturers look to preserve what margin they can.

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 in the October31st issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

September 07, 2016

Solar Module Prices: The Trend Is Down

by Paula Mints

Buckle up, another module price war is afoot – or maybe it’s dumping or maybe it’s panicked selling or maybe it is the result of overcapacity and softening demand or maybe it is China’s government saying NO MORE to it’s out of control market and effectively stranding a whole lot of overcapacity or maybe it is all of the aforementioned. Pricing is always a complex subject.

The average price for modules from China is currently $0.60/Wp (and dropping) and the average price for smaller buyers is $0.66/Wp (and dropping). These are averages and there are prices for inventory as low as $0.33/Wp. There are non-inventory modules available in the $0.49/Wp to $0.60/Wp range. The current trend in module prices is down, pressured by strong production levels in China during the first half of 2016 and a slowdown of deployment.

Comment: Module prices will be tumbling potentially through the end of the year. Look out for quality issues. Manufacturers in China have overproduced and with the Chinese government looking to control deployment many are looking to rid inventory of overproduction.

Lesson: Anyone who things that prices will stay down, think again. Anyone who thinks that prices will tick up to consistent margin recovery level...think again. Module sales in the solar industry are historically an unpleasant competitive area in which to do business as many failed
companies would attest.

module price history 2006-16.png

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 in the August 31st issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

September 01, 2016

US Solar: Lawsuits, A Quiet Exit, and Grand Plans But Fewer Results

Lessons From SunEdison, First Solar, and SolarCity

by Paula Mints

SunEdison (SUNEQ)

Currently SunEdison faces at least 15 lawsuits. SunEdison, Terraform (TERP) and other defendants asked to have the cases against them consolidated.

Along with the lawsuits, from October 2015 through May 26 at least 20 security class actions have been filed against SunEdison its subsidiaries, officials and underwriters. Many of these actions relate to claims that investors were misled about the liquidity of SunEdison, et al. Meanwhile, GCL-Poly wants to buy SunEdison’s (MEMC) polysilicon business for $150-million and those in charge of selling off the company bit by bit are eager to nail this bid down.

Comment: Potential buyers aren’t just circling overhead they are diving swiftly in. Meanwhile, future investors in renewable funds should learn to think very carefully before investing the retirement funds of groups such as the Municipal Employee Retirement System of Michigan.

The solar industry remains volatile and despite ongoing growth is still subject to heartbreaking, dream shattering and retirement income depleting crashes.

Lesson: SunEdison stands as a stark lesson in solar industry bad behavior. Hubris encouraged Icarus to fly too close to the sun. Overtime too many solar companies have followed his path up and unfortunately met the same fate.

First Solar (FSLR)

In July First Solar finally pulled the plug on its crystalline ambitions by announcing it would shutter TetraSun and convert the manufacturing facility in Malaysia to CdTe production.

Comment: Well ... First Solar tried CIGS and quietly pulled the plug following at least two unsuccessful years and now it has less quietly exited crystalline manufacturing after a couple of years of assuring everyone that it would be very successful in this regard. As a-Si production
is almost nonexistent hopefully the company will now focus 100% on CdTe and continue with its world leadership in this regard.

Lesson: Hopefully First Solar has learned that shifting focus from its core technology focus just results in a shifted focus because it certainly has not resulted in revenue.

SolarCity (SCTY)

In SolarCity’s August earning call the company, meaning proud new parent/owner Elon Musk spoke enthusiastically about Silevo’s new custom BIPV product and basically ignored offering any details about manufacturing delays and manufacturing cost. SolarCity announced a gross  profit of $118.8-million for 2015, operating losses of $647.8-million and net losses of $768.8-million. SolarCity also lowered its installation guidance for 2016.

Comment: Hmmm. So, SolarCity’s Silevo acquisition has shipped nothing from its 1-GWp manufacturing facility and though it has produced nothing and shipped nothing is announcing a new custom BIPV product that will be more expensive to manufacture than the panels it has yet to produce. SolarCity loses money on its sales business. Daily there is an article or blog either announcing the SolarCity/Tesla merger as evidence of the genius of Elon Musk or, well, something entirely different from genius. Perhaps the genius is to continue announcing grand plans followed by delays in grand plans and to continue losing money while piling on the debt and expanding.

Lesson: The lesson is that the market loves a unicorn and will embrace one even if it is an illusion. Sometimes all one can do is watch in fascination.

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 in the August 31st issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

July 06, 2016

Tesla and SolarCity: When Acquisition Strategies Run Amok

by Paula Mints

When two companies with negative financials and high debt marry a good response to the nuptials is … Huh?

When Toto pulls back the curtain in the Wizard of Oz to reveal that the Wizard is just a normal man with no special powers the Wizard says: Pay no attention to the man behind the curtain.

In the case of the proposed stock acquisition of SolarCity by Tesla pulling the curtain would reveal two debt ridden companies with cash flow problems.

Just the Facts Please

The facts are: two companies with high debt and consistent net losses have joined their net losses and debt to enjoy the synergies offered by Tesla’s (TSLA) electric car and Powerwall Lithium Ion battery technologies with SolarCity’s (SCTY) residential/commercial lease business model and its Silevo crystalline cell technology.

Other facts include that SolarCity has experienced setbacks with its module assembly/cell manufacturing ramp up and optimistic announcements aside are likely far away from com-mercializing its technology.

Once SolarCity’s PV cell/module technology is commercial it will be competing in a market with significant downward price pressure. Also, given that China’s PV cell/module manufacturers are ramping capacity in countries that are not subject to import tariffs competition on price will get a lot more painful in the near future.

Also to be considered is that with demand for solar leases slowing SolarCity has announced that it will compete in the highly competitive utility scale space, a segment of the PV market that is highly capital intensive on a much bigger scale.

Finally (or, really not finally) the company’s reliance on debt renders it highly vulnerable.

Now to Tesla: facts include consistent net losses, high debt and a residential/commercial battery product that is not widely deployed and is quite expensive.

Both companies have liability/asset ratios over .50, which means that a higher proportion of each company’s assets are financed by debt.
So … just where is the synergy in combining two companies into a massive, debt-laden, clean technology powerhouse?
The proposed acquisition DOES make sense for SolarCity, which can be viewed as the weaker party. For Tesla, it only makes sense when thought of as a lifeline for SolarCity.

Table 1 (click for larger version) offers total revenues, net losses and the Liability/Asset ratio for SolarCity and Tesla from 2010 through 2015.
Table 1
Tesla is not the only company to recently make interesting acquisition decisions. SunEdison, currently in bankruptcy, went on a buying spree with the goal of creating a massive clean technology powerhouse and now finds itself selling assets and seeking a busi-ness-savior-marriage of its own.

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 in the June  30 issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

May 12, 2016

Canadian Solar Boosts Outlook; Yingli Hopes For Sale

Doug Young

Bottom line: Canadian Solar’s raised revenue guidance hints at rising prices and could signal upside for the company’s profits, while YIngli’s latest signals may show it’s trying to sell itself to a healthier rival.

The strongest and weakest players from China’s lively solar panel sector are in the headlines today, with superstar Canadian Solar (Nasdaq: CSIQ) and the struggling YIngli (NYSE: YGE) both releasing their latest quarterly results. But whereas Canadian Solar has just announced its financials for this year’s first quarter, including a raised revenue outlook for 2016, Yingli is just now releasing its results for the fourth quarter of 2015.

Most companies typically release their quarterly results within 60 days of the quarter’s end, or 90 days at the very latest. But YIngli’s ongoing struggles have led managers to say several times the company could become insolvent, as it sits on a massive pile of maturing debt that it can’t repay. The latest of that debt comes due today, and Yingli is saying it’s unlikely to make the repayment on time.

We’ll return to YIngli later, but let’s begin with the more positive story of Canadian Solar, which is one of the best-run of China’s major solar panel makers and has managed to stay profitable despite difficult conditions in the global solar market. Canadian Solar wasn’t exempt from the ongoing stiff competition, and reported its revenue fell 16 percent in the first quarter to $721 million. (company announcement)

Eroding margins also caused the company’s net income to fall by more than half to $23 million, from $62 million last year. But in an encouraging sign, Canadian Solar raised its revenue guidance for 2016 to between $3 billion and $3.2 billion, versus previous guidance of $2.9 billion to $3.1 billion. At the same time, it kept its actual module shipments forecast unchanged, meaning it expects prices to be stronger than it initially anticipated.

Investors were quite excited by the outlook, with Canadian Solar shares rising 12.4 percent after the report’s release. Canadian Solar has found a strong formula for boosting sales by building solar power plants and then selling them to long-term owners after completion. It filed late last year to make a New York IPO for its plant-building unit, Recurrent Energy (previous post), though the plan appears to be on hold for unspecified reasons.

Looming Default

While the outlook is positive for Canadian Solar, the opposite has been true for Yingli. The company first warned last year that it faced the risk of insolvency, after rising to prominence on a business model that relied on selling low-tech panels at cheap prices. In its latest report Yingli posted a massive 5.6 billion yuan loss ($865 million) in last year’s fourth quarter, or about 4 times its loss a year earlier. (company announcement)

In one slightly encouraging sign, Yingli forecast its shipments this year will total 2.6 gigawatts to 3 gigawatts, representing an actual expansion from nearly 2.5 gigawatts for all of 2015. But the positive news ended there, and investors focused on the part of its report where Yingli discussed its looming default for 1.4 billion yuan worth of bonds that come due on May 12. The company also failed to repay 30 percent of a another 1 billion yuan bond that came due last October, meaning it now needs to find 1.7 billion yuan to repay its maturing debt.

In its latest report, Yingli repeats its previous assessment that it will be difficult for to repay either of the bonds by May 12, and adds it is in ongoing discussions with the bond holders. (English article) None of this is particularly unexpected, which is perhaps why YIngli shares only dropped a modest 1.2 percent after the report came out, giving it a tiny market value of about $60 million.

In a potentially interesting new development, Yingli says in that it is exploring various options that could include the introduction of new investors or lenders to help it repay the debt. That suggests that perhaps Yingli is trying to engineer a sale of itself to a healthier company, which would then take responsibility for negotiating for debt relief with its creditors.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. 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 09, 2016

Right About Tesla, Wrong About Yingli

Doug Young 

Bottom line: Beijing should promote cutting-edge companies like Tesla that can help advance its new energy agenda, while abandoning ones like Yingli that use old technology to make cheap copycat products.

Two green energy stories were in the headlines last week, spotlighting China’s drive to become a global leader in the new technology and also the right and wrong ways to achieve that aim. An item involving US electric vehicle (EV) powerhouse Tesla (Nasdaq: TSLA) represented the right approach, with reports that the company might near a deal with Beijing to build a manufacturing plant in China. Meantime, former solar panel heavyweight Yingli (NYSE: YGE) was in the wrong approach column, announcing that its ill-conceived model of using old technology and cheap prices to do business had pushed it to the brink of insolvency, despite ongoing local efforts to rescue the company.

Beijing should take note of these 2 examples and do more to promote companies like Tesla that can develop cutting-edge technology for use in widely-respected products that the market wants. At the same time, it should abandon copycats like Yingli that don’t innovate and can only compete by offering cheap products using old technology.

In keeping with that approach, the government should finally pull the plug on companies like YIngli by letting them fail, while at the same time giving even bigger support to innovators like Tesla. Such a policy may cause some short-term pain due to plant closures, layoffs and lost investment for the copycats. But it will ultimately leave China with a field of healthier, more potent companies that can help it achieve its goal of becoming a global new energy leader.

China has made development of green industries a top priority over the last decade, with the aim of developing cutting-edge technologies that can be used both at home and exported abroad. That drive has gained added urgency in recent years as the nation grapples with worsening pollution, the result of years of breakneck growth with only minor attention to environmental protection.

One of Beijing’s earliest focus areas was the solar panel sector, whose products create pollution-free electricity using sunlight. Thanks to a wide range of incentives including tax reductions, cheap loans and low-cost land rights, the nation quickly built up a manufacturing complex that now produces more than half of the world’s solar panels.

Lack of Experience

But many companies that entered the field had little or no experience in the area, and instead relied mostly on cheap, older technology to produce low-end panels that were most attractive for their low prices. One of the biggest players to use that model was Yingli, whose cheap and relatively low-tech panels allowed it to quickly grow into the world’s largest solar panel maker.

But that strategy has sputtered due to a prolonged industry downturn created by too much capacity, and Yingli announced a year ago that it was running into serious financial difficulties. The company is now struggling to pay off its debt, and last week said there was “substantial doubt as to its ability to continue as a going concern” as it posted a loss of about 5.8 billion ($900 million) yuan last year. (company announcement)

While Yingli’s situation looked dire, things were much better for Tesla, which has previously said it would consider manufacturing its popular cutting-edge electric cars in China if given the right incentives. Tesla’s story was in the headlines late last week when its Asia chief Ren Yuxiang met with Xin Guobin, a vice minister from the Ministry of Industry and Information Technology (MIIT), which oversees the new energy auto sector. (Chinese article)

Both sides were eager to publicize the meeting, releasing photos of the men sitting together, heating up talk that the pair were closing in on a deal to build Tesla’s first manufacturing facility outside its home US market. Tesla’s ride into China hasn’t been easy mostly due to infrastructure and marketing issues, but its actual cars have been well received for their strong performance and cutting-edge technology. The company took a major step towards making its high-end products more affordable for average car buyers with the release last month of its latest car, the Model 3, which retails for a relatively affordable $35,000 before tax incentives.

Beijing should be commended for working hard to bring Tesla’s technology and manufacturing to China, which could ultimately help to promote similar development of China’s own domestic sector. At the same time, the government finally appears to be losing patience with Yingli after some quiet attempts to revive the company, and should work to conduct an orderly wind-down for this failed low-tech template for development in the fast-moving and fiercely competitive solar energy sector.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. 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 01, 2016

First Solar's Surprising Strategy Switch

by Paula Mints

CdTe and crystalline manufacturer and project developer First Solar (FSLR) announced positive results for Q1 as well as a switch in strategy emphasis from deployment to module sales.

Honestly, revenues, positive net income and other financial metrics matter less in this case than the company’s strategy switch to module sales. Downward price pressure and margin compression along with continued aggressive pricing from China makes this move confusing. Cost leadership is mutable in the PV industry and it is difficult to imagine that First Solar will have an advantage in this regard for long.

First Solar has a history of abrupt strategy changes, typically with successful results. In the mid to late 2000s, when demand in Europe was at its peak, the company shut down module sales to the US and other countries and focused on sales into Europe. As demand in Europe slowed First Solar switched its strategy to projects, selling almost all of its module product to its systems division. Now, with continued margin compression, aggressive pricing and a seemingly stable utility scale market in the US the company switches back to a focus on module sales.

Lesson: Companies in all industries make decisions that lead to head scratching moments for observers. When a company with a strong and leading project business makes a dramatic strategic switch observers should ask themselves what the company sees happening to its project pipeline. Another equally important question is what is happening to the company’s project margins. Given traditional low bidding on PPAs and tenders, the answer may be: Get out while you can.

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 in the April 30 issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

April 25, 2016

Net Metering Is the Solar Industry’s Junk Food

Shoppers who bring reusable bags to the grocery store buy more junk food.

This example is part of a growing body of behavioral psychology research showing that when we feel good about ourselves for doing one thing right, we give ourselves permission to be careless in other areas.

The solar installation industry seems to be falling into the "reusable shopping bag" trap. Solar itself is the reusable shopping bag. The junk food is net metering.

Net metering is a simple, intuitive way to pay for solar generation at retail rates. But it puts solar companies on a collision course with regulators trying to protect non-solar customers from cost-shifting. Solutions to this conflict exist and have the potential to unlock an even brighter future for the solar industry.  

Net metering pays owners of distributed solar for their excess power generation at the same price they would pay for power from the grid. When solar is a small fraction of the generation on the grid, this is a great deal for utilities and other ratepayers: solar generation occurs during the day, when electricity demand is typically higher and wholesale prices are also high. This is crucial on hot summer days when air conditioners drive up peak loads.

Net metering becomes less attractive for utilities as solar penetration increases. Hawaii and California are seeing this already.

Because electricity transmission is hard to build and storage is expensive relative to electricity generation, supply must be locally and instantaneously matched with demand. When lots of generation comes from variable, price-insensitive resources like solar, the grid suffers from too much of a good thing. In the middle of the day, solar production starts to meet and eventually surpasses daytime peak demand, and the value of electricity falls. Low prices during the day mean that more flexible forms of generation need to make profits when solar production is low, increasing prices and the value of electricity at night and on cloudy days.

This process puts utilities and regulators in a bind. The conflict can hurt both sides of the utility-customer relationship.

The Nevada Public Utilities Commission’s decision to end net metering for both old and existing customers may seem like a victory for the utility, but it is a Pyrrhic victory at best. 

When only a small fraction of the electricity on the grid comes from solar (low penetration) in any part of the grid, net metering is a subsidy to the utility, not the net-metered customer. But rather than replacing net metering with something that would encourage distributed solar where it would be most useful, Nevada has driven solar installers from the state. 

The decision did the greatest damage to solar customers who had the rules changed on them retroactively, and many of them will now never recover their solar investments. It also hurt other ratepayers who might have wanted to go solar in the future, and robbed all ratepayers of the benefits of any such installations to the grid. They are also robbing the planet of an opportunity to cost-effectively reduce carbon emissions.

The retroactive removal of net metering is also increasing uncertainty among large-scale energy developers, who reasonably wonder if something similar could happen to them.

How the conflict over net metering can be an opportunity

Must solar companies’ gain be a utility loss? Hardly. The key is to learn from the principles of stakeholder capitalism and turn the seeming tradeoff into an opportunity.

Speaking at the 2016 Conscious Investors Summit, R. Edward Freeman, the academic director at the Institute for Business in Society of the Darden School and the University of Virginia, made the point that tradeoffs are a managerial failure.

Freeman explains that when you treat employees and managers like jackasses, with carrots and sticks, they start acting like jackasses. When you treat them like human beings who crave a sense of purpose, they work with passion and deliver creative solutions to seemingly intractable problems. 

The solar/utility conflict is far from intractable, but for now, both sides are acting like jackasses. Utilities deride net metering as a subsidy from customers who can’t install solar to those who can, while the Solar Energy Industries Association publishes principles stating that customers should always have net metering as an option.

Both sides should stop acting like jackasses and seize the opportunity instead to focus on the tradeoff.  

A solution already exists. This is the value-of-solar tariff, where solar customers are paid for the value of the electricity they produce at the specific time and place they put it on the grid.

Under a value-of-solar tariff, non-solar customers cannot subsidize solar customers (a common utility claim about net metering). By definition, under a value-of-solar tariff, solar customers are paid only for the value they bring to the grid. They won’t be subsidized by other ratepayers simply because they are only paid for the value they create.

Untapped potential

Not only can a value-of-solar tariff resolve the conflict between solar and non-solar customers, but it can also unlock opportunities for solar which are currently being squandered under net metering. 

Under net metering, the incentive is to install solar so that it produces the maximum possible amount of electricity. This means pointing the panels south, at latitude tilt. Under a value-of-solar tariff, the incentive is to produce as much value for the grid as possible, which often means pointing panels west or southwest, in order to help service peak air-conditioning loads on hot days, which usually occur in the afternoon. Such decisions depend on both the local climate and on the local loads on the grid.

They also depend on getting the value of solar right. This is where we need creativity from all parties working together.

The paradox of doing good

Few people expect much creativity from utilities -- although there are notable exceptions, especially when it is the regulator driving change.

The solar industry is another matter. Almost all solar companies portray themselves as working for the good of the planet, and most of those genuinely believe that is what they are doing.

That’s where the reusable bags conundrum comes in. The mental accounting that allows a shopper to offset junk food indulgence with shopping bag virtue also seems to be affecting the solar industry as a whole.

If the solar industry were a person, it would be thinking: “I’m doing something great for the planet, so I don’t need to worry about all the non-solar ratepayers my actions might hurt. As long as the greater good is being served, it’s not my problem.”

It’s a pity that solar companies, which are doing so much good for the planet by displacing fossil fuels, are falling into the same trap as shoppers who displace plastic bags with reusable, but then poison themselves with junk food.

More solar companies need to stop substituting doing good for being good, and start living up to their true ideals. Solar has the potential to help all users of electricity, not just those who can install it themselves. A value-of-solar tariff can unlock that potential, as long as we have the creativity and courage to take everyone’s interests into account.

Getting a value-of-solar tariff right will be tricky, but creativity in the pursuit of a greater good is precisely what stakeholder companies excel at.

If all parties work toward a well-calibrated tariff, everyone will have the incentives they need to get the most out of future solar installations. Solar companies will get more business deploying solar where it does the most good. Regulators will see that all ratepayers are treated fairly. Utilities will find that new solar is connected to the grid where it makes it easier, not harder, to balance supply and demand.

Some people will still want to install solar even where the new supply is difficult to integrate, but a value-of-solar tariff will give them the incentive to install it with electronics and storage that makes the new supply easier to manage, or the price will be low enough that it will make sense for the utility to make the changes needed to handle it.

This kind of dynamic tariff is also likely to catalyze demand management, energy storage, and other industries we have not even thought of -- all of which will add jobs, create value, and help unlock the potential of solar.

Perhaps the solar industry and utilities can both have their cake -- and eat it together.

April 16, 2016

Yingli's Hopes For Government Rescue

Doug Young

Bottom line: Yingli looks set to receive a government bailout from Beijing.

Beijing is telling one of the nation’s biggest policy lenders to provide money for struggling solar panel maker Yingli (NYSE: YGE) before it defaults on a bond payment due next month.

Last week Yingli said it was in desperate negotiations with 2 groups of creditors, including one holding 1.4 billion yuan ($220 million) worth of bonds set to mature next month. (previous post) The other group is owed another 1 billion yuan related to an Yingli bond that came due last year, meaning Yingli needs to find a total 2.4 billion yuan in new money before next month to avoid a massive default.

I previously said the wording in Yingli’s statement implied it was negotiating for a broader government rescue, and now the latest media report from Reuters is saying such a rescue loan could be coming soon. The report says China’s banking regulator has asked China Development Bank to guarantee 7.5 billion yuan in loans to Yingli to pay off debts and engineer a broader company reorganization. (English article)

Such a sum does look like enough to pay off all of the short-term creditors and also conduct a major overhaul of the company, which is currently losing massive money. While that might look good for Yingli, it looks far less positive for China Development Bank, which could easily lose billions of yuan if Yingli ultimately fails to repay this big new loan. But then again, Yingli’s rise was largely fueled by government subsidies, so now it’s not that surprising to see the government stepping in to prop up the company one more time.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. 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 08, 2016

Shriveling Yingli Fends Off Bond Holders

Doug Young 

Bottom line: Yingli is likely to get sold or announce a major government-led restructuring, which could include bankruptcy, before a new round of 1.4 billion yuan in bonds comes due next month.

In what looks like a case of deja vu, fast-shrinking solar panel maker Yingli (NYSE: YGE) is in the headlines again as it looks set to default on 1.4 billion yuan ($220 million) worth of bonds set to come due next month. The default would be Yingli’s second within a year, after it failed to pay off part of another big bond that matured last October.

Yingli is still working to repay the remaining debt from that earlier bond, which amounts to another 1 billion yuan. That means that Yingli now needs to find some $375 million in funds to repay all of its maturing debt by the time the new round of 1.4 billion yuan in medium-term notes come due on May 12. That looks all but impossible for a company that’s bleeding money, which resulted in a $500 million net loss during its latest reporting quarter.

Despite the latest looming crisis, shares of YIngli, once China’s biggest solar panel maker, were only down 0.9 percent in the latest trading session in New York. But there’s not much more downward space for the company’s stock to fall, since at its current level Yingli is only worth $83 million.

Investors lack of panic at the latest looming crisis could mean several things. Most likely many serious investors have already given up on Yingli, and the only people left are simply day traders looking for big swings in the stock to make some quick profits. Some more serious investors may be waiting for another government bailout like the one that allowed Yingli to repay 70 percent of the bond that came due last October. (previous post)

One other possibility that looks increasingly likely is that Yingli’s hometown government and biggest backer, the industrial city of Baoding, may finally be tiring of bailing out this struggling company and want to merge it with a stronger rival. If that occurs, I expect the company could sell for even less than its current market value. Or Baoding could even let Yingli go bankrupt first, making its New York-traded stock worthless.

According to its latest announcement, Yingli says it held 2 meetings on March 28 with holders of its bonds set to come due on May 12, as well as holders of 30 percent of its bonds that came due last October but still remain unpaid. (company announcement; English article)

‘Very Difficult’ Debt

YIngli told holders of the notes coming due next month that it would be “very difficult” to repay the money, and proposed a 2-3 year extension on the repayment. At the other meeting, holders of the 30 percent of bonds that came due last October but have yet to be repaid demanded repayment plus interest. Yingli said it would make its best efforts to repay the money before the May 12 deadline when the new round of bonds matures.

The wording in Yingli’s statement hints that the company may be aiming to resolve all of the default issues by May 12, so perhaps everyone is sitting back and waiting to see what happens as that date nears. Frankly speaking, my sense is that the only reason Yingli continues to stay in business now is that the Baoding government doesn’t want to deal with a messy situation that might come with a bankruptcy declaration.

Yingli was once a solar superstar, but its fatal flaw was relying too heavily on low prices to gain market share without innovating very much. That strategy worked when the market was booming and prices were high, but has now saddled Yingli with huge losses due to weak pricing for its cheap solar panels. All of that said, it really does seem like the sun set on Yingli about a year or two ago, and it’s quite possible we could see a sale or major government-led restructuring announced just before next month’s May 12 deadline.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. 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 31, 2016

Trina and BYD Grow With State Support. How Will They Do Without?

Doug Young

Bottom line: Trina’s new loan and BYD’s uncertain outlook for EV sales this year reflect continued reliance of new energy technology companies on state support, which could pressure them as government incentives get retired.

Two new energy stories are in the headlines today, reflecting the progress but also the continued reliance on government support that this up-and-coming group of companies faces. That particular reality isn’t new, though some who were hoping the industries would become commercially independent more quickly may be disappointed. But more important, this reality could challenge many of the companies in the next 2-3 years in the face of disappearing support from governments that believe they have already given enough incentives to this slowly-developing group.

The first development has solar panel maker Trina (NYSE: TSL) announcing $143 million in financing for a new plant in Thailand, with all of the money coming from local lenders that almost certainly have government ties. The second has electric car maker BYD (HKEx: 1211; Shenzhen: 002594; OTC: BYDDF) reporting annual results that showed a surge in its EV business last year thanks to government incentives, setting the stage for a possible rapid slowdown this year as those incentives get set to retire.

Let’s begin with Trina, whose new Thai plant is aimed at producing solar panels that will be exempt from anti-dumping duties in the US and similar duties likely to come from Europe later this year. In that context the launch of the new factory looks like good news, as it will help Trina to avoid potentially serious fallout that would have come with the loss of sales in 2 of its most important markets.

Trina says the new Thai plant has just formally begun production with 500 megawatts of annual capacity for modules, and 700 megawatts for finished solar cells. (company announcement) Trina also announced $143 million in financing from China’s Minsheng Bank (HKEx: 1988; Shanghai: 600016) and Thailand’s Siam Commercial Bank Public Co to pay for and operate the plant.

To call this particular loan government-backed would be slightly misleading, since Minsheng is technically a private lender. I’ll admit I’m less familiar with Siam Commercial Bank. But I expect that both companies are private institution with close state ties, which is quite common in this kind of developing economy.

A better sign of true commercial viability for this project would have been financing from some big western lenders. But in this case it’s not clear if Trina could have secured such financing. And it’s also quite likely that even if it could get financing from such sources, the terms wouldn’t be as favorable as the ones it’s getting under this new deal.

Global EV Leader

Next let’s look at BYD, which has just announced annual results that show its profit leaped 6-fold and revenue jumped 40 percent last year, as it bounced back from a major company overhaul. (company announcement) BYD officially became the world’s biggest new energy car seller last year thanks to a surge in sales in its home China market, with sales tripling during the year to about 58,000 units.

BYD was once a stock superstar after billionaire investor Warren Buffett bought 10 percent of the company in 2008. But it has lost much of its luster since then after its new energy cars failed to quickly gain traction. Even Buffett seems to have lost interest, and his share of the company has dropped to 9 percent as he was diluted by BYD’s own new share issues to raise cash.

BYD doesn’t break out its new energy vehicle sales by country in the new results, though it says that China’s share of its overall revenue grew to a overwhelming 90.2 percent in 2015 from 86.5 percent the previous year. A big part of that most likely came from surging electric car sales. But Beijing recently discovered that many electric car buyers were making their purchases simply to get the government incentives, and had no intention of actually driving the cars.

Realizing that, Beijing has moved quickly to retire most of the incentives this year, and BYD acknowledges that the industry will be driven more by fundamentals than government incentives. That could translate to a sharp slowdown or even contraction in BYD’s new energy vehicle sales this year, since it’s not at all apparent that very many people are actually interested in such cars.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. 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 24, 2016

The War On Net Metering

by Paula Mints

Net metering and interconnection are rights afforded distributed generation (DG) residential and commercial solar system owners through the U.S. Energy Policy Act of 2005. The act required publically owned utilities to offer net metering and left the various policies up to the states to enact.

In 2004, before that energy policy was enacted, 39 states had net metering and interconnection standards and policies. At the beginning of 2016, 43 U.S. states and three territories had net metering policies, and four states had policies similar to net metering that the Database of State Incentives for Renewables & Efficiency refers to as “statewide distributed generation compensation rules other than net metering.”

In the U.S., the availability of net metering was a key driver in the adoption of residential and small commercial solar. Net metering allows DG system owners (or lessees) to receive a credit for the electricity their solar systems generate. In the early days of net metering the electricity generated by the owner’s solar system was purchased monthly by the utility with, typically, the excess credited and rolled over to the following period or granted to the utility at the end of the year. Utilities paid for the net excess or credited the electricity generated by net metered solar systems at avoided cost, a market average or in some cases, at the retail rate.

The concept of avoided cost is essentially a comparison point used by utilities (in this context) to arrive at reference price point for buying electricity from another source. The Public Utility Regulatory Policies Act of 1978, affectionately known as PURPA, defined avoided cost in general as the cost of generating power from another source. In 2005, the Energy Policy Act amended PURPA and, as previously noted, obligated publically owned utilities to offer net metering. In terms of DG residential and commercial solar, avoided cost comes into play in terms of how utilities pay for a system’s net excess electricity. Not only is there no standard for the state-by-state definition of avoided cost in the context of net metering, there is no standard as to how net excess electricity will be compensated.

Some states use a definition of avoided cost based on short run marginal cost — diminishing marginal returns — and some states use a definition based on long run marginal cost — returns to scale. Basically, avoided cost is a reference point derived by some means to set a price for power. In the case of DG residential and commercial solar the method by which avoided cost is calculated is very important — it is also important in setting power purchace agreement rates.

In the early days of net metering, it was not typical for customers to be paid for the net excess generated by their solar systems at retail rates or favorable market rates. In many cases, utilities owned the net excess electricity generated by net metered systems while the owners of these systems had no right to the excess electricity. In the early days of net metering customers were solely looking to save money — the potential of making money at the DG system level is fairly recent.

Net Metering in the Spotlight

From 2005 through 2015, the residential application in the U.S. grew at a compound annual rate of 53 percent. Though net metering is only one driver of this growth, it certainly makes the economic case for the homeowners, particularly when net excess electricity is credited at retail rates. Figure 1 offers residential solar growth in the U.S. from 2005 through 2015.

residential DG growth
Figure 1: US Residential Application Growth, 2005-2015

Utilities did not expect solar industry growth to accelerate so significantly, and there is no doubt that they see this growth in terms of revenue decay.

Currently, and it must be stressed that there is no clear trend in terms of outcomes, the following changes to net metering are being sought on a case by case basis:

  • Additional or increased fees for net metered systems: Depending on the fee, this change can dissuade potential buyers/lessees, and high fees can upend the economic benefit for buyers/lessees
  • A switch to time-of-use rates: Higher prices for electricity during peak times and lower payment for net excess during off peak times can upend the economic benefit for buyers/lessees
  • Lowering the reimbursement for net excess to avoided cost: Danger of undervaluing net excess and upending the economic benefit for buyers/lessees
  • Changing the rules for reimbursement for net excess: A blast from the past that could (in the worst case) result in the net excess being granted to the utility
  • Making all of the above retroactive: So many dangers, so little time to list them

The utility argument for altering how net excess is compensated and for adding additional fees is economic. Utilities argue that ratepayers with solar systems (leased or owned) are renting less electricity from the utility and thus not paying their fair share for overall maintenance. The argument continues that the costs are unfairly shifted to ratepayers without solar systems on their roofs.

Establishing a fair fee for solar customers over and above the base fee all ratepayers pay is not simple. The addition of fees for solar customers should not be overly punitive or appear as a referendum against DG solar. After all, ratepayers without solar systems benefit from the clean energy generated by ratepayers with solar systems. Also, the electricity future likely includes more self-consumption and more microgrids as well as a new operating and revenue model for utilities. Fighting this change is futile.

The argument over who owns the net excess electricity generated by a DG solar system is simple. The electricity is fed into a common grid, all electricity customers use it and the generator of the electricity owns the net excess and deserves to be paid a market rate for it.

At the core of the utility’s argument, and often unmentioned, is a reduction in its revenues.

A Comparative Trip Down Memory Lane

Four states have been front-and-center currently in the net metering landscape: Arizona, California, Hawaii and Nevada. These states offer examples of the way things could play out as the net metering argument spreads from state to state. Reference years provided as examples are 2006, 2009, 2013 and 2016.

Arizona, Abandon all Hope Ye in APS Territory

In 2006, Salt River Project (SRP) purchased net excess at an average monthly market price minus a price adjustment, while Arizona Public Service (APS) and Tucson Electric Power (TEP) credited net excess at retail rate and granted the electricity to the utility at the end of the calendar year. There were no specific fees for solar system owners/lessees.

In 2016 things are very different; the state net metering policy credits net excess at retail rate with net excess paid at avoided cost. APS ratepayers, whether they leased or bought their systems, pay a $0.70/kWp monthly charge. For many, the changes in net excess compensation along with the additional fees for ratepayers in APS territory could swing the economic argument away from leasing or owning a solar system.

AZ net metering
Table 1: Arizona Net Metering Overview, 2006, 2009, 2013 and 2016

California: Walking the Fine Line of Compromise

California’s solar system owners came through a recent high profile fight over net metering relatively unscathed, though the result is not perfect. The net metering landscape has changed from no fees to a one-time interconnection fee and non-by-passable monthly charges for all electricity consumed from the grid. Though the charges are relatively modest, system owners beware; charges always go up and almost never go away. Ratepayers with solar systems will also be forced into time-of-use billing and will be credited or paid for net excess at the rate equal to the 12-month spot market price. To this last, spot market prices are not always favorable and in an oversupply situation can be downright penurious.

CA Net metering
Table 2: California Net Metering Overview, 2006, 2009, 2013 and 2016

Hawaii: Not an Island Paradise for Solar

In October 2015, for all those applying for interconnection/net metering after Oct. 12, 2015, the Hawaii Public Utilities Commission voted to end net metering, offing instead three options: grid-supply, self-supply and time-of-use tariff. This decision effectively put the brakes on Hawaii’s strong market for DG residential and small commercial solar.

HI net metering
Table 3: Hawaii Net Metering Overview, 2006, 2009, 2013 and 2016

Nevada: Et tu, Brute?

Nevada’s recent net metering decision slammed the door shut on the state’s DG solar installation industry, outraged current solar customers and set a precedent that — if not overturned by legislation or lawsuit — will be considered in states across the country. Specifically, by making the new rules essentially retroactive the decision of Nevada’s Public Utilities Commission (PUC) could cause potential DG solar system owners/lessees to think once, twice and maybe delay adoption.

Nevada’s PUC increased the monthly fee paid by net metered solar customers from $12.75 to $17.90 and will credit net excess at avoided cost. Existing solar customers will be phased into the new rates in three years for the monthly fees and over 12 years for the lower net excess rates.

HI net metering
Table 4: Nevada Net Metering Overview, 2006, 2009, 2013 and 2016

The Trend is That the Fight is On — As Usual

Net metering serves the market function of setting a price for kWhs of electricity. A DG solar system (homeowner or small business) generates electricity and the owner/lessee of the system sells the electricity that it does not need (the net excess) to the utility. The electricity that is generated is used by all ratepayers. The value proposition is clear. Reasonably the sellers want to profit from the electricity they sell or at least receive a credit on their electricity bill that fairly values their net excess generation.

Unreasonably, utilities would prefer not to pay a fair market price for the net excess.

Changes to net metering programs are being considered all across the U.S., and there will be wins, losses and new fees. Trends to be very concerned about include the switch back to crediting net excess at avoided cost instead of at retail rates and to higher fees for net metered solar customers. The most disastrous potential trend is to make changes to net metering retroactive thus encouraging potential customers to reconsider. This last trend must be fought vigorously. The U.S. solar industry is up to the fight.

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.

February 19, 2016

Recurrent Energy and Jumei: A Tale Of Two Listings

Doug Young

Bottom line: Canadian Solar’s Recurrent Energy unit is likely to make its first public filing for a New York IPO in the next 2 weeks and should get a positive reception, while Jumei is likely to quietly de-list from the US in the next 3-4 months.

One of the few Chinese IPOs likely to happen in New York this year is moving closer to the launch gate, with word of major new financing for the power plant-building unit of solar panel maker Canadian Solar (Nasdaq: CSIQ). But while that IPO for Recurrent Energy moves closer to the IPO gate, announcement of a new privatization bid for online cosmetics seller Jumei International (NYSE: JMEI) is far more typical for the market these days.

This pair of stories reflect a growing new reality for US-listed Chinese companies. That reality is seeing some of China’s leading private companies choose New York for their listings, banking on interest from global investors seeking to buy into the China growth story. At the same time, many smaller lesser-known Chinese companies listed in New York have discovered US investors are far less interested in their stories, and are privatizing with plans to re-list and hopefully get higher valuations back in China.

Canadian Solar and Jumei quite nicely summarize this divergence. Canadian Solar is emerging as China’s best-run and most innovative solar panel maker, and has attracted strong investor interest as a result. It continued its industry-leading posture last year with its purchase of Recurrent Energy, reflecting a growing trend that is seeing solar panel makers move into power plant construction to boost demand for their products.

Late last year Canadian Solar disclosed it had submitted its first confidential filing for a New York IPO by Recurrent Energy, in an effort to separate that part of its business from its core panel-making. (previous post) Following that disclosure, the company has announced a steady stream of new plant-building loans to show that Recurrent can secure the funding it needs to build new plants that typically cost $50 million or more.

Previous loans have been for relatively small amounts in the $30-$100 million range from big global names like RBS and Deutsche Bank, and now the company has just announced a $300 million loan from China’s own Ping An Bank. (company announcement) This particular announcement is significant for its size, and also for its source. Ping An is one of China’s more entrepreneurial major banks, and this announcement reflects a relatively big vote of confidence in Recurrent and also hints at a new plant building campaign in China.

Public Filing Coming

We have yet to see any public filings by Recurrent Energy since Canadian Solar disclosed the IPO plan in early December. But I suspect this new financing is aimed at creating more buzz around Recurrent, which is mentioned by name in the announcement. That indicates we could see the unit make its first public filing for a New York IPO to raise $100-$200 million in the next week or two.

Next there’s the Jumei story, which nicely summarizes the disappointment that many Chinese companies have felt on Wall Street after holding out big hopes for US listings. The company made its IPO nearly 2 years ago during a frenzy of new offerings, pricing its American Depositary Shares (ADSs) at $22. But after seeing an initial surge, the stock has moved steadily downward as investors lost interest, and now it trades at just $6.21.

The shares were trading even lower at $5.11 just last week, but rallied after Jumei announced a management led buyout plan to take the company private at $7 per ADS. (company announcement; Chinese article) There’s not much more to say about this deal, except that Jumei management is getting a good deal by buying its shares for one-third of their original IPO price. I expect this deal will probably close with little or no opposition, and the company will quietly bow from the US and attempt to quickly re-list on one of China’s growing number of boards for private high-growth companies.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. 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 16, 2016

EU Extends Punitive Tariffs To Transshipped Chinese Solar Panels

Doug Young

Bottom line: The EU’s extension of punitive tariffs to China-made solar panels transshipped through shell factories in Malaysia and Taiwan could kill a recent wave of offshore factory construction by Chinese manufacturers.

A recent offshore movement by Chinese solar panel makers seeking to avoid western anti-dumping tariffs could come to a sudden halt, with word the European Union (EU) is extending its previously announced punitive duties to Taiwan and Malaysia. The EU’s ruling means it believes that many of the offshore solar panel plants recently built by Chinese manufacturers are little more than shells designed to hide the true origin of their products.

This story dates back 3 years, and began when the EU levied anti-dumping tariffs on Chinese-made solar panels after determining manufacturers were receiving unfair government support via policies like cheap land, low-interest loans and export rebates. Chinese manufacturers quickly agreed to raise their prices to levels comparable to those of western rivals in a bid to avoid the tariffs. But then they almost immediately began to violate the spirit of that agreement by offering discounts to buyers in other ways.

The EU is in the process of investigating claims of such violations to that agreement, and this latest development involving panels made in Malaysia and Taiwan shows the EU is also attempting to stop another way the Chinese are avoiding the tariffs. The latest reports say the EU has officially said that all panels made in Malaysia and Taiwan will be subject to the same punitive tariffs as panels made in China. (EU document; English article)

The document goes on to provide a long list of Malaysia- and Taiwan-based companies that will be exempted from the extension of anti-dumping tariffs originally set for China-made panels. But that list includes only truly domestic panel makers in those locations who have been in the business for a while, such as Motech (Taipei: 6244) and E-Ton (Taipei: 3452) of Taiwan and Flextronics (Nasdaq: FLEX) in Malaysia.

Two leading Chinese panel makers that had previously announced plans to manufacture in Malaysia at the height of the offshore movement include ReneSola (NYSE: SOL) and Jinko Solar (NYSE: JKS). Trina Solar (NYSE: TSL) also announced plans last year to develop 500 megawatts of solar panel-making capacity with a local partner in Malaysia, though it never named the partner. (company announcement) In its announcement it said that the partnership would start manufacturing in late 2015 or early 2016.

Shares Near Two-Year Lows

It’s not clear how many, if any, of the Chinese solar panel makers I’ve mentioned will be directly affected by this ruling. Shares of Trina actually rose 3.6 percent during the latest session on Wall Street, though it’s worth noting they’re now trading near 2-year lows. Shares of Jinko Solar and ReneSola posted similar performances.

This latest wrinkle in the China solar exporting story shouldn’t surprise anyone, and certainly doesn’t surprise me. Chinese companies have already shown they are quite capable of using backdoor tactics to avoid their earlier price-raising agreement with the EU. When that backdoor appeared to be closing, they simply tried another one by setting up these offshore shell factories. Such factories simply receive their China-made products, and then claim themselves as the country of origin before re-exporting them to Europe to avoid the anti-dumping tariffs.

The US has taken a similar approach to Europe, levying anti-dumping tariffs against Chinese panels and now taking steps to close loopholes like these shell factories in Malaysia and Taiwan. There’s no indication that the anti-dumping duties will disappear anytime soon, especially as weaker Chinese players like YIngli (NYSE: YGE) show increasing signs of getting more and not less government support.

The bottom line is that the status quo is likely to continue for at least the next few years, even as the US, EU and China start to phase out many of their government incentives for building solar power plants. That means many Chinese-made solar panels could ultimately get squeezed out of the US and Europe as loopholes close that were allowing a continued flow of such products even after original punitive tariffs were levied.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. 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 08, 2016

Beijing Bails Out Yingli, Shareholders Not So Much

Bottom line: Yingli’s new bank loan will be followed by a major restructuring that will force big losses on bond and shareholders, while a new asset-backed bond program to help the broader panel sector raise money will meet with tepid reception.

China is throwing a couple of lifelines to its struggling solar panel sector, including a relatively large rescue package for Yingli (NYSE: YGE), the player in the most precarious position. That package will see a consortium of banks, led by the policy-driven China Development Bank, provide Yingli with 2 billion yuan ($300 million) in funds as the company tries to reorganize its financially strapped balance sheet.

Word of the rescue package comes as media are reporting separately that China is preparing a much bigger lifeline for the sector, by allowing solar panel makers to sell bonds backed by the growing number of solar farms they are self-developing. Such farms provide a steady source of income from the power they generate, and thus should theoretically be more attractive to investors than directly investing in the financially-challenged solar panel makers themselves.

These 2 latest moves come as China’s solar panel makers are still trying to climb out of a 4-year-old downturn caused by a production glut that has stubbornly persisted to the present. A big reason the glut has yet to abate is due to companies like Yingli, which make lower-end product and compete almost purely by offering extremely low prices. Such companies should theoretically go bankrupt in a truly commercial climate. But in this case they are being artificially supported by government entities, who worry about the chaos that such closures might create.

After teetering on the brink of insolvency for much of the last year, YIngli’s situation remains very tenuous, including a massive $500 million net loss in its latest reporting quarter. The company is badly in need of a restructuring to relieve some of its large debt burden, which totaled 10 billion yuan ($1.5 billion) at the end of last September.

It technically defaulted on a bond last year, but later found funds at the last minute to pay most of the money, even as the patience of its bondholders wore thin. (previous post) Now media are reporting the company has just landed the new 2 billion yuan bank loan as part of a temporary measure to help it stay in business ahead of a needed restructuring. (Chinese article)

State-Backed Syndicate

China Development Bank is leading the borrower consortium, which is almost certainly composed exclusively of big state-owned banks that have been ordered by the government to provide the funds. Word of this funding comes just days after earlier media reports that Cinda Asset Management (HKEx: 1359), one of China’s largest asset-managers that specialize in bad debt, was looking to join a group of financial firms that would help Yingli to restructure. (English article)

I suspect these 2 developments are related, and we’ll probably see Yingli announce a major restructuring sometime in the next 2-3 months. It’s clear that bondholders will probably be asked to forgive a big portion of their debt as part of the restructuring, though it’s less clear what will happen to the company’s stock. Stock buyers appear to think they will escape without any damage, based on a recent rally in Yingli shares. But I suspect they could see their equity significantly diluted if Yingli decides to make a major new share issue as part of any settlement with its bond holders.

Next there’s the bigger industry news, which says China is preparing to allow solar panel makers to issue bonds that are backed by income from the solar farms that many are building. (English article) A company called Shenzhen Energy Group broke ground in the area when it was allowed to raise 1 billion yuan last month by selling the first such bonds.

Industry leader Canadian Solar (Nasdaq: CSIQ) has already been moving in a similar direction, announcing plans late last year to spin off its solar plant-building unit for a separate IPO to raise new funds. (previous post) This new plan could help many of the sector’s other players like Trina (NYSE: TSL) and ReneSola (NYSE: SOL) raise much-needed funds through bond issues. But that said, I expect that many of the bonds could get a tepid reception from investors due to man uncertainties about the future of solar power in China and in other countries.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.  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 26, 2016

First Solar And Trina: Dueling Ratings

by Debra Fiakas CFA
Solar module producer First Solar, Inc. (FSLR:  Nasdaq) received a boost last week from a new rating upgrade from Hold to Buy.  There are at least fifteen sets of analytical eyes scrutinizing First Solar.  The prevailing view on First Solar had been ‘hold’ or ‘neutral’ with a median price target of $70.00, representing a 13% return potential from the current price level.

Solar power generation has on a roll in recent years as lower solar cell prices have helped find demand at higher volumes.  The U.S. Solar Energy Industries Association has forecast 25% to 50% growth in the solar market in 2016.  So the enthusiasm for solar components producers like First Solar, is understandable.

However, on nearly the same day the First Solar investors saw the upgrade in FSLR, a body blow was delivered to one of First Solar’s competitors, Trina Solar Ltd. (TSL:  NYSE).  An analyst at a top-bracket investment bank downgraded TSL to Neutral from Buy.  The mean rating on TSL has been Hold or Neutral as well.  The median price target is $14.80, promising a 67% return from the current price level. 

How can traders and investors make sense of these seemingly contradictory views on the solar sector?  What is it about First Solar that supports a compelling bull case, while Trina Solar shares are to be avoided?

A check of estimates for the two companies provides some clues.  Trina Solar missed the consensus estimate in the quarter ending September 2015 after trouncing expectations in each of the two previous quarters.  This might have been why analysts following the company trimmed estimates for the quarter ending December 2015.  Despite the disappointment investors might have experienced from the third quarter report and the immediate caution for the fourth quarter, estimates for the year 2016 were only trimmed by a nickel to $1.36 per share.  It appears analysts with earnings models for Trina Solar are still looking for earnings growth in the 20% to 22% range in 2016.  If we use that growth rate as a proxy for an earnings multiple, that would suggest a target price of $27.20.

Could it be that the analyst is simply running scared -  or embarrassed  -  after the third quarter disappointment?  The stock gapped down in trading in the first day of trading following the downgrade.  Granted the entire U.S. equity market was in peril during the day and could also have influenced TSL downward.  TSL now appears oversold despite continued strong money flows into the stock.

TSL is priced at 6.5 times the 2016 consensus estimate.  For the price, investors get a company that delivered 20% top-line growth and converted 8.0% of sales into operating cash flow in the last twelve months.  Granted sales growth has slowed from the previous two years.  However, reported profitability has improved dramatically right along with higher operating cash flows.

First Solar on the other hand has been having trouble maintaining its top-line and reported only 7.6% top-line growth in the last year.  Perhaps the most recent enthusiasm for FSLR it from the company’s conversion of 14.1% of sales to operating cash flow, a rate that is a bit better than its peers.

The growth forecasts for the solar sector are impressive.  However, if an investor takes a more cautious view given that the rest of the world economy is in greater doubt, it seems prudent to choose the company with the financial strength to withstand slowing growth  -  the one that has lower leverage.  Forget demand measures, growth rates and cash conversion rates.

There is $308.6 million in debt on First Solar’s balance sheet, leaving the company with a debt-to-equity ratio of 5.73.  Trina Solar by contrast has deployed far more leverage with total debt of $1.5 billion and a debt-to-equity ratio of 138.68.

The duel is decided by the balance sheet.

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 20, 2015

Recurrent Energy And Sunpower Charging Up

Bottom line: Major new financing for Recurrent Energy and Apple’s growing partnership with SunPower reflect technology advances that are making solar power plants increasingly competitive with traditional sources.

Two solar power plant builders are in the headlines today, reflecting a shift that is seeing this new generation of companies take the spotlight from older solar panel makers that are desperately seeking new buyers for their products. The first headline has solar panel maker Canadian Solar (Nasdaq: CSIQ) announcing that its Recurrent Energy plant-building unit has secured financing for a major new US project, as Recurrent gets set for its own New York IPO as a separate company. The second story has US-based SunPower (Nasdaq: SPWR) emerging as the main partner for Apple’s (Nasdaq: AAPL) recent ambitious plans to build solar power plants in China.

The bigger picture behind both of these stories is that plant builders like Recurrent and SunPower could emerge as the next hot tickets in the solar energy sector. That’s because these companies are quickly gaining expertise in the field of solar plant construction and operation, and could benefit from a future boom when such plants should finally become commercially competitive with plants powered by traditional fossil fuels.

Let’s begin with the news on Recurrent Energy, which was purchased this year by Canadian Solar for $265 million, and earlier this month made its first filing for a separate listing in New York. (previous post) According to Canadian Solar, Recurrent Energy has just received a sizable $260 million in new financing for its 100 megawatt Astoria solar power project in California. (company announcement)

Financiers for the project include the new energy financing unit of General Electric (NYSE: GE), as well as a banking consortium that includes Spain’s Santander Bank and the Netherlands’ Rabobank. Completion of the plant is set for the end of next year, and I expect that much of the equipment for its construction will come from GE and Canadian Solar. Recurrent will become the plant’s long-term owner and operator upon completion.

This particular deal marks the fourth partnership for a US plant this year between Recurrent and Santander. Recurent’s growing stable of high-profile partners underscores its strong credentials as a major builder of solar power plants, and is undoubtedly aimed at raising its profile in the run-up to its IPO that could come by the end of this year.

SunPowered by Apple

Next there’s the SunPower news, which details the company’s role in Apple’s plans to become a major builder of solar plants in China. Apple first announced those plans back in April, saying it would build plants with 80 megawatts of capacity in partnership with SunPower. (previous post) It later sharply boosted that total, with a target of building plants with 200 megawatts of capacity. (previous post)

Now SunPower is coming out with its own announcement saying it will build 3 solar farms in China’s Inner Mongolia region with a total capacity of 170 megawatts. (English article) Upon completion of those plants, SunPower will become one of the long-term owners, alongside a Chinese investor and a third, unnamed party that is most likely Apple.

This particular announcement indicates that SunPower is likely to become one of the main partners in Apple’s unusual push into new energy. This initiative is someone unusual for Apple, better known for its smartphones and computers, but is part of a broader campaign to improve its image in China. If the strategy works well in China, SunPower could benefit if Apple decides to expand the program to other countries.

At the end of the day, both of these news items appear to show that solar plant construction is finally gaining some momentum, as reflected by backing from big names like Santander, Rabobank and Apple. That change reflects improving technology that is helping to boost solar energy’s competitiveness, and could help to power SunPower’s shares and also boost sentiment for Recurrent Energy’s upcoming IPO.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.  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 10, 2015

MEMC and SunEdison, a Tale of Two Companies

by Paula Mints

SunEdison (SUNE) has been in the news of late and with a confusing acquisition strategy, interesting financial decisions, layoffs and high debt -- it is beginning to look a lot like MEMC. 

This is really a tale of two companies – one a raw material manufacturer and pioneer in silicon wafer technology founded decades ago, the other a pioneering developer in the commercial PV space, and how in becoming one, the combined company took on the personality of the raw material company.

In the past MEMC engaged in an aggressive acquisition strategy similar to the one currently followed by SunEdison. MEMC was a semiconductor material manufacturer and its acquisitions and expansions were capital intensive and related to its core business.

SunEdison’s acquisitions and expansions are capital intensive and in renewable commercial project development (wind and solar), solar residential leasing, micro-grids in the developing world, YieldCos, and technology licensing (LCPV/BIPV company Solaria’s Zero White Space technology for module assembly). SunEdison’s various acquisitions, expansions and agreements all require different skill sets and strategies.

At Solar Power International SunEdison announced a new venture to develop micro-grids in the developing world. The vision of SunEdison’s Frontier Power is energy, connectivity and water, viewed through the lens of an off grid utility where SunEdison owns the assets. The
company will own and operate remote mini grids to serve households and SMEs, anchor loads, water pumping and connectivity (the internet). An anchor load could potentially connect a mini grid to the utility grid. The initial focus is on communities in India and on the continent of Africa where it will set tariffs and develop local partnerships and joint ventures pooling debt financing from DFIs (development financing institutions). The strategy is to develop pilot mini grids in the target countries and use the experience to ramp up and scale.

Missing in this strategy are specifics as to how the company will make money developing small utilities in areas of the world where affordability has been and remains a significant roadblock. Can a capital intensive strategy that seems to be a combination of commercial
microgrid and residential lease in areas where people live on less than $1.00 a day succeed?

Memory Lane

To understand the company’s current behavior, it is important to consider its past. MEMC’s
history predates its PV industry activities and acquisition of SunEdison.

Some MEMC pre-and post PV history:

  •  1959: Monsanto Chemical Company founds Monsanto Electronic Materials Company (MEMC) as a merchant manufacturer of 19-mm silicon wafers.
  •  1961: Dynamit Nobel Silicon, (DNS) builds a polysilicon and Czochralski ingot plant in Merano, Italy
  •  1962: MEMC pioneers the chemical mechanical polishing process (CMP). MEMC begins using the recently developed Czochralski (CZ) crystal growing process.
  •  1966: MEMC begins production of 1.5 inch wafers 
  • 1970: MEMC’s plant in Kuala Lumpur, Malaysia begins producing 2.25 inch wafers.
  •  1979: MEMC introduces 125 mm wafers
  •  1982: MEMC develops EPI wafers for CMOS applications
  •  1984: MEMC begins producing 200mm wafers and builds a pilot plant to make granular polysilicon
  •  1987: Ethyl Corporation acquires the FBR technology developed under its Jet Propulsion Laboratory contract by General Atomic and Eagle Picher and begins production of granular silicon. MEMC develops feeders to use the finished product and is the primary customer for FBR material. Ethyl later splits into two divisions. One of the divisions is named Albemarle (after one of the Ethyl pioneers). The Albemarle division owns the poly plant.
  •  1989: Hüls AG of Marl, Germany, and a subsidiary of VEBA AG, buys MEMC throughDNS naming the combined company MEMC Materials
  •  1994 Ethyl Corporation spins off its Albemarle division
  •  1995: MEMC acquires granular polysilicon (FBR) facility from Albemarle and renames it MEMC Pasadena 
  • 1995: MEMC launches IPO
  •  2000: VEBA AG merges with VIAG AG to become E.ON AG
  •  2000: E.ON AG increases ownership of MEMC from 53.1% to 71.8%
  •  2000: MEMC has a net loss of 68-million Euros on revenues of 944-million Euros
  •  2001: E.ON considers bankruptcy for MEMC
  •  2001: The Texas Pacific Group (TPG) buys the 71.8% of MEMC owned by Germany Utility E.ON, restructures debt and replaces the CEO. At the time of the sale, for the symbolic amount of $1.00, MEMC stated that it only had enough cash to operate through September of that year. Texas Pacific Group agreed to revise the purchase price if MEMC improved its financial performance and to offer it debt financing
  •  2002: Nabeel Gareeb is named CEO of struggling MEMC
  •  2002: TPG converts preferred stock to common stock increasing its ownership of MEMC to 90%
  •  2003: With perfect timing – just as growth in the PV industry begins accelerating, SunEdison is founded as a commercial PV developer of PPA projects
  •  2004: MEMC enters a licensing agreement with Silicon Genesis Corp (SiGen) to manufacture wafers using SiGen’s layer transfer technology  2004: PV industry demand begins to surge as crystalline supplies become constrained. Prices for wafers at >$3.00/Wp
  •  2006: MEMC agrees to supply Suntech Power (STPFQ) with solar grade silicon wafers for ten years and receives a warrant to purchase a 4.9% stake in Suntech
  •  2006: Polysilicon prices spike with spot prices at >$400/kilogram
  •  2008: Nabeel Gareeb resigns as MEMC CEO
  •  2009: BP Solar sues MEMC for ~$140-million for failing to supply the company with polysilicon in 2006 and 2007 under a three year supply agreement, winning $8.8-million
  •  2009: MEMC acquires SunEdison
  •  2010: MEMC acquires crystal growth technology company Solaicx for $66-million
  •  2011: MEMC idles its polysilicon manufacturing facility in Merano, Italy, reduces capacity
  • in Oregon and scales back its facility in Malaysia as well as laying off ~1,400
  • employees globally
  •  2011: Enters a joint venture with Samsung Fine Chemicals and MEMC’s affiliate, MEMC Singapore, to produce high purity polysilicon in Ulsan, Korea using the FBR process.
  •  2011: BP exits PV manufacturing 
  •  Suntech files for bankruptcy protection
  •  2013: MEMC changes company name to SunEdison
  •  2014: SunEdison spins off its semiconductor business as SunEdison Semiconductor
  •  2014: SunEdison launches Yieldco TerraForm Power (TERP)
  •  2014: SunEdison announces Zero White Space module technology, purported to increase electricity output by 15% by eliminating space between cells 
  • 2015: SunEdison sells shares of SunEdison Semiconductor to help finance acquisition of First Wind, eventually would sell all shares in SunEdison Semiconductor
  •  2015: SunEdison goes on a shopping spree buying First Wind, Globeleq Mesoamerica Energy, Continuum Wind Energy, Vivint and Solar Grid Storage
  •  2015: SunEdison announces layoffs of 15% of 7260 employees
  •  2015 SunEdison licenses LCPV/BIPV company Solaria’s Zero White Space technology

that essentially involves slicing cells into thin strips and assembling the strips into a modules without spaces in-between the slices

Back to the present

When MEMC changed its name to SunEdison it did not take on the culture and personality of
the original SunEdison. MEMC essentially bought itself a fresh start through the vehicle of a
name change.

SunEdison is highly leveraged, adding concern to its recent capital intensive acquisition
strategy. The company’s recent quarterly filing showed a net loss and negative operating cash
flow. The company’s current ratio (an indication of its ability to pay short term debt) was below
one – a poor result. The acid test ratio for the company was well below one, indicating that
SunEdison does not have sufficient liquid assets to pay its current liabilities. On October 30
its stock price, a measure of investor confidence, closed at $7.30, down significantly from the
July 20, 2015 price of $31.66. The company’s YieldCo, TerraForm (again, launched for the
purpose of funding future SunEdison project development) closed at $18.25 a share on October
30, down from a high of $42.15 a share on April 22, 2015.

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 in the October 31 issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

November 09, 2015

China’s Solar Power Inc Eyes $300 Mln NY IPO

Doug Young

Bottom line: New York IPO plans by a Canadian Solar unit and Solar Power Inc could auger a new wave of similar listings by Chinese new energy power plant builders, offering investors a higher growth alternative to traditional utilities.

Just a day after solar panel maker Canadian Solar (Nasdaq: CSIQ) announced it has spun off its fast-growing solar power plant-building unit for a US listing, another China-based peer is discussing plans for a similar IPO. This time a company called Solar Power Inc is the one disclosing plans for a New York listing to raise up to $300 million, in an emerging trend that’s seeing the rise of a new generation of specialty solar energy plant builders and operators.

A secondary trend in this sudden spurt of new activity also looks encouraging for New York, which has become a pariah these days among Chinese companies that feel US investors are undervaluing their stocks. These 2 new listing plans by Canadian Solar and now Solar Power acknowledge that New York is still an attractive option for certain kinds of Chinese companies, which I’ll address towards the end of this post.

First let’s take a closer look at the new media interview that quotes Solar Power CEO Roger Ye discussing his plans for a $300 million New York IPO at an unspecified future date. (English article) While Ye doesn’t give a timetable, the fact that he’s discussing his plan and giving a fund-raising target probably indicate that Solar Power has hired an investment bank and hopes to make an offering in the next 12 months.

Set up at the start of this year, Solar Power is a China new energy play that clearly operates in the area of solar power plant construction and ownership. The company was founded by 2 leading Chinese entrepreneurs, one from the online gaming sector and the other in real estate.

The company originally hoped to secure much of its money through crowd funding sources that let individuals invest as little as 1,000 yuan ($160) each. But this latest move seems to show that the micro-funding approach probably isn’t raising as much money as the company’s founders originally hoped. That’s not a huge surprise due to relatively low return rates from power generation projects in general that might fail to excite many smaller investors.

Global Aspirations?

One analyst points out the move to list in New York shows that Solar Power wants to become a global plant constructor, though I do suspect the company will initially mostly build plants in its home China market. That contrasts a bit with the more globally-focused Canadian Solar, which this week announced it will spin off its own solar plant construction unit and list it in New York. (previous post) I speculated that offering could raise at least $100 million, but Solar Power’s figure could indicate that Canadian Solar’s target could be a bit higher.

Traditional solar panel makers have been some of the most abused companies on Wall Street over the last 3 years, which makes it somewhat surprising that these 2 new listings are both being proposed for New York. Solar Power’s Ye cites the greater stability of US capital markets for his selection of New York over China, and that’s certainly true. What’s more, Chinese investors are unlikely to show much interest in these companies, since their rates of return are quite steady in the mid- to high single-digit rates.

That means these companies’ stocks are unlikely to get the double- or triple-digit growth that many Chinese punters like to believe they can get in their local markets that are more like casinos than serious financial markets. By comparison, the US has a large field of mature institutional investors that like to buy more conservative but dependable assets like electric power utilities. These new solar plant operators would provide an interesting new product in that space, offering investments with higher risk but also return rates and growth potential than traditional electric utilities.

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 05, 2015

Canadian Solar Eyes IPO for Plant-Building Unit

Doug Young

Bottom line: Canadian Solar is likely to target at least $100 million in an IPO for its power plant-building unit before year end, which could be an attractive investment alternative for buyers of traditional utility stocks.

Just days after announcing big new financing for its unit focused on solar power plant construction, Canadian Solar (Nasdaq: CSIQ) is taking a big new step by disclosing it is preparing an IPO to separately list that unit. The move marks the latest wrinkle in the evolving story for Chinese solar panel manufacturers, which are quickly becoming their own best customers by selling their products to solar plants that they build themselves.

Canadian Solar and some of its peers have actually engaged in this kind of plant construction for a while, though the pace has picked up in the last couple of years. But the latest trend marks a divergence from the past, since Canadian Solar and others are now becoming long-term owners of the plants they build and putting them into wholly-owned units that look like a solar equivalent of traditional power utilities. In the past, Canadian Solar and the others would simply build solar plants, and then sell them to independent long-term owners upon completion.

Canadian Solar has emerged as a leader in this particular trend, and one of my sources tells me that the next company that’s likely to announce a similar development is JinkoSolar (NYSE: JKS). But others are also working on similar plans, with a longer term aim of diversifying their business and providing their core panel-making units with a more reliable stream of sales for projects that they self-develop.

Canadian Solar’s statement is quite brief, and simply says that it has submitted a confidential filing with the US securities regulator that would be the first step towards an eventual IPO. (company announcement) The company adds that no decision has been made on how many shares would be sold, or how much it would like to raise. Such an offering would most likely come of the Nasdaq, where Canadian Solar’s American Depositary Shares (ADSs) currently trade, probably by year end.

This particular announcement comes less than a week after Canadian Solar announced it had just landed $100 million in new financing from Credit Suisse, with an option to borrow another $100 million. (previous post) It said part of that money would provide bridge financing for solar power plant builder Recurrent Energy, following Canadian Solar’s announcement earlier this year that it would buy the company for $265 million.

Recurrent Energy IPO

Based on these 2 recent announcements, it appears that Canadian Solar is centering its new solar plant construction unit around Recurrent Energy, and will inject some of its other solar plant assets into the unit. What’s more, it appears the loan announced last week will serve as temporary financing for Canadian Solar’s purchase of Recurrent until the IPO. That would indicate that Canadian Solar is probably hoping to raise at least $100 million from the IPO, and then use the proceeds to pay off the Credit Suisse loan.

Investors weren’t too impressed by the new announcement, with Canadian Solar shares rising slightly during the latest session in New York. Part of that may be because this deal has been rumored for the last few months. And that said, the shares are up nearly 50 percent from a late-September low, as investors take new interest in some of China’s solar panel makers with good prospects of surviving a second round of industry consolidation.

From an investor’s perspective, this kind of move certainly seems like a relatively positive development for Canadian Solar and others who follow a similar path, since it will help to stabilize their business. The new IPO could also be an attractive alternative for people who like more conservative investments in the power utility sector. The biggest risk is government policy, since most of these new plants are dependent on inflated government-set tariffs to operate profitably. But if technology continues to improve, which seems inevitable, it’s quite possible this new generation of plants could operate profitably without government support at some point in the next decade.

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 01, 2015

Solar Shift in New Financing for Candian Solar, Trina

Doug Young

Bottom line: New financing deals for Canadian Solar and Trina reflect the growing role of solar panel makers as power plant builders, and could provide some stability to the sector by providing a more reliable stream of new projects.

Two big new financing deals are shining a spotlight on a major shift taking place in the solar panel sector, with manufacturers increasingly moving into the field of solar farm development. The shift is seeing solar panel makers become their own best customers, buying up panels for use in solar farms that they build themselves. The latest headlines have Canadian Solar (Nasdaq: CSIQ) and Trina (NYSE: TSL) securing major new financing for such construction, in 2 deals that are both quite large but also very different in nature.

Solar panel makers have been building their own plants for several years now, though the trend has accelerated in the last year. The traditional model was for them to build solar farms using their own panels, and then sell those plants to longer-term buyers. But in an interesting twist to that story, solar panel makers may be looking to hold those farms themselves and put them into separate units, my sources say. Those units could then be spun off later into separate publicly listed companies, in a play that would look like a new energy version of traditional power utilities.

Let’s begin with a round-up of the 2 newest financing deals, starting with one that has seen Canadian Solar just land a $100 million loan from Swiss banking giant Credit Suisse. (company announcement) No terms were given for the loan, though one of my sources told me the interest rates were quite high, reflecting the tenuous position of solar panel makers right now due to stiff competition in the oversupplied market.

Canadian Solar said the loan was meant as a short-term, two-year bridge facility to help finance its $265 million purchase announced earlier this year of Recurrent Energy, a builder of solar power plants. It added it could boost the facility by another $100 million. In a final interesting note, Canadian Solar said it will give Credit Suisse the option to convert the loan to its stock at a price of $24.48 per share. That represents a 14 percent premium over Canadian Solar’s latest closing price, and seems to indicate a certain degree of confidence in the stock by Credit Suisse.

Trina Ties With Citic

Next there’s the Trina deal, which involves a much larger 10 billion yuan ($1.6 billion) in financing from the several units of state-run financial services giant Citic. (company announcement) The financing is part of a 5-year series of agreements that will see Citic provide financing for a range of uses, including equipment upgrades and new plant construction.

The Trina deal looks a bit more political than Canadian Solar’s, since Citic is a major state-run financial conglomerate with strong ties to Beijing. But the deal does appear to show that Trina has Beijing’s support, and could emerge as one an important consolidator for a Chinese solar panel sector plagued by excess capacity. Citic’s state-run roots also indicate a big portion of the financing could be used for domestic solar plant construction, as China looks to lower its reliance on fossil fuels.

Both of these deals do seem to indicate that financiers are becoming increasingly comfortable with backing the stronger Chinese solar panel makers to do their own plant construction. That’s an important step forward, since most of these companies were traditionally just manufacturers, and relied on third parties to buy their panels for use in new plants.

This kind of plant construction also carries a certain degree of risk, since there’s always the possibility of delays or other unforeseen problems that could cause projects to get scrapped or produce yields lower than earlier forecasts. There’s also the risk that projects may not be able to find long-term buyers upon completion, though the panel makers could reduce that by creating their own separate units focused on plant construction. At the end of the day these 2 new financing deals both look relatively positive, and could mark the start of a new chapter in the development of China’s 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.

October 14, 2015

Chinese Government Bails Out Yingli, Sort Of

Doug Young 

Yingli logo

Bottom line: Yingli’s sudden repayment of 70 percent of a maturing bond shows the government may provide partial assistance for struggling solar panel makers, in an effort to engineer an orderly shut-down of these weaker companies.

The story of China’s troubled solar panel sector has taken an unexpected twist, with word of a last-minute partial reprieve for Yingli (NYSE: YGE), one of the weakest major players that looked set to default on a large debt payment. The development came quite quickly and had a few unusual elements that hint strongly at government intervention.

Yingli’s case is important because it will show to what extent Beijing and local governments may come to the rescue of ailing companies from the solar panel sector. Earlier signals had indicated Beijing was prepared to let weaker companies fail or get acquired, providing a second round of much-needed consolidation for a sector plagued by overcapacity. But this latest sign shows Beijing and especially local governments may be losing some of that resolve as China’s economy slows.

The latest news comes directly from Yingli, which announced it repaid most of the $157 million in debt and interest on some 5-year notes that came due on October 13. (company announcement) The announcement comes just a week after YIngli said it was likely to miss the deadline. (previous post) In that earlier announcement, Yingli said it was in the process of selling some idle land that could help it to raise up to $138 million, or enough to repay much of the debt.

Now it appears the company was able to raise the new money more quickly than it expected, which allowed it to pay off $110 million worth of the 5-year notes and associated interest, amounting to about 70 percent of the maturing debt. YIngli said it continues to work with holders of the remaining 30 percent of the debt, and expects to pay off that amount within the next year.

Yingli’s shares have rallied sharply since the end of September, nearly doubling in value from their low of 33 cents at the end of the month to their latest close of 58 cents. Of course the stock is still well below the $1 mark, after falling below that level in July, and the company has been notified it must return to the $1 level or risk de-listing.

Many of the stock’s movements these days are tracking investors’ belief over whether YIngli will survive at all, as it’s clearly the weakest of China’s remaining major solar panel makers. The company warned earlier this year that its ability to remain in business was in jeopardy, sparking concerns about insolvency. But it later said that investors had misinterpreted its words.

Limited Government Support

So, what does this latest twist in the Yingli story mean for the company itself, and also for the broader sector? In this case, the local government in YIngli’s industrial hometown of Baoding almost certainly came to the rescue by buying up land that it probably previously gave to the company for little or no cost. The fact that the money came so quickly means Baoding doesn’t want to see Yingli suddenly fail, which would potentially put thousands of people out of work.

But the fact that YIngli could only repay 70 percent of its debt also seems to send a signal that the government won’t bail out these companies completely. Yingli says it still intends to pay off the remaining 30 percent of its debt, but it may have difficulty doing that without more government assistance. And in this case the government may tell Yingli that it needs to sort out the remainder of this particular debt repayment by itself.

At the end of the day, this latest signal is decidedly mixed and appears to show Beijing isn’t prepared to let struggling companies like Yingli and ReneSola (NYSE: SOL) fail completely. Instead, it may be looking for a more orderly wind-down of their business, which could see them gradually sell down assets and lose customers until their sales dwindle and there’s nothing left of the original company but a shell.

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 07, 2015

Schizophrenic Signals Surround Sino Solar Stocks Yingli, ReneSola And Jinko

Doug Young

Bottom line: YIngli’s debt restructuring plan and ReneSola’s early debt repurchase will bring some confidence to solar shares, but pessimism will quickly return as their situations deteriorate without major signals of new government support.

Shares of Yingli (NYSE: YGE) and ReneSola (NYSE: SOL) have taken investors on a wild ride these last few weeks, reflecting the alternating hopes and fears gripping 2 of the shakiest companies in a solar sector crippled by a downturn now entering its fourth year. If I were a betting man, I would say the chances are better than 80 percent that Yingli won’t survive the crisis, especially after the company’s latest announcement that it will miss a debt repayment deadline. Chances for ReneSola look slightly better, but even then I would only put the company’s likelihood of survival at 50-50.

One of the biggest questions fueling the uncertainty is whether Beijing and local governments will step in to rescue these companies. A year ago the answer would almost certainly have been “no”, reflecting China’s desire to clean up a bloated sector plagued with excess capacity. Recent signals show Beijing may still want to let the weakest players fail, but also that China’s slowing economy may be weakening that resolve.

The latest signals appear to still show that Beijing still wants to see consolidation, even though that could cost China’s economy thousands of jobs and other economic activity. One of those signals came from Yingli, which said that one of its subsidiaries would miss repayment of $157 million for notes that are coming due on October 13. (company announcement; English article; Chinese article)

But just a day later, a more positive signal came from ReneSola, which said it had begun to buy back notes that were set to come due as soon as next year. (company announcement) Last but not least, media also reported that another mid-sized player, Jinko Solar (NYSE: JKS) was indefinitely delaying plans to build a new plant in Brazil, again pointing to the shaky finances that are now undermining many companies. (English article)

Looking for Cash

The YIngli news is certainly the most worrisome, and will see the company’s Tianwei Yingli subsidiary miss a deadline to repay 5-year notes coming due on October 13. But Yingli held out hope that it could eventually repay the debt, saying it expects to receive $138 million from the sale of land and demolition of some older facilities. That could cover most of the payment if and when it receives the money, which could happen before the end of the year.

This particular move reflects Yingli’s ongoing woes, but also the weakening resolve of local governments that looked set to allow the failure of poorly performing solar panel makers. That’s because the buyer of Yingli’s land is almost certainly a local government entity, which means the sale would be almost the equivalent of a government rescue.

Next there’s ReneSola, which announced it recently repurchased more than half of about $50 million in convertible notes that will come due in 2018 but have a put option next year. ReneSola also said it has repurchased around 800,000 of its American Depositary Shares (ADSs), as part of a $20 million share buy-back program announced on September 23.

Both of these moves are clearly confidence-building measures despite the small amounts of money involved, and they did provide some support to the broader sector. ReneSola shares jumped about 20 percent after its latest announcement, though they still trade below their levels from early September. Even Yingli stock, which tumbled 20 percent after its earlier debt restructuring announcement, returned to pre-announcement levels.

Finally there was the Jinko Solar news, which looked downbeat as the company indefinitely shelved plans to build a factory in Brazil. That plan was part of a growing wave of new outbound investment announced earlier in the year, which appeared to show the sector might be returning to health. (previous post) But turmoil in the global economy may now put many of those expansion plans on hold.

At the end of the day, all of this news points to the same reality, namely that many Chinese solar companies are struggling and will face closure without government support. Yingli’s bailout shows such support may come in limited amounts for now. But I expect government patience will be short-lived, and we will ultimately see YIngli and one or two other larger players 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.

September 23, 2015

Solar Weaklings Shudder on Tianwei Collapse

Doug Young 

Bottom line: The bankruptcy of Tianwei signals Beijing will allow a new round of failures for weaker solar panel makers, with Yingli and ReneSola the most likely to come under pressure.

News that solar panel material maker Baoding Tianwei is on the brink of collapse has sent shudders through the entire sector, as everyone guesses who might be next to fall in a looming new clean-up of China’s bloated industry. Tianwei has been in trouble for a while now, after the company became the first state-run firm to ever default on a domestic bond interest payment back in April.

That development certainly didn’t bode well for Tianwei, but it remained unclear if the local government or Beijing would ultimately step in to bail out the company and save its investors. Now we finally have the answer to that question, following media reports that Tianwei and 3 of its business units are formally filing for bankruptcy. (English article; Chinese article)

The bigger picture to this story is that Beijing now appears willing to let weaker and less efficient solar panel makers and their suppliers fail, in an effort to create a more solid foundation for the remaining stronger players. The government already allowed an earlier round of failures that included former giants Suntech and LDK, but no major closures have come since then. But that looks set to change now.

According to the latest reports, Tianwei announced its insolvency and inability to pay its debts on the website, a website of the China Foreign Exchange Trade System. The company cited the slowdown in the broader global economy, as well as overcapacity in the solar panel sector for its decision.

Tianwei was traditionally a maker of electrical transformers, but more recently got into the business of making polysilicon, the main material used to makes solar panels. Such a move may sound puzzling to many westerners, but is actually quite common for big Chinese state-run companies that often rush into new business areas that Beijing sets as priority areas for development.

In this case, Tianwei and many other state-run firms piled into the solar sector, only to incur big losses when their mass action created a huge oversupply on the global market. Tianwei reported a loss of 10.14 billion yuan ($1.6 billion) last year, with total debt at 21 billion yuan, far higher than its total assets of 13 billion yuan.

Solar Sell-Off

Tianwei’s bankruptcy announcement sent shivers through stocks of US-listed solar panel makers, as investors worried over what the bankruptcy might mean for the rest of the sector. In this case it’s quite easy to tell which companies are the biggest sources of concern by looking at the magnitude of their share declines.

Leading that group was the wobbliest company, Yingli (NYSE: YGE), whose shares plunged 24 percent on the news. Yingli is one of the few major solar players that failed to return to profitability as the sector downturn eased, and previously warned that it could be in danger of going out of business. Adding to the worries, the company’s headquarters are also in the northern Chinese city of Baoding where Tianwei is based, indicating the local government may not step in to provide any relief.

The other big loser in the Friday sell-off was the loss-making ReneSola (NYSE: SOL), whose shares tumbled 14 percent to close below the symbolically significant $1 threshold. Most other solar companies also got caught up in the sell-off but to a smaller extent, with stronger names Canadian Solar (Nasdaq: CSIQ) and Trina (NYSE: TSL) both down by around 7 percent.

Shareholders are correct to be worried about weaker names like Yingli and Renesola, as these companies clearly could face growing difficulties if their financial situation continues to deteriorate. But I question the sell-off for the strong names like Canadian Solar, since these companies could be well positioned to buy up assets at bargain prices from failed companies like Tianwei and others that could soon follow into bankruptcy.

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 15, 2015

Demand Picture Cloudy For Trina's Solar Farm Spin-Off

Doug Young

Bottom line: Trina’s plan to separately list its solar plant-building assets is likely to meet with lukewarm to frosty demand.

A new plan by Trina (NYSE: TSL) to separately list some capital-intensive assets has overtones of desperation. The intense pressure solar panel makers continue to feel as their sector still struggles to recover from a downturn that dates back 4 years due to massive oversupply.

Panel prices have rebounded somewhat over the last 2 years and many of the best-run companies have returned to profitability during that time. Even better performers like Trina are feeling pressure as they pour massive money into construction of new solar power plants, in a bid to create more demand for their products.

The bottom line is that solar plant construction is a costly business and not many private sector companies want to get involved due to the volatile climate. The situation is particularly difficult in China, even though Beijing has committed to a massive build-up of solar energy. But like many things in China, a wide range of complicating factors exist for anyone who wants to actually try and build solar power plants in the country.

Trina is planning to spin off its unit that builds new solar farms, with an aim of eventually making a separate IPO for the company. (English article) Trina CFO Teresa Tan discussed the plan at a forum in the northeastern city of Dalian, and said her company would like to make the IPO as soon as next year.

Under normal circumstances such a plan might look attractive for investors, since such power plants provide stable returns by using cash generated from the sale of electricity to pay down debt and give a dividend to investors. But in Yingli’s case, this particular new company is likely to focus on construction of power plants in China. Such plants are far less reliable since they are more difficult to build due to local bureaucratic and technical issues. And even after construction is complete, many still often run into problems.

In Need of Cash

Trina could clearly use the cash it would get from an IPO, as the company had more than $1 billion in debt and just $600 million in cash in its last quarterly report. Much of the debt has come through a series of bond and stock offerings over the last year, a big portion of which is being used to build new solar plants that will buy their panels from Trina. I suspect investors will quickly realize the high risk associated with the company Trina now hopes to spin off, and demand for the IPO will be lukewarm at best and frosty at worst.

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.

Yingli's Downward Spiral

Doug Young

Bottom line: Yingli’s downward spiral will continue as customers abandon the company due to its financial weakness.

Shares of the stumbling Yingli (NYSE: YGE) are coming under pressure after its latest earnings report. The intense pressure solar panel makers continue to feel as their sector still struggles to recover from a downturn that dates back 4 years due to massive oversupply.  Panel prices have rebounded somewhat over the last 2 years and many of the best-run companies have returned to profitability during that time. But intense pressure still remains for less well-run companies like Yingli.

The bottom line is that solar plant construction is a costly business and not many private sector companies want to get involved due to the volatile climate. The situation is particularly difficult in China, even though Beijing has committed to a massive build-up of solar energy. But like many things in China, a wide range of complicating factors exist for anyone who wants to actually try and build solar power plants in the country.

Yingli is being spotlighted in a report that says its shares have tumbled 34 percent in the last 3 weeks over concerns about its future prospects. (English article) The company caused a panic earlier this year when it said it could be in danger of going out of business, but later back-tracked and said investors had misinterpreted its words. Its latest quarterly report looks quite gloomy, with the company saying shipments this year will come in at least 22 percent below its previous forecasts.

Yingli’s shares have traded below $1 since mid-July, and last month it said it was notified that it had until next February to bring its price back above $1 or risk being de-listed. (previous post) The shares now trade at 59 cents, and its quite possible they could fall even lower as Yingli slips closer to insolvency. I don’t see much cheer in YIngli’s future, since its customers are likely to abandon the company in growing numbers as concerns rise about its financial health, which will only further accelerate its downward spiral.

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 21, 2015

Yingli Could Be Gone In A Year

Doug Young

Bottom line: China is likely to see 1-2 of its weakest major solar panel makers close over the next year in a campaign led by Beijing, with Yingli as the most likely candidate to make the first exit.

A couple of new reports from the Chinese solar sector are shining a spotlight on consolidation that’s still needed before the industry can return to health. One report cites the Ministry of Industry and Information Technology (MIIT), the sector regulator, saying more such consolidation is necessary and the pace should accelerate. The second is a technical announcement from Yingli (NYSE: YGE), the weakest among China’s major panel makers, saying it has fallen out of compliance with US listing requirements due to its low stock price.

The appearance of these 2 news items on the same day is purely coincidence, even though both are related to the same phenomenon. That phenomenon saw global solar panel production explode over the last decade, as scores of new plants opened in China in response to policy directives and other incentives from Beijing.

As a result, China now supplies over half of the world’s solar panels, and global prices have remained wobbly for much of the last 4 years due to oversupply. A sharp drop in prices back in 2011 led to an initial round of consolidation that saw major players Suntech and LDK go bankrupt and their assets get acquired or shuttered. But clearly some more consolidation is still needed to further reduce supply.

The MIIT is keenly aware of that fact, which has prompted it to issue a statement saying it expects consolidation to accelerate, and for the nation’s strongest players to lead the way for the entire sector. (English article) It adds that despite the state of oversupply, Chinese output of polysilicon, the main ingredient used to make in solar panels, actually grew 16 percent to 74,000 metric tons in the first half of the year.

That would seem to imply that the MIIT is quietly criticizing Chinese panel makers for boosting output even during a weak market, and hints the regulator may step in to forcibly close some weaker producers or at least force them to cut back output. This kind of situation is quite common in China, where manufacturers of raw materials like steel and aluminum actually boost output during a weak market, even if it means selling at a loss.

Acting on Government Orders

They usually behave in such irrational manner under direct or implied orders from their local governments, which want the increased activity to help them meet their economic growth targets. Such orders also carry the implicit guarantee that the government will step in to help companies if they run into financial difficulties by offering measures like loans from local branches of big state-owned banks.

Yingli is one such company, and gets big support from its local government in the industrial city of Baoding where it’s a major employer, even though the company is losing money. Unlike its peers, most of whom managed to return to profitability after several years of losses at the height of the earlier downturn, Yingli has never emerged from the red over the last 5 years.

The company’s financial struggles prompted it to issue a statement earlier this year saying its existence as a business could be in danger, though it later said that investors had misinterpreted that statement. (previous post) Nonetheless, the statement prompted a sell-off of Yingli stock, and the shares have traded at $1 or less since mid-July.

That prompted Yingli to issue another statement saying it had fallen out of compliance with US trading rules that require a company’s share price to remain above the $1 level. (company announcement) Technically Yingli could be forcibly de-listed due to this violation, though companies in such situations can usually return to compliance using a reverse share split.

Still, the company’s troubled situation and shrinking market value — now worth just $174 million — make Yingli an ideal candidate for the kind of consolidation envisioned by the MIIT. Accordingly, I wouldn’t be surprised to see the MIIT quietly engineer a deal for one of the stronger panel makers to make a bid for Yingli, which could quietly disappear by this time next 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 07, 2015

ReneSola and Jinko Loosen Their Grip On Beijing Apron Strings

Doug Young 

Bottom line: Chinese solar panel makers who can set up profitable offshore factories could be poised for good long-term growth, demonstrating they can survive without support from Beijing.

Two new moves on the solar front show that leading Chinese panel makers continue to march offshore in a bid to avoid anti-dumping sanctions in the US and possibly in Europe. One move has ReneSola (NYSE: SOL), one of the most advanced in the offshore migration, announcing a new joint venture in the US. The other has JinkoSolar (NYSE: JKS) landing new financing for a panel manufacturing plant in Malaysia.

Both news items look relatively encouraging, showing the Chinese panel makers want to demonstrate they can manufacture profitably in these overseas locations without financial support from Beijing. But JinkoSolar’s announcement is also showing just how tough that transformation could be, since most of the funding for its new Malaysia plant is coming from a major Chinese policy lender.

The trade wars that have rocked the solar sector for much of the last 2 years have mostly settled by now, following an acrimonious period that saw the US, Europe and even India accuse China of unfairly subsidizing its panel makers. The ruckus ended with the US slapping punitive sanctions on most imported Chinese panels. The EU negotiated a deal that saw the Chinese panel makers voluntarily raise their prices, though that deal now looks set to collapse and could be followed by formal anti-dumping sanctions later this year. (previous post)

Worried over the loss of 2 of their biggest markets, the Chinese panel makers have begun to build offshore factories whose panels are exempt from the anti-dumping tariffs. In the latest move related to that migration, ReneSola has just announced it will form a joint venture with Pristine Sun, an independent power producer based in the US. (company announcement)

This particular announcement doesn’t involve panel production, but is part of the offshore move because it presumably would see the venture import ReneSola’s panels manufactured outside of China to build new solar plants in the US. ReneSola has been one of the most aggressive of China’s panel makers in the offshore migration, with overseas plants planned or already producing in Poland, Turkey, South Korea, Malaysia and Indonesia.

The new joint venture with Pristine Sun would be majority-owned by ReneSola, and aims to build new solar power plants with 300 megawatts of capacity in the US. It aims to have half of that built by the end of next year, indicating it will move ahead quickly with new construction. Investors seemed to like the plan, bidding up ReneSola’s shares 7.1 percent, though they still trade near lows not seen since late 2012.

Jinko Gets Backing From Policy Lender

Investors were also excited about JinkoSolar’s announcement that it has received financing for its planned Malaysia plant, with its shares rising 6 percent in the latest session amid a broader rally for solar stocks. The company announced plans for the $100 million plant earlier this year, and said it has now received $70 million in financing for the project from the Export-Import Bank of China. (English article)

JinkoSolar has completed much of the construction of the plant, which is already manufacturing and can produce 500 megawatts of solar cells each year and 450 megawatts of panels. The fact that JinkoSolar had to turn to a Chinese policy lender to finance the project isn’t the most encouraging sign, since such a move represents the kinds of government support that sparked the trade war in the first place.

But in this case the bigger picture seems more important, namely that the Chinese panel makers are trying to show they can survive and thrive independently without strong state support. I’m not completely convinced that this migration will work for everyone, since many of these panel makers aren’t very healthy financially. But the ones that can make the move successfully could be poised for strong growth in the future when the industry finally settles into a longer-term recovery mode.

Doug Young has lived and worked in China for 16 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 31, 2015

Underpriced JA Solar Becomes More Undervalued

by Shawn Kravetz

In the second quarter, solar stocks were impacted by broad energy sector declines on global macroeconomic concerns (most notably Greece and China). This negative sentiment has continued unabated into July exacerbating the disconnect between fundamentals and perceptions.

JA Solar (NYSE: JASO) epitomizes this dislocation.

We at Esplanade Capital Electron Partners (ECEP) owned JA Solar prior to June 5, believing the company to be worth ~30%+ more than the share price.

On June 5, JA Solar received a takeover offer from its Chairman/CEO and parent company at a 20% premium.

After a short-lived, modest rally, the shares have fallen to levels below where they were trading prior to the takeover offer.

We have added to this position, and while we continue to assess the deal and market risks, we remain confident that JASO will yield a 33% return in roughly six months when we expect the deal to close.

JA Solar represents but one example of our robust portfolio whose potential upside continues to grow as the dislocation between fundamentals and market perception expands.

Shawn Kravetz is President and Chief Investment Officer of Esplanade Capital LLC,
an investment management company he founded in 1999.  The firm manages private investment partnerships including Esplanade Capital Electron Partners LP, launched in 2009, which intends to be the world’s premier private investment fund dedicated to public securities in solar energy and those sectors impacted by its emergence..

July 16, 2015

Hanery Shares To Remain Suspended During Manipulation Probe

Doug Young 

Bottom line: Hanergy shares will remain forcibly suspended until the Hong Kong securities regulator completes its investigation into price manipulation, and could ultimately return to China where oversight is far less strict.

I had to smile when I read the latest reports that said the Hong Kong securities regulator has taken the unusual step of ordering a continued suspension of shares of solar power equipment maker Hanergy (HKEx: 566), as it continues a probe into stock price manipulation. My smile wasn’t due to the continued suspension, but rather to the reason that media reports gave for the investigation, namely the spectacular rise in the company’s price over a one-year period, followed by its even faster plunge. (previous post)

That story was actually quite well documented back in May, when Hanergy’s shares lost nearly half of their value in a single hour after rising 6-fold over the previous year, wiping out $19 billion in market value. China stock watchers will know that the reason for my smile is that this kind of meteoric rise and fall is quite ordinary just across the border in China, and seldom attracts similar scrutiny from the China Securities Regulatory Commission.

But of course when it comes to financial markets, China and Hong Kong are in 2 completely separate leagues. Whereas Hong Kong’s stock markets are relatively mature and get regular praise for their good oversight, China’s markets are more like a casino where shares can double or even triple in just a few weeks without any change in a company’s prospects. Such speculative buying is largely behind the huge rises in the Shanghai and Shenzhen stock exchanges over the last year, and now the equally big falls.

All that said, kudos should go to the Hong Kong Securities and Futures Commission for ordering a continued halt in Hanergy shares. (company announcement; Chinese article) Hanergy stock was suspended on May 20 at the company’s request, after it lost nearly half their value in the first hour of trading that day. This new order means that trading can’t resume until the regulator gives the green light, even if Hanergy itself wants its shares to start trading again.

The securities regulator opened an investigation into Hanergy for potential stock manipulation, and company watchers are guessing the suspension will remain until that investigation is concluded. In this case the regulator should get just a bit of criticism, since it probably should have opened its investigation earlier, perhaps when Hanergy shares had risen by 3-fold or 4-fold, instead of waiting for the price collapse.

Turbo-charged Speculation

But returning to my original point, this kind of turbo-charged speculative buying and behind-the-scenes share price manipulation is rampant in China, and has been a major factor behind the stock market’s recent volatility. Online video company LeTV (Shenzhen: 300104) is one of the few China-traded companies I follow, and is a good example of this speculative and manipulative buying.

The company’s shares were relatively stable heading into last summer, when they suddenly embarked on a rally that saw them rise more than 5-fold to an all-time high this May. Since then, however, they’ve lost about a third of their value in the broader market sell-off. An even higher-profile case is Baofeng (Shenzhen: 300431), another online video company, whose shares soared by a staggering factor of 43 after their IPO in March, before tumbling 27 percent from their high in June amid the recent sell-off. (previous post)

Hanergy must certainly be looking enviously at companies like Baofeng, which are allowed to continue trading despite the blatant share manipulation that is happening to boost their stocks so much. Of course I’m being slightly sarcastic, since such volatility really isn’t good for any stock over the longer term and probably would cause nightmares for company executives in any mature market. But Chinese entrepreneurs who simply like to see their stocks rise might not care as much about such volatility, which perhaps is one of several factors leading many US-listed Chinese companies to mount privatization drives with an aim of re-listing back at home.

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 14, 2015

PowerSecure on a Solar Roll

by Debra Fiakas CFA

Last week PowerSecure International (POWR:  Nasdaq) announced the award of orders valued at $100 million for new solar projects.  About 15% of the work will be completed in the final quarter of this year and the rest of the revenue will be recorded in 2016.  The announcement sent investors into a tizzy.  PowerSecure reported $283.4 million in total sales for the twelve months ending March 2015, primarily for solar power infrastructure and smart grid technology destined for electric utilities and microgrids. 

Securing orders equivalent to 35% of its current revenue run rate is quite impressive, in my view, signaling that PowerSecure is capturing market share with U.S. electric utilities.  As the solar power industry matures, transforming from early stage to established, becoming the ‘go-to’ source for successful solar project deployment is important.  PowerSecure offers smart grid and demand response technologies that help set it’s solar power generation systems apart from the rest of the pack.

This was not the first time that PowerSecure had made an announcement of material orders.  A year ago the company won a major contract award valued at $120 million for an electric utility.  Since then new contracts have trickled in, but total have only come to about $30 million.  If investors have been concerned that the large order in 2014, was to make PowerSecure a ‘one shot wonder,’ their worries are over.  The most recent order helps cast PowerSecure as an established player in the solar project development market.

To add to the drama, the company’s announcement was made during the final trading day last week.  Trading the stock was halted pending receipt of the news.  On hearing the good news, investors immediately bid the stock higher and trading volume ramped to three times the recent average.

Analysts with published estimates for PowerSecure may have already anticipated the revenue.  The consensus estimate for the year 2015, indicates analysts have a bullish view on the year with a total sales estimate of $386.7 million.  This represents 36% growth over the recent revenue run rate up in the twelve months ending March 2015.  Likewise, the consensus sales estimate for the year 2016, represents 17% growth over the estimate for 2015.  Consequently, investors might not see the usual string of upward estimate revisions that often send investors off to place buy orders for stocks.

Nonetheless, the news is certainly bullish for PowerSecure.  The company posted a net loss in 2014.  The new order appears to be large enough to put the company back ‘into the black.’  That should be bullish for the stock price.    

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. 

July 01, 2015

Chinese Solar Turmoil Brings Crowdfunding and Internet Interlopers

Doug Young 

Bottom line: Yingli’s use of crowd-funding to finance a small project and the bargain sale price of a small polysilicon maker reflect continuing struggles at second-tier solar companies and the need for more consolidation.Yingli logo

Two solar energy stories are showing how overcapacity continues to haunt the sector 2 years after it began to emerge from a major downturn. The first involves a desperate-looking fund-raising plan from the struggling Yingli (NYSE: YGE), which is trying to use crowd funding to pay for a new solar plant. The other news involves another slightly bizarre investment in the space, with Internet titan Tencent (HKEx: 700) and real estate giant Evergrande (HKEx: 3333) paying a bargain price for Mascotte (HKEx: 136), a money-losing Taiwanese maker of polysilicon, the main ingredient used to make solar panels.

Both of these deals look strange for different reasons that reflect the lingering state of turmoil in a solar panel sector plagued by excess capacity. Many of the weakest players have closed or been purchased over the last 2 years, with names like Suntech and LDK disappearing as independent companies. But a relatively large field of second-tier players like Yingli still remain in business and probably need to either close or get acquired before the industry can truly return to health.

Let’s start with Yingli, which proudly proclaims in its latest announcement that it is bringing solar financing to the masses by giving average people the chance to invest in a small new solar power plant. (company announcement) The plant is based in Yingli’s home province of Hebei, hinting that it used its local connections to get the project build. The plant has a modest capacity of 4 megawatts, and was funded with the sale of 20 million yuan ($3.2 million) in bonds.

Two Chinese companies provided the project’s original financing, but now it appears they want to sell their stake to average consumers via an online platform that resembles the popular crowd-funding model. The fact that these big investors are looking to sell their stake to unsophisticated consumers shows their own lack of confidence in the project, and the overall move really looks like desperation.

Yingli is the weakest of China’s major solar panel makers to survive the downturn so far, and this kind of move shows just how shaky its finances are. The company shocked investors in May when it said it was in danger of going out of business, even though it later said its statement was misinterpreted. (previous post) This kind of move to raise money through crowd-funding certainly won’t help to restore confidence in the company, and it’s still possible we could see Yingli ultimately fail this year or next.

Next there’s the other deal that has seen Tencent and Evergrande take a majority 75 percent stake of Mascotte for HK$750 million ($100 million). (company announcement; English article) The purchase price represents a whopping 97 percent discount to Mascotte’s last stock price before the announcement, which actually came last week.

A quick look at Mascotte’s latest financial statement, which was released after announcement of the Tencent and Evergrande investment, shows why the company so desperately needed the new money. Mascotte lost HK$129 million last year, which was actually an improvement over the $547 million it lost the previous year. Still, so many losses over consecutive years meant the company was probably out of funds and unable to find anyone to lend it new money to continue its operations.

The involvement of Tencent in this transaction looks a bit strange, as the company has never invested in this kind of new energy deal before. But that said, big tech names like Apple (Nasdaq: AAPL) and fast-rising online video firm LeTV (Shenzhen: 300104) seem to be suddenly piling into the space, perhaps as a form of public relations to show their commitment to environmental protection. Such investments have so far been quite small, and in this case Tencent won’t feel too much pain if Mascotte fails, which looks like a strong possibility over the next year or two.

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 25, 2015

2020 Solar Investment Outlook

If you Hate Money, Don't Invest in Solar!

It took the solar industry forty years to reach a cumulative global capacity of 100 gigawatts …

By 2020, more than 100 gigawatts will be installed in a single year!

According to a new report from the good folks over at Greentech Media, the solar industry will install a mind-blowing 135 gigawatts of solar PV projects all across the globe in less than five years. This will push the cumulative market to nearly 700 gigawatts - or about the size of all the electrical generating capacity in Europe today.

And consider the following estimates:

  • 55 gigawatts in 2015. This represents 36% y/y growth.
  • Emerging markets will account for 17% of growth of the next 5 years. Historically, they’ve accounted for only about one percent.
  • By 2020, 45% of total solar PV demand will come from just three countries - China, Japan and the U.S.
Admittedly, I still see China as a potential wild card based on the fact that if China’s economy implodes - which is not only possible, but probable - there will be significant solar market contraction as China is not only a major producer, but consumer, too.

This is why, as I’ve explained before, I’m trying to limit our exposure to China solar stocks.

On the flip side, however, U.S. solar manufacturers and developers can only continue to get stronger. If you want exposure to the solar space, Sunpower (NASDAQ: SPWR), First Solar (NASDAQ: FSLR), or SunEdison (NYSE: SUNE) should definitely be a part of your portfolio.

All three, by the way, should also get a very nice bump if a select group of lawmakers in California get their way.

No Subsidies Needed

The California Senate recently passed a new bill that, if signed into law, would require the Golden State to get 50 percent of its electricity from renewables by 2030.

It wasn’t long ago when California upped its renewable energy mandate from 20 percent by 2020 to 33% by 2020. Now here we are today looking at the possibility of a 50% renewable energy portfolio.

On the surface, it seems quite aggressive. And in all fairness, right now, it is. But in another few years, costs will fall so low, solar will actually be the most cost competitive source of electricity in California. And that’s without subsidies.

Of course, it seems like every day the need for additional subsidies dwindles, anyway.

Solar superstar and founder of SunEdison, Jigar Shah, has been quite vocal on this issue, insisting that if we phase out the solar tax credits and other solar subsidies in mature markets, the result will be more robust growth.

Check it out …

As the Founder of the largest solar services provider, SunEdison, I had a hand in putting in place subsidies so that we could reduce costs through scale in local markets. This strategy has resulted in an average system cost reduction of over 50% since 2008.

But today, solar subsidies in maturing markets like the United States are actually holding us back, not propelling us forward. In fact, Germany has hit an all time high for solar capacity with 30-gigawatts peak (GWp) of solar power installed. Germany has done this by installing solar at far cheaper prices than we are in the United States. That is because solar subsidies are manipulated by investors like me to maximize our returns. The truth is that installers in the United States can, and do, install solar at roughly the same cost as German installers – save for some increased soft costs. If we want to reach higher growth, we need to phase out the solar tax credits and other solar subsidies in mature markets and watch the price of solar fall.

And just the other day, First Solar CEO, Jim Hughes, actually called the expiration of the solar investment tax credit “irrelevant,” saying …

Within 18 months, we will overcome the cost delta resulting from the drop [of the ITC] from 30 percent to 10 percent. It actually opens up new markets, in our opinion, because you'll see an increased interest in utility generation once the distortion of the ITC is behind us.

Hughes also made an important point that I’ve been making for years …

The growth in corporates interested in direct acquisition of photovoltaic power is not driven by climate change concerns -- it's driven by economics. When you look at data centers, when you look at electricity-intensive industries, they are all interested in locking in a significant cost as a fixed cost rather than a commodity-priced variable cost -- and that's driving a whole lot of procurement on a global basis.


So here we are, looking at a global market that’s growing incredibly rapidly, and even in the absence of direct subsidies, will continue to break records.

When it comes to energy investing, there is simply no greater growth opportunity than solar.


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

June 08, 2015

EU Cracks Down on Solar Cheats

Doug Young

Bottom line: The EU will impose anti-dumping tariffs on all Chinese solar panel makers by year end, and will refuse to negotiate any new agreements to mediate the issue unless Beijing becomes directly involved.

A crackdown has officially begun on Chinese solar panel makers who skirted a deal to avoid anti-dumping tariffs in Europe, with word that the EU has taken formal action to punish 3 violators. The action will see anti-dumping tariffs imposed on Canadian Solar (Nasdaq: CSIQ), ReneSola (NYSE: SOL) and ET Solar, reviving a threat they previously avoided by agreeing to voluntarily raise their prices as part of a breakthrough deal in late 2013.

Western solar panel makers in the US and Europe had long complained that they were at an unfair disadvantage to their Chinese peers, which received a wide array of state subsidies through policies like cheap government loans and tax rebates for their exports. Washington responded by levying anti-dumping tariffs on the Chinese companies, while the EU took a more conciliatory approach by signing a deal that saw the Chinese agree to voluntarily raise their prices to levels comparable with their western rivals.

That deal began to unravel earlier this year, when some European panel makers complained that the Chinese manufacturers were using tricks to avoid their earlier promise to raise prices. Such tricks included secretly rebating money to customers through fake consulting deals, and setting up fake factories in other countries to make their panels appear like they weren’t being exported from China.

Now the European Commission, which oversees trade issues for the EU, has determined that Canadian Solar, ReneSola and ET Solar violated the deal, and has reapplied tariffs that were previously threatened. (English article) Canadian Solar issued a statement saying it believes it was in compliance with the deal, and added the action won’t affect its guidance for the second quarter and for all of 2015. (company announcement)

Under the European Commission’s decision, all 3 companies will be subject to an anti-dumping duty of 43.1 percent. Canadian Solar and ET Solar will also be subject to an anti-subsidy duty of 6.4 percent, while ReneSola will be subject to anti-subsidy duties of 4.6 percent. Canadian Solar’s and ReneSola’s New York-listed shares both actually rose by 5.2 percent and 7.7, respectively, after the announcement. But each is still down about 15 percent since mid-May amid growing concerns about the EU spat.

Canadian Solar’s reaffirmation of its 2015 revenue guidance indicates it’s confident that this newest action will take at least half a year to implement, meaning there’s still potentially time to avert the new tariffs. But frankly speaking, the EU’s patience is rapidly running out towards these Chinese solar companies, and I suspect a finalization of punitive tariffs against this trio and other Chinese panel makers is inevitable by year end.

This latest action comes just a week after the European Commission launched a broader probe into whether Chinese companies were violating the earlier agreement, following complaints by a group of local producers led by Germany’s Solarworld. (previous post) The move to separately impose punitive tariffs on the 3 Chinese companies indicates the EU wants to act quickly on the matter, and is probably in no mood to listen to excuses or negotiate any new agreements on the issue. That’s certainly not good news for the solar panel sector in general, but isn’t too surprising either due to the apparent lack of goodwill by the Chinese panel makers.

More broadly speaking, this outcome really does show that Beijing’s participation is needed to make any similar deals in the future. This particular deal was reached directly between the Chinese panel makers and the EU as Beijing stood aside. The Chinese panel makers probably believe they did nothing wrong, since they may have technically honored the agreement even though they violated it in spirit. Getting Beijing involved could avoid this kind of problem in the future, since the companies would be less likely to engage in this kind of mischief if it might mean upsetting the main supplier of their many forms of government 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 02, 2015

EU Likely To Impose Sanctions On Chinese Solar Cos

Doug Young

Bottom line: The latest EU anti-dumping probe into Chinese solar panels is likely to find that manufacturers violated a previous agreement, which could result in new punitive tariffs by the end of this year.

In a move that will surprise to no one, the European Union has formally launched a probe into Chinese solar panel makers who are being accused by European rivals of violating a landmark agreement that averted anti-dumping tariffs. I should really stop using the word “landmark” to describe the 2013 deal between the Chinese panel makers and EU that avoided a trade war. In fact, it’s becoming increasingly obvious that a better word to describe the deal would be “foolish”, since it appears many of the Chinese panel makers never really intended to follow the spirit of the agreement to begin with.

The bottom line is that the agreement signed in late 2013, which averted punitive tariffs against Chinese solar panels, is likely to be declared void by the end of this year. I personally didn’t predict this outcome, and at the time I actually congratulated both sides on finding a more productive way to resolve their trade disputes than the usual punitive tariffs. But it seems Chinese companies aren’t ready for this kind of mediated settlement, since the only language they seem to understand is actual punishment.

According to the latest reports, the European Commission, which represents the 28 EU member countries on trade issues, has formally opened an inquiry into whether the Chinese panel makers deliberately took steps to violate the 2013 agreement. (English article) That deal saw the manufacturers agree to voluntarily raise their prices to levels similar to their European rivals, who complained that the Chinese got unfair state subsidies through policies like cheap government loans and export subsidies.

The agreement was strongly supported by several prominent leaders of EU countries, and came after Europe conducted an investigation and had threatened punitive tariffs. But less than a year later, European panel makers began to complain that Chinese were circumventing the deal using a number of tricks, such as offering refunds to customers through fake consulting contracts.

The complaint that prompted the European Commission to launch its latest investigation was made by German manufacturer Solarworld (Frankfurt: SWVK, OTC:SRWRF), and involves yet another tactic that Chinese panel makers allegedly used to avoid their own promised price hikes. In that instance, Solarworld claims the Chinese would transship their panels to Europe by via other places like Taiwan and Malaysia, making them appear to be manufactured in those other places and therefore exempt from the promised price hikes.

Following its agreement to investigate the matter, the European Commission could take as long as 9 months to reach its conclusions, the reports say. But I expect that the probe won’t take nearly that long, as it should be quite easy to determine if big changes have occurred in panel shipment patterns since the EU signed its agreement with the Chinese panel makers less than 2 years ago.

At the end of the day, the US comes out looking the smartest in this whole situation, as it was the first to start investigating Chinese solar panel makers 3 years ago and later levied its own punitive sanctions. I don’t know if any attempts were made to avoid those sanctions through a negotiated settlement like the one with Europe. But I suspect that experienced trade officials in Washington were familiar with the tactics used by Chinese companies, and simply decided to levy the sanctions because they knew a negotiated settlement was likely to run into this kind of problem.

At the end of the day, the only real longer-term solution is for China to end this kind of state support that too often results in trade wars. That won’t be easy, as this kind of support has a long tradition in China due to the country’s socialist past when all businesses were owned by the state. But until that happens, this kind of trade war will continue, and western countries are unlikely to try the negotiated settlement approach again after this failed experiment in Europe.

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 21, 2015

Yingli’s New Deadline, Hanergy’s Plunging Value

Doug Young 

Bottom line: Yingli’s shares could rebound a bit as concerns ease about an imminent bankruptcy, while Hanergy’s shares are likely to continue sliding when trading resumes to correct from a massively speculative recent run-up.

This week has been a volatile time for solar company stocks, which have taken a beating after Yingli (NYSE: YGE) warned about its ability to stay in business due to its heavy debt load. Now Yingli has put out a new statement saying its earlier warning was misinterpreted, helping to reverse a huge sell-off of its shares as it laid out the next big deadline in the struggle to repay its debt.

At the same time, Hong Kong-listed solar equipment maker Hanergy (HKEx: 566) has also been in global headlines, after its shares lost nearly half their value in just a matter of minutes in Wednesday trade. Media are focusing on the huge price swing, which no one seems able to explain. But this really looks like a story of stock manipulation by speculators rather than one of any significant change in the company’s prospects, which once again underscores the dangers of dealing in this kind of thinly-traded stock.

Let’s start with Yingli, whose shares lost nearly half of their value in the first 2 trading days of this week after it said its heavy debt load could affect its ability to stay in business. (previous post) That sell-off pushed the shares to an all-time low, as investors worried about a bankruptcy that could have rendered the stock worthless.

Now Yingli has issued a new statement saying investors misinterpreted its earlier words, sparking a rally that saw the stock jump 25 percent in the latest trading session. But even with the rebound, the shares are still down more than 30 percent from where they began the week, showing that investors are still quite concerned about the company’s ability to service its debt.

In the new statement, Yingli said its earlier statement was taken out of context and it’s “optimistic and confident” about its ability to continuing serving the global solar market. (company statement) Of course it would have been much better if it could have said it was confident about its ability to service its debt, which totals more than $2 billion.

But it did note that its next big debt repayment of 1 billion yuan ($162 million) will come due on October 13, and that it believes it will be able to repay that amount on schedule. The amount isn’t really all that large, and Yingli previously sold off some of its land to pay off another debt obligation earlier this month. Still, using land and other asset sales to pay off debt isn’t a great long-term business strategy, and the money-losing Yingli will need to plot a path back to profitability soon if it really wants to survive.

Meantime, we’ll look very quickly at Hanergy, which makes equipment to produce thin film used to make solar energy. This company defied logic and saw its shares soar 6-fold since last September before the sell-off. That means that even after the sell-off that saw the shares plunge 47 percent in just 27 minutes of trade, the stock is still triple its price from last September. (English article)

Hanergy now has a market value of $20 billion, which is far larger than any other solar company, most of whose shares remain depressed due to stiff competition. And yet despite that huge market value, the plunge in price was based on a trading volume of just 175 million shares, which probably had a total value of around $120-$140 million.

That small figure reflects the fact that Hanergy’s share float is very small, and thus the company’s stock price is easily manipulated. The company may have good enough prospects, but it’s recent stock run-up was far out of proportion to its growth potential. Accordingly, this latest plunge looks like a much-needed correction, and the shares could continue to fall re-approach their earlier levels once trading resumes after a temporary halt.

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 20, 2015

Yingli In Danger Of Default

by Doug Young

Bottom line: Yingli is in increasing danger of defaulting on its heavy debt load, which could result in a rapid and disorderly bankruptcy if its hometown government fails to provide support.

After sending out a steady series of distress signals over the last few weeks, solar panel maker Yingli Green Energy (NYSE: YGE) has sent out its strongest trouble sign yet as it struggles under a huge debt load. The most recent signal comes in a new filing with the US securities regulator, in which Yingli says its big debt could threaten its ability to survive, potentially making it the latest casualty in a clean-up of China’s bloated solar panel sector. Such an outcome would see Yingli follow in the footsteps of former high-flyers Suntech and LDK, and would raise the question of whether others may soon follow down a similar path.

First Suntech and LDK, and now Yingli have all struggled to service billions of dollars in bonds and bank loans they used to build plants for solar panel manufacturing at the height of an industry boom 7 years ago. Suntech’s inability to pay off a maturing bond was the trigger that finally forced it into bankruptcy 2 years ago, though it was already in deep financial trouble by then. Now the same thing could soon happen to Yingli, whose prospects are being clouded by recent weakness in the global solar panel market.

In its new filing with the US securities regulator, Yingli says it has nearly 15 billion yuan in debt ($2.4 billion), more than two-thirds of which is short term borrowings. (company announcement; English article) It said it is having difficulty servicing that debt, which could affect its competitiveness, its ability to get new financing and ultimately its ability to stay in business.

The announcement sparked a sell-off for Yingli shares, which tumbled 12.3 percent to $1.49 in the latest regular trading session in New York. The shares were down another 25 percent at $1.11 in after-hours trade, putting them in position to reach an all-time low if the declines hold in the next regular trading session. Shares of many other solar panel makers also dropped by smaller amounts, with Canadian Solar (Nasdaq: CSIQ) and ReneSola (NYSE: SOL) both down by more than 4 percent.

Yingli has yet to announce its first-quarter results, but reported net losses of nearly $90 and $210 million for last year’s fourth quarter and the full-year 2014, respectively. Its new announcement was its loudest signal yet that it may be the next to fail, following a recent string of similar signs.

YIngli was recently forced to sell some of its idle land in its hometown of Baoding to meet a debt payment due earlier this month, barely managing to avoid a default. (previous post) Another solar manufacturer named Tianwei, which also happens to be based in Yingli’s hometown of Baoding, last month made headlines when it became the first company to default on a domestic Chinese bond. (previous post)

It’s unclear if these 2 companies are related beyond the fact that both are based in the industrial northern city of Baoding. But what does seem clear is that the city of Baoding isn’t in any rush to bail out these local companies, which certainly isn’t a good sign for either. In the earlier Suntech bankruptcy, the company’s hometown of Wuxi was much more proactive in the bankruptcy process, even though Suntech’s management team was ultimately forced out.

In this latest case it’s probably still too early to say if Yingli will ultimately be forced into a similar bankruptcy, though the likelihood certainly looks high. The earlier bankruptcies 2 years ago were relatively orderly, thanks to strong support from local governments.

But now many of those governments are coming under economic distress as they struggle with their own big debt amid a slowing Chinese economy. Accordingly, first Tianwei and now Yingli probably can’t expect too much assistance from the local Baoding government, meaning a rapid fall and disorderly bankruptcy could come if and when the company fails to service its next upcoming debt obligation.

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 19, 2015

Solar Stocks Bask In Hawaiian "Aloha"

By Jeff Siegel

hawaiisolarI’ve been all over the world, and without a doubt, there is no place more beautiful than Hawaii, particularly the island of Kauai.

The weather, the ocean, the rain forests, the food - it just doesn’t get any better.

Although if state lawmakers get their way, there could soon be a cherry on top for renewable energy supporters.

As recently reported in Greentech Media …

Lawmakers in Hawaii passed legislation last week (in a 74-2 vote) requiring the state to generate 100 percent of its electricity from renewable energy resources by 2045. If HB 623 is signed into law by Governor David Ige, Hawaii will become the first U.S. state to attempt complete decarbonization of the power sector.

Today, Hawaii’s energy mix is more than 80 percent fossil fuel, with oil providing the majority of electricity generation on the islands.

Now I’ll be the first to admit, I find free market solutions superior to mandates and legislation. In a real free market, the government wouldn’t even be necessary in this situation. The better mousetraps - in this case, solar, wind and energy efficiency, would quickly replace the islands’ heavy dependence on oil.

Of course, to assume there’s a free market in energy is not a safe assumption to make.

I won’t get into all of that here, but if you’re a regular reader of these pages, you know full well that the oil and gas industry has long enjoyed extremely generous subsidies - both direct and indirect. And it is for this reason that renewables in Hawaii have faced such a long, uphill battle.

But with renewables enjoying a rapid decrease in production costs, even the unleveled playing field that exists in the world of energy won’t be enough to stop this clean energy juggernaut.

A Great Opportunity

The fact is, Hawaii has access to some of the greatest renewable energy resources in the world - solar, wind, tidal, and geothermal. The fact that 80 percent of the state’s energy mix is more than 80 percent fossil fuel-based is despicable. It highlights a long-standing exercise in complacency that has been facilitated by lawmakers, corporate interests and the relationship between the two.

In any event, if this bill becomes law, we will see a great opportunity for a number of publicly-traded solar companies, including, but not limited to …

  • SolarCity (NASDAQ: SCTY)
  • SunPower Corp. (NASDAQ: SPWR)
  • First Solar (NASDAQ: FSLR)
  • SunEdison (NYSE: SUNE)
  • SolarEdge (NASDAQ: SEDG)

I suspect Tesla’s (NASDAQ: TSLA) new battery storage systems could also find a nice home here.

Invest accordingly.


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

May 12, 2015

The Value of Net Metered Electricity in New York

by Tom Konrad, Ph.D.

Net metering is unfair and is dangerous for the long term health of utilities, at least according to Raymond Wuslich, when he spoke at the 2015 Renewable Energy Conference in Poughkeepsie, NY.  Wustlich is an attorney and partner at Winston & Strawn, LLP., and advises clients across the electricity and natural gas industries on Federal Energy Regulatory Commission (FERC) matters.

To make his point, Wuslich used a simplified New York residential electric bill.  In this simplified bill, the customer was charged 12¢ per kWh for electricity.  Roughly 6¢ each go to the energy supplier and the transmission and distribution utility, which owns the wires, for the delivery of electricity.  (New York has a competitive power market, where power suppliers are separate from the utility companies.  Consumers are able to switch between suppliers at will.)  Of the 6¢ which pays for energy, he states that 4¢ is for capacity charges (keeping the power on) and 2¢ is the cost of energy delivered.

Using this simplified example, Wuslich argues that net metered customers are only providing 2¢ of value for each kWh they generate, but are receiving 12¢ of value.  If it were true, this would clearly make net metered solar unsustainable as it grows as a percentage of the electricity mix.  We can start to see why with a quick look at my most recent electricity bill, below.  The red explanatory text is mine.

Electric bill screenshot.png
We can ignore the fact that I actually paid an average of 23¢ per kWh for the net 886 kWh I used over two months; Wuslich's point related to percentages of the bill going to delivery, capacity, and energy, not the absolute numbers.  Much more important is that $48, or almost a quarter of the total bill, is not paid on a per kWh basis at all.  This money helps pay for delivery, and cannot be offset with net metering.  All else being equal, increases in net metering will cause electric delivery payments to fall, but not as much as Wustlich's example implies.

The other major oversimplification is that the price of both energy and capacity change with the time of day, the season, and weather conditions.  The cost of electric capacity and the cost of delivery are both highest when load peaks, and are much lower the rest of the time.  Capacity costs are lowest at night when most people are sleeping and electricity demand is low.  On average, solar photovoltaics (PV), are producing power when capacity prices are high. 

Electric capacity prices are highest when electric load peaks.  In New York, this peak is usually "Thursday or Friday afternoon at the 3rd or 4th day of an extended heatwave," according to Richard Barlette, who also spoke at the conference.   Barlette is the Senior Manager of External Affairs at The New York Independent System Operator (NYISO), the non-profit governing body which manages New York's transmission grid.

A look at NYISO's  2015 Load and Capacity Data Report or "Gold Book" shows that residential solar PV pulls its weight when it comes to meeting peak demand.  In fact, NYISO projects that behind-the-meter PV will more than carry its weight in 2025.   As the chart below shows, in 2015, retail PV will contribute slightly less to meeting statewide peak than it contributes to meeting annual energy demand, but that ratio is reversed in the most expensive capacity markets: New York City and Long Island. There it contributes more to peak demand than to annual energy use.

NYISO PV projections.png

NYISO's projections for 2025 show retail PV providing greater capacity benefits, not fewer, with capacity benefits felt statewide.

In short, the capacity value of net metered solar in New York is roughly proportional to the energy it provides for New York's electric grid, and it even delivers a bit more value in the most capacity constrained parts of the state. 

Although net metering policy was not intentionally designed to match the value of solar to its cost, the policy is currently doing a decent job of compensating homeowners fairly for the value their solar provides to the grid.  Contrary to the worries of industry representatives like Mr. Wustlich, in ten years, net metered customers will be delivering more value to the grid than they will be paid for, not the other way around.

Maureen Helmer led the New York State Public Service Commission (PSC) when the state created its competitive market for electricity in the 1990s.  At the time, she said utilities were very concerned about "stranded costs," and not getting paid enough for the generation assets they were being forced to sell.  But this worry turned out to be unfounded, since the assets all sold for good prices.

Now New York is again working to modernize its electricity market with the "REV" (Reforming the Energy Vision,)  and utilities are worried about net metering.  These worries also seem likely to be unfounded.

May 08, 2015

Are Solar Stocks Cheap For A Reason?

by Debra Fiakas CFA

The last post “Meeting Solar Challenge in the Courtroom” discussed how European solar manufacturers are complaining about China’s exports.  A complaint made by industry association EU ProSun charges China manufacturers of solar cells and panels of circumventing Europe’s anti-dumping measures by channeling their products through Malaysia and other intermediaries in order to disguise the China origin.  A report by released last month by IHS (formerly SolarBuzz) makes clear there is much at stake in the solar industry.  IHS forecasts global solar photovoltaic capacity could reach 498 gigawatts by 2019.  That call is a whopping 177% higher than capacity reported in 2014.  IHS is also projecting a dramatic increase in demand to 75 gigawatts per year by 2019.   That level is 66% higher than demand registered in 2014. 

That sort of growth is usually a call to investors to BUY! BUY! BUY!  What is the best approach to the next stage in the solar power industry?  Bet on a single horse? The long shot or the favorite to win?  Take a position in the industry with an ETF or an indexed solar energy fund?

The China solar module producers that are listed in the U.S. and trade in U.S. dollars are available at bargain valuations.  China’s Trina Solar (TSL:  NYSE) is trading at 21.1 times trailing earnings, but an interesting multiple of 10.2 times the consensus estimate for Trina in 2015.  Another China company, JA Solar Holding (JASO:  Nasdaq), is an even better bargain with a stock that is priced at 7.4 times forward earnings.  The problem is JA Solar does not appear to be growing earnings so it probably deserves a lower valuation.  Renasola (SOL:  NYSE) might be the surprise among the China solar stocks.  The company is expected to return to profitability in 2015 and the stock is trading at 17.6 times projected earnings.  That is not such a compelling valuation metric, but it is interesting given the Rena Solar is on the mend.

Canadian Solar, Inc. (CSIQ:  Nasdaq) should not be overlooked.  This solar module producer is headquartered in Toronto, but has production facilities all over the world, including China.  It’s trailing and forward earnings multiples are 9.1 and 8.4, respectively.  I just cannot quite figure out the connection between solar power and the sheep on Canadian Solar’s corporate web site!

The U.S. is famously bereft of manufacturing talent and capacity, but there are two domestic solar module manufacturers.  First Solar, Inc. (FSLR:  Nasdaq) and Sun Power Corporation (SPWR:  Nasdaq) are both trading at multiples far higher than the rest of the pack.  This is probably due to higher operating profit margins than the profitable China solar module producers.  Only Canadian Solar has a higher operating profit margin.

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 06, 2015

Chinese Solar Companies Undermining EU Deal

Doug Young 

Bottom line: A deal designed to avoid punitive tariffs on Chinese solar panels exported to Europe is rapidly collapsing, with new anti-dumping tariffs likely to be imposed by the end of the year.

A looming clampdown on Chinese solar panels in Europe is rapidly accelerating, with word that the EU will review part of a landmark 2013 agreement that initially helped to prevent a trade war but is showing rapid signs of unraveling. The case centers on the prices of Chinese solar panels, which are typically much lower than their western counterparts due to a wide array of Beijing policies to support the sector.

The US levied punitive tariffs on Chinese panels to address the situation. The EU was set to do the same when several top politicians stepped in and pushed both sides to reach a compromise deal to avoid such action. That deal saw the Chinese manufacturers agree to raise their prices to levels comparable to products from the west. But no sooner did the deal take effect, then the Chinese companies began undermining the agreement by finding ways to secretly refund money to their European customers.

The European manufacturers saw what was happening, and have been complaining loudly to the European Commission to take action. The case now appears to be accelerating, and it looks likely that some kind of corrective action will be relaunched against the Chinese manufacturers in a matter of months.

The latest action looks a bit technical, and applies to a benchmark price for solar panels that is a key part of the agreement reached between the Chinese manufacturers and EU as part of their agreement to avoid punitive tariffs in 2013. Under that deal, the Chinese agreed to set their prices based on a benchmark that included panel prices from both Chinese and non-Chinese manufacturers.

But now the European panel makers are arguing that Chinese panel prices should be excluded from the benchmark calculation, because the Chinese products depress the benchmark to artificially low levels. (English article) The European Commission has agreed to review the case, meaning it could ultimately decide to exclude Chinese panel prices from the benchmark. That would almost certainly raise the benchmark, forcing Chinese panel makers to sell their products for higher prices.

This particular development is just the latest wrinkle in the protests from European manufacturers, who would really just prefer to see implementation of the originally proposed anti-dumping tariffs rather than this attempt to modify the earlier agreement. In a move in that direction, German panel maker Solarworld (SRWRF) last week filed a formal request for a probe into its Chinese rivals, saying they were violating the earlier agreement. (previous post)

I’ve personally heard and read about a number of methods the Chinese are using to undermine the agreement. Many involve finding ways to secretly rebate money to their customers, using vehicles like consulting fees to make such payments. This kind of behavior is relatively typical of Chinese companies, which often enter into agreements and then look for ways to undermine those same agreements in ways that will benefit themselves.

A changing of the benchmarking process won’t really address this central problem, namely that many of the Chinese companies will continue to look for ways to sell their panels at very low prices using tricks like backdoor rebates. When the EU comes to that realization, the result will almost certainly be a scrapping of the 2013 compromise deal, and I do expect we’ll see the original plan for punitive tariffs imposed by the end 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.

May 01, 2015

Yingli Can Make Debt Payment, But It's Still Weak

Doug Young

Bottom line: Yingli appears to be in financial distress but will avoid defaulting on debt obligations coming due next week, while China’s broader solar panel sector is likely to face new anti-dumping tariffs in Europe later this year.

The solar panel sector has become quite a turbulent place these days, riding high one day on reports of major new plant construction, only to stumble the next on signs of conflict and financial distress. This kind of conflicting news reflects the fact that the industry is still in the midst of a major overhaul that could ultimately see a few more companies get closed down or purchased, leaving a smaller field of the biggest, best-run players to survive over the longer term.

The latest signs of distress are coming from Yingli Green Energy (NYSE: YGE), one of China’s largest players, which has just announced it has the necessary funds to pay off a bond that will mature next week. Some may see such an announcement as a sign of strength; but the fact that Yingli is taking the unusual step of making an announcement seems aimed at allaying market concerns that it might not make the payment. The other big distress sign is coming from reports that indicate Europe could soon re-launch an anti-dumping probe into Chinese solar panels, following complaints that the Chinese are violating an earlier agreement designed to avoid punitive import tariffs.

The field of remaining Chinese solar panel makers is rapidly dividing into 2 camps, one including names like Canadian Solar (Nasdaq: CSIQ) and Trina (NYSE: TSL), which are generally healthier and better run and thus more likely to emerge as future sector leaders. On the other side of the aisle are shakier companies like Yingli and ReneSola (NYSE: SOL), whose shares have both fallen into the $1 range amid concerns about their longer term prospects.

Yingli was almost certainly looking to allay some of those concerns with its new announcement that it has enough money to pay off 1.2 billion yuan ($200 million) in medium-term notes that will come due next week. (company announcement) Yingli added it has given the necessary funds to a third party as trustee, ensuring that the payment will be made on time.

Yingli’s move comes just a week after Tianwei, another solar products maker that is also from Yingli’s hometown of Baoding in northeast Hebei province, made an unprecedented default on an interest payment for a domestic bond. (English article) Last week, Yingli also announced that it sold some of its idle land in Baoding for 588 million yuan (company announcement), and I strongly suspect some or all of that money is now being used to pay off the bond that comes due next week.

Yingli’s stock was down 0.5 percent after its latest announcement this week, and now trades near a 52-week low that’s not much higher than the all-time lows it posted at the height of a major sector downturn 3 years ago. The company appears to have dodged a bullet for now, but its condition certainly doesn’t look that encouraging over the medium to longer term.

We’ll close out this post with a look at the bigger news that Germany’s Solarworld (SRWRF) has filed a formal request for a probe into Chinese panel makers, saying they are violating an earlier agreement aimed at ending a dispute over allegations of unfair state support. The 2 sides signed their landmark agreement in late 2013, with the Chinese panel makers agreeing to voluntarily raise prices in exchange for avoiding formal punitive tariffs.

Media first reported last month that many of the Chinese companies were violating the agreement by using a range of ways to negate their own price hikes (previous post), and Solarworld’s formal complaint means another formal probe is likely to follow soon. (English article) Solarworld is quite a powerful company, and was one of the main driving forces behind probes that ultimately saw the Chinese companies slapped with punitive tariffs in the US and face similar previous action in Europe. Accordingly, this latest complaint looks likely to launch a similar process that could ultimately see the Chinese manufacturers slapped with new punitive tariffs in Europe later 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.

April 22, 2015

The Cost Of 'Free Solar'

by Paula Mints

Economic theory holds that when a good is provided it must be paid for and that the value for that good will be set by a dance between the sellers and buyers in a market. It is assumed that when the price is too high buyers will back away and the price will adjust. When the price is too low sellers will fail to make sufficient margin to continue producing the good and the price will adjust. And finally, when the price is just right, equilibrium will be achieved and buyers and sellers will be content. This economic theory has chugged along since way back to, and even before, Adam Smith wrote The Wealth of Nations.

The economic theories found in The Wealth of Nations, specifically the invisible hand theory, have been used and misused for decades to prove countless points. This has essentially resulted in breathtaking economic roller coasters that all assume some version of the-market-knows-best and that rational behavior will arise from what is a market free-for-all.    

In the PV industry, equilibrium price is not the goal.  Instead, prices for cells and modules are never low enough and the need for sellers to make a profit sufficient to support their business is often ignored. The global PV industry has long been haunted by expectations of rapid and consistent price declines as well as the belief that progress in terms of efficiency increases and stringent quality control can co-exist with low to negative margins. 

Misunderstandings concerning the variable nature of inputs (raw materials and consumables) as well as the cost of labor are the basis of most learning curves.  The celebration of low prices for cells, modules and systems are the basis of most company failures. The hourly cost of labor decreases only when you use less of it, while wages should and do rise so that the people producing and eventually buying products are afforded the opportunity to engage in the buying/selling dance.

Historically PV industry pricing has not been cost-based. In fact, there have been long stretches of PV industry history during which manufacturers priced technology at or below the cost of production. The current situation of low ASPs for PV technology is an example of aggressive pricing strategy, also serving as an example of how destructive this strategy can be when practiced in an industry where demand is incentive-driven.

Figure 1 details PV module costs, prices, shipments and the ASP/cost delta from 1974 through 2014.

PV 1974-1984.png 84-94 PV 1994-2004.png PV 2004-2014.png

Figure 1: PV Costs, ASPs and Shipments, 1974-2014.

With the considerable amount of confusing pricing information currently being repeated in the market, it is important to remember that prices for re-sold manufacturer- and demand-side inventory should not be confused with the average price of technology to the first buyer, nor should they be taken to represent progress. 

The secondary market is the buying and selling of PV modules through distributors and retailers. The distributors and retailers may buy at the large quantity rate and resell this product on the secondary market to smaller participants.  Distributors and retailers also resell inventory.  This group takes a margin based on the current market situation.

Figure 2 offers PV cell/module revenues and ASPs from 2002 through 2014.

revs v ASPs  

Figure 2: PV Cell/Module APS and Revenues 2002-2014

The Invasion of Free Solar

Marketing slogans — catch phrases developed to sieze the buying public’s imagination — should not be mistaken for truth, wisdom or anything other than the means to sell a product or service. 

Currently popular among residential solar lease providers, the term “free solar” refers to the ability to have a PV system installed at a homeowner’s domicile without the homeowner paying for the installation.  This means that the installation charge is avoided up front and applied to the back end.  That is, the installation cost is recouped over time by the lease provider via the monthly rental of the installation and the annual escalation of the initial monthly lease payment.  Typically ~3 percent, the escalation charge means that eventually the lifetime cost of leasing the PV system will be greater than the cost of buying the installation at a reasonable (and static) interest rate. 

All buyers of all economic strata seek the best deal and the best deal is free. That "free" is an illusion is not the point.  A free good can come at the cost of quality meaning that a poorly functioning free good will likely cost more in repairs and eventual replacement than a good that is acquired at a price that approaches its true value. A price set at free obscures the cost of developing the good or service and creates the illusion that the research, development, manufacturing and selling of the good was, in the worst case, free itself. 

An offer of free solar commoditizes the residential installation, shores up the assumption that the cost of manufacturing a PV panel is approaching zero and undermines the true value of owning a residential PV system.

The true value of owning a residential PV system, aside from the benefits to the environment, is energy independence on a personal level.  Never mind (for a moment) the ongoing attacks directed at net metering from utilities, an appropriately sized PV system gives the electricity consumer control over how much electricity is bought from the utility at retail rates.  Pardon the pun, but there is a power switch from the utility as electricity landlord to the end user — and this is where it should be. Leasing a residential PV system does not imbue the lessee with the same power; simply put, it means that the electricity lessee potentially serves two masters, the utility and the solar lease company.  

The true value of independence is obscured and the value of the product (PV generated electricity) is undervalued.  This is not what Adam Smith meant by the invisible hand.  In the case of the solar lease, the invisible hand would seem to be implying that the value of the PV installation is zero. 

The marketing phrase "free solar" undermines the true value of personal energy independence, obscures the true costs and benefits of PV system ownership, shores up false expectations of ever cheaper PV modules and installations, and undercuts the need of an innovative industry to continue innovating by eviscerating the revenue stream that pays for research and development, not to mention, strategic planning, marketing and sales.

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.

April 21, 2015

Chinese Solar Blows Hot and Cold

Doug Young

Bottom line: Solar products maker Tianwei is likely to get a government bailout before it defaults on an upcoming bond payment, while a massive 2 GW solar farm being built by a new private equity fund is likely to get completed.

Two solar news items are drawing attention to both the opportunities and challenges facing this increasingly schizophrenic sector in China. A new mega-project is spotlighting the huge opportunities for new construction in the space, with word that a recently launched private equity fund plans to build a massive solar farm with a whopping 2 gigawatts of capacity. But big challenges are also apparent in another story, which says mid-sized player Baoding Tianwei is on the cusp of defaulting on a bond interest payment as it faces a cash crunch due to falling prices.

These 2 phenomena aren’t completely separate or contradictory, and in some ways even have their roots in a common origin. That origin dates back a decade ago when China embarked on a campaign to build up its solar panel manufacturing sector, in a bid to move up the value chain from its traditional strength in lower-tech products like textiles. But it created a huge oversupply of production capacity as a result of that push, and is now trying to absorb some of the excess output through a campaign to build new solar farms at home.

The massive overbuilding of manufacturing capacity sent the sector into a downturn that has dragged on for much of the last 3 years, and is directly responsible for the crisis now facing Baoding Tianwei, a maker of traditional transformers that more recently moved into the solar business. According to the latest reports, Tianwei has announced that due to huge losses from its solar business, it may not be able to make an interest payment that comes due this Tuesday on corporate debt issued in 2011. (Chinese article)

The company reported a massive loss of 10.14 billion yuan ($1.6 billion) last year, which makes it understandable why it might have other priorities besides making this particular interest payment. Its total debt at the end of last year stood at 21 billion yuan, far higher than its total assets of 13 billion yuan.

Companies like Tianwei flocked to solar manufacturing after Beijing made development of the sector a priority, and are now paying the price in the form of massive debt from big investments they made at that time. Another solar company, Chaori Solar, looked set to become the first solar player that might default on debt last year, but was bailed out at the last minute by state-run entities, almost certainly acting under government orders. (previous post)

Media are speculating that the government may be tiring of bailing out a growing number of debt-burden companies, and that Tianwei could stand at the forefront of a new wave of defaults for China’s corporate debt market. It may be too early yet to forecast such a default wave, and I expect we’ll probably see another bail-out for Tianwei even if it initially misses the interest payment. But eventually the debt load will become too much for Beijing to bail out, and we may see many of these mid-tier companies default.

Meantime, another media report is saying that China Minsheng Investment Corp (CMIC), a recently formed private equity firm backed by the entrepreneurial Minsheng Bank (HKEx: 1988; Shanghai: 600016), is preparing to build a massive 2 gigawatt solar farm with an investment of 15 billion yuan. (Chinese article) To put that in perspective, China was on track to build about 10 gigawatts of capacity last year, and was aiming to have 35 gigawatts by the end of this year — a goal that looks nearly impossible to reach.

If the project is really built, it would be the world’s largest solar farm in a single location, according to the reports. The plant would be built in interior Ningxia province, in a massive area being developed specifically for solar farms. CMIC was officially launched last August with initial capital of 50 billion yuan, and said at the time that solar power was going to be one of its main focuses. (previous post)

I have quite a bit of respect for CMIC, as many of its executives are entrepreneurs with strong track records and good financial sense. What’s more, this project is being built in an area specifically being developed for solar farms, meaning logistical issues like grid connections shouldn’t present major problems. Accordingly, I do expect this project will probably get built, though it’s unlikely to provide enough support to save struggling companies like Tianwei.

Doug Young has lived and worked in China for 16 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 10, 2015

Making Residual Value Real: Where is Solar’s Emilio Estevez?

by Colin Murchie

Seeking Solars' Emilio Estevez
It is no secret that costs of capital must decrease to make distributed generation a massively scaling resource. And, as costs of capital steadily decrease, the “residual value” – what happens to the asset once the PPA has run out – becomes more and more important. With that in mind, it no longer seems reasonable to fill the years after the PPA’s expiration – with a row of zeros on the pro forma. There is residual value there that is often ignored.

Customers and investors often assume a negative residual value – that the panels will need to be removed at end of term at some significant net cost. In fact, there’s been a recent trend in public RFPs in particular to require a reserve or bond for same. The effect of these requirements is to raise the cost of solar to the customer – they’re buying pricey insurance against the exceedingly unlikely event that the panels will need to be removed.

Clearly, there is not agreement on the ability to monetize an out of term or defaulted asset. It’s in this kind of situation that our thoughts must inevitably turn to Emilio Estevez.

How Emilio Estevez Relates to Solar

In the 1984 classic Repo Man*, Emilio’s character, Otto, works as – we’ll call him a facilitator to lower costs of capital in the secured asset finance market – and “stumbles into a world of wackiness as a result.” Emilio’s work represents something critically missing from the solar industry as a whole – a robust, standard, and low-friction set of secondary industries that permit off-contract or out-of-contract assets to be monetized.

So how do we capture this real value? There’s a few means of approaching it, of radically different levels of sophistication. To illustrate this point, let’s look at an end-of-term 1MW system today and see what cash they’d generate to the hopeful PPA provider (or creditor) in three different scenarios below, presuming an active Emilio working on behalf of the hopeful investor or developer:.

Scenario One: The Renewal – $130,000 / MW / yr

In the first and most simple scenario, the developer may leave the system in place and encourage the customer to renew or extend their PPA contract at the then-prevailing PPA price. Most PPAs explicitly contemplate this one way or another. In fact, Job #1 of SolarCity’s (SCTY) investor relations team is probably convincing the public that their 50,000+ PPA customers will extend or renew their contracts in an exchange for just a 10% discount of their then-applicable contract rate. Presuming a system in the Maryland area might enjoy a 10 – 20% discount to retail rates – from say $.13/kWh to $.10/kWh - a 1MW system so renewed could add $130,000 in annual revenue.

To be clear, the level of assumption in this number makes it much more debatable than the others; it’s more of an equity valuation assumption than a valid underwriting one. Customers at end of term will have some amount of leverage – roughly, the amount of space between the discounted cash flow in the fully loaded “Repo” model and whatever Emilio charges the developer. (This probably contributes to the significant spread between Solar City’s market price and its analyst valuation targets.)

Scenario Two: The Repo- $40,000 / MW / yr

In our second scenario, at the end of the contract term, a customer stops paying their PPA contract, and Emilio comes by to repossess the system, and then plant the modules on the cheap land next to the junkyard and tow lot, selling the resulting electricity is sold at a wholesale price. Solar panels are not perishable items (as a sort of party trick, John Perlin will happily produce from his briefcase and produce a 40+ year old and entirely functional mini-module). Even though a 20-year old panel will have significantly degraded performance, its value is much higher than zero.

Imagine a boneyard of more – or – less matched panels, placed on string inverters and some sort of highly undesirable land. On an 8,760 hour adjusted basis, a brand new 1MW system airdropped into the PJM market would earn something like $56,250 / year in pure wholesale revenue; an end of life system panel operating at perhaps 80% of initial output should still garner north of $40,000– more than $50,000 if PJM doesn’t make its proposed disastrous modifications to the wholesale market. That’s revenue that could be reliably expected to increase in future (and while the ITC would be long gone, the new owner would be able to restart depreciation on their purchase price).

Of course, someone would still need to erect racking and string inverters, plant hedges around the motley array, handle wholesale market scheduling, feed the Doberman, etc. But these are (mostly) fixed startup costs associated with the single facility; the marginal MW still makes a great deal of sense.

In sum, solar still has the potential to generate significant value, even if the modules are removed from the roof after the expiration of the PPA.

Scenario 3: Scrap Cars Hauled for Free? One-time payment of ~$30 – 50,000 / MW

Even if Emilio decides to just take the modules to the scrapyard after removing them from a customer’s roof at the end of the contract, even the scrap steel in a typical ground mount array (roughly 275,000 lb / MW**) would fetch $30 – $50,000 / MW in today’s market. This is enough to pay for three month’s work by four construction laborers, some 15 x 30 yard dumpsters for the (nonhazardous) panels, and a fair amount of grass seed. Customers anxious about removal or restoration of the system should just preserve the right to an abandoned system; escrowing funds for what should be a positive-cash flow removal just increases end user PPAs to insure against an unrealistic risk.

Why You Should Pay Attention to the Residual Value of Solar

Solar is still in the early days of project finance; while some of its supporting and secondary industries are robust and well established, others do not yet exist. But, it is still possible and desirable to make end of life assumptions that are empirical, conservative, defensible, and which make a real impact on project economics – and another horizon of opportunity for solar support businesses.

As the weighted age of end of term assets increases, the opportunity to build a business in the space becomes more concrete. (Consider – some of SunEdison’s first PPAs have already hit their first customer buyout eligibility dates.)

*We will not for the purposes of this metaphor be discussing the inferior 2010 Jude Law vehicle.

** Approximately 2,500 lb. of steel including piles to support a 5 x 6 module array of ~ 7.5 kW; 133 such subassemblies in 1 MW, at conservatively just <$.12 / lb scrap prices for SAE 3xx stainless steel as of April 2015 would be $40,000; purlins and other components would be seperateable, higher quality stainless components – thanks to MJ Shiao of Greentech Media for some thinking here.


Colin Murchie is Director of Project Finance at Sol Systems, a solar energy finance and investment firm. The company has facilitated financing for 180MW of distributed generation solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services range from tax structured investments and project acquisition, to debt financing and SREC portfolio management.

March 31, 2015

China Puts The Brakes On New Solar Production Capacity

Doug Young

Bottom line: New signals indicate Beijing plans to move aggressively to prevent solar panel makers from adding unneeded new capacity to help their local governments meet economic growth targets.

A new low-key announcement from Beijing is hinting at a quiet struggle taking place behind the scenes in China’s promising but embattled solar panel sector, with the regulator saying it will stop the building of most new manufacturing capacity. On one side of this struggle are local government officials, who may be encouraging solar panel makers in their areas to add capacity that will benefit their local economy but is the last thing the industry needs. On the other side of the battle is Beijing, which is trying to show the world it doesn’t unfairly subsidize its solar panel sector as it also tries to rationalize a bloated domestic industry that is stifling global development.

We’ll return to the bigger picture shortly, but first let’s focus on the latest industry development that comes in a low-key announcement from the Ministry of Industry and Information Technology (MIIT), which oversees the solar panel sector. The announcement on the MIIT’s website is quite brief (announcement), but media are saying the move will effectively forbid most panel makers from adding new capacity to their production lines. (English article; Chinese article)

The broader idea seems to be that Beijing wants solar panel makers to boost the efficiency of their current operations by focusing on quality over quantity. The government will demand that producers spend more money to upgrade production lines, and that they spend more money each year on new product development.

The reality is that most of China’s solar panel makers are quite cash poor, following a prolonged sector downturn that has only begun to ease over the last year. But in a country like China, being cash-poor doesn’t necessarily prevent companies from building new capacity that they individually can’t afford and that the bloated sector hardly needs.

That’s because local governments often have access to resources that can assist in the building of new capacity even when it isn’t necessary. Such resources include easy access to cheap financing from state-run banks, government-owned land that can be used for new factories, and control over local tax policies that can help manufacturers lower costs.

So why would these government officials want to promote development of unnecessary new capacity that’s likely to lose money? The reason is simple. Local governments in China get annual economic growth targets from Beijing, and are punished if they fail to meet those targets. Expanding their local solar panel output is one way to help them meet their targets, since the panels are a relatively mature product with a well-established market. Thus as China’s broader economy shows signs of a major slowdown, these local governments could easily use their resources to push local solar factories to boost production to help them meet their growth targets.

Worried about that possibility, Beijing appears to be taking preemptive action to halt a building wave of new capacity that will only further stifle development of the global industry. We’re already seeing recent signs that the sector could be slipping back into a rut, as 2 of China’s larger firms, Yingli (NYSE: YGE) and ReneSola (NYSE: SOL), slipped back into the loss column in their latest quarterly reports. (previous post)

All that said, the bigger question is whether Beijing will succeed in this potential struggle with local governments, and prevail in preventing manufacturers from boosting capacity. This message from the MIIT appears to show that it will be watching all of the country’s solar panel makers very closely, and will aggressively move to shut down any expansion plans that it detects. That should be good news for the global sector, and ultimately prevent a new downturn just as manufacturers start to recover from the last one.

Doug Young has lived and worked in China for 16 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 27, 2015

Yingli Joins The $1 Club; China Solar Slows

Bottom line: A new second wave of consolidation is likely to occur in China’s solar panel sector later this year, with money-losing companies like Yingli and ReneSola as the most likely acquisition targets.

Looming signs of new trouble are brewing in the solar panel sector, with shares of Yingli Green Energy (NYSE: YGE) taking a bath after the company reported widening losses and slowing revenue growth. The 15 percent sell-off saw Yingli’s shares re-approach an all-time low from just 2 and a half years ago, as the company joined a small but growing club of US-listed solar panel makers whose shares now trade in the $1-2 range.

Yingli’s announcement makes it the last of China’s major solar panel makers to report their fourth-quarter results, painting a picture that hints of more consolidation on the way for a sector that has already undergone a painful restructuring over the last 2 years. Two camps are emerging: One that is profitable, including names like Canadian Solar (Nasdaq: CSIQ) and Trina (NYSE: TSL); and one that is losing money, which includes Yingli and ReneSola (NYSE: SOL), which became the charter member of the $1 club when its shares sank below $2 last November.

The broader solar sector took a beating in the latest trading day on Wall Street, with Yingli and ReneSola leading the downward charge with the 15 percent and 7.5 percent declines, respectively. Shares of both companies are now near all-time lows. The profitable Canadian Solar and Trina were both also down, but by smaller amounts in the 3-4 percent range. Both of those companies’ stocks still trade well above their all-time lows, and don’t appear to be in danger of joining the $1 club anytime soon.

Investors were clearly spooked by the bottom line in Yingli’s latest results, as it reported a net loss of 609 million yuan ($100 million) for the quarter. (company announcement; English article) That figure was actually an improvement over the company’s 806 million yuan loss for the fourth quarter of 2013, but it also marked a 4-fold increase from its loss of 138 million yuan in the third quarter of last year.

All of China’s solar panel makers, and most of the global industry in general, fell sharply into the red at the height of a sector downturn that began in 2011 and didn’t really start to ease until 2013. Companies like Canadian Solar and Trina were some of the first to return to profitability, and the pair have just reported relatively solid profits in their latest quarterly results.

In terms of top line, all of the companies are reporting that revenue growth is slowing sharply as prices start to decline after a relatively long period of steady gains during the recent recovery. Yingli predicted its shipments in terms of production capacity would only grow 7-16 percent this year. But if prices fall, that means actual revenue could grow by much less or even start to fall. ReneSola has forecast similar anemic growth this year, while Trina and Canadian Solar have forecast much stronger gains.

All of this brings us back to the question of whether a new shake-out is looming for the industry, and whether money-losing companies like ReneSola and Yingli might become attractive takeover targets. The recent sell-off of both companies’ shares has made each a relative bargain for any interested buyers. ReneSola’s current market value stands at just $150 million, while Yingli’s is about twice that amount at $360 million.

The bigger question is whether anyone would want to buy these companies, since such money losers aren’t exactly that attractive. I suspect the answer to that question is “yes”, as Beijing and local governments could provide some incentives to spur more consolidation that is still needed to put the sector on a longer-term sustainable footing. Accordingly, I would expect to see at least 1 or 2 mid-sized players to disappear later this year, most likely through acquisitions, before the sector returns to more solid footing in 2016.

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 26, 2015

Who’s on First, What’s on Second and Why It Does and Does Not Matter

by Paula Mints

Sizing the supply side of the global PV industry has never been easy. As annual shipments grew to gigawatt heights outsourcing increased in tandem making it almost impossible to settle on a reliable number for the size of the industry in any given year.

Outsourcing, a common practice in all industries, takes place when one manufacturer buys a product or component from another manufacturer.  In the PV industry, manufacturer A buys cells from manufacturer B, assembles the cells into modules and includes these modules in its in-house production.  When both manufacturers report the resulting megawatts as their shipped product, the industry is instantly oversized. Since most manufacturers engage in outsourcing, the practice compounds and obscures the real capacity of the industry.

Figure 1 (below) provides an example of how easily the PV industry can be made instantly bigger by double counting.  In Figure 1, Trina, Canadian Solar, Jinko, Renesola and Yingli have a combined 9.1 GWp of c-Si cell manufacturing capacity and a combined 15.3 GWp of module assembly capacity for an excess of 6.2 GWp of module assembly capability.  These manufacturers will buy cells from other sources and include them in their production.

In contrast, NeoSolar, Gintech, TopCell, E-Ton and Inventec have a combined c-Si cell manufacturing capacity of 6.3 GWp and a combined module assembly capacity of 2.1 GWp for excess cell manufacturing capability of 4.2 GWp.

The manufacturers with excess cell capacity ship cells to the manufacturers with excess module assembly capacity and everyone reports everything. And thus the PV industry has been oversized on an annual basis for decades.

Figure 1: Select Manufacturer 2014 Crystalline Cell and Module Assembly Capacity

One misunderstanding that contributes to the annual oversizing concerns what should be counted.  A cell without a module is not going to be mounted on a rooftop, but a module without a cell can’t generate electricity.  This is not a chicken and the egg conundrum. The size of PV industry shipments (or sales) annually is limited by its semiconductor — that is, crystalline cell or thin film panel capacity. 

Unfortunately, there is still a misunderstanding about the difference between module assembly capacity and cell manufacturing capacity.  Twenty years ago almost 100 percent of the crystalline manufacturers assembled their internally manufactured cells into modules.  Currently, manufacturers, particularly in China, are adding significantly more module assembly capacity than cell manufacturing capacity.  In the case of China, given the tariff constraints its manufacturers face globally, it makes sense to include production that allows for the acquisition of cells from other regions such as South Korea and Malaysia.  Figure 2 presents module assembly capacity shares by region for 2014.

Figure 2: Global Module Assembly Capacity Shares 2014

Figure 3 presents 2014 module assembly capacity (100 percent dedicated to c-Si), crystalline cell manufacturing capacity, thin film manufacturing capacity, announced shipments, cell/thin film shipments from 2014 production, shipments plus 2013 inventory and 2014 inventory. 

Figure 3: PV Industry 2014 Supply Statistics

In Figure 2, there are 51.3 GWp of announced shipments and 40.2-GWp of shipments from in-house c-Si cell and thin film production plus the previous year’s inventory. The reason for the 11.1-GWp difference is this: manufacturers bought cells and/or modules from other sources and included the acquired product in their shipment announcement, while the original manufacturer also reported the product in its shipment numbers. 

Does It Matter Who’s on First?

The annual lists of the top ten PV manufacturers becomes irrelevant if the origin of the product being reported becomes so convoluted that no one knows the genesis of anything.  The lists are typically comprised of the same manufacturer names, but, as these lists are based on different methodologies, the names are almost never in the same order. Some specificity concerning what is being ranked is necessary in order to give these lists meaning. Without specificity the lists just do not matter.

As the module without cells is an empty frame, it is important to know who manufactured the cell in the first place. One reason that this is important is quality. A photovoltaic module is an electricity producing product that is expected to reliably generate electricity for at least 25 years.  Products that carry this responsibility for reliability and longevity need to be clear about their pedigree.  This should be a matter of pride, but if quality issues arise it may be a matter of necessity.

The fact is that once the module is assembled it is very hard to know who the original cell manufacturer was unless, of course, the module assembler reports these statistics. 

Who’s on first does not matter as much, frankly, as who’s cells are inside of whose modules. 

Why We Like Big Numbers

Constant growth has been the PV industry mantra for years even though, slower stable and profitable growth is a better path. The desire for ballooning growth is one reason that double counting of shipments is tacitly accepted by everyone. After all, referring to the previous example, 51.3 GWp is more impressive than 40.2 GWp (shipments from annual production plus previous year inventory) despite the fact that it was arrived at by counting the same cell once, twice, maybe three times.  Considered through the lens of bigger-is-better, the 38.9 GWp of shipments from 2014 production (not counting inventory) is downright penurious. 

That the annual celebration of ever bigger numbers has come hand in hand many years with low to negative margins is typically ignored until blatant — and never mind that it is almost impossible to figure out the real cost of producing anything in the PV industry.

We like big numbers because they symbolize success. Unfortunately, big numbers are often a façade obscuring failure.  The real success is the ability to point to PV modules that have been in the field for over 30 years reliably generating electricity.  This sort of success offers proof that photovoltaic technologies are not the future, this technology is the electricity generating technology of now.

The real danger of big numbers is that they are both addictive and self-fulfilling.  Addictive because the attention they garner feels good, self-fulfilling because of the tendency of people to look for data to support their beliefs.

So, who’s on first, what’s on second matters less these days primarily because the numbers have been combined and recombined often enough to render them meaningless.  The same confusion exists on the demand side of the industry, where multi-megawatt projects are sold and resold and therefore counted and recounted, while the difference between a grid connection and an installation is sometimes misunderstood.  The point is — and should be — quality up and down the value chain. 

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.

March 23, 2015

SunRun: The Next Big Solar IPO

By Jeff Siegel

Good news for solar investors …

Another solar financing/installation company is about to go public. And if history serves as any indicator, this could be yet another opportunity to land some pretty solid gains.

As reported in the Wall Street Journal, Sunrun, Inc. is set work with banks including Credit Suisse Group AG and Goldman Sachs Group Inc. on an IPO.

No final price has be set at this time, but currently the company is valued at more than $1.3 billion, which puts it roughly in the same box with Vivint Solar (NYSE: VSLR). The fastest horse in this race right now is SolarCity (NASDAQ: SCTY), which is valued at just under $5 billion.

SolarCity was certainly a great opportunity for investors back in 2012, when the company first went public. At it's highest, the stock had climbed more than 700% since debuting. Check it out …


SolarCity is currently taking on a very aggressive growth strategy, and with this growth has come growing pains which have resulted in a sizable sell-off since last September. Still, overall I like SolarCity and believe it's a force that will continue to eat up market share. But for investors, 2015 is going to be a bumpy ride.

Now Vivint Solar has only been public for about six months. After the initial enthusiasm of its debut, the stock fell a bit and found support around the $8.00 level. However, since the start of the year, the stock is up about 40%.


Vivint Solar is also a force and should not be taken lightly.

Of course, Sunrun is no slouch either. Solar installation and financing companies aren't typically valued at more than $1 billion. The company has been in the game since 2007, has more than 60,000 customers, and is in the right business, as residential solar installation is expected to grow by 50% this year.

I will be curious to see how they price this thing, though. With so many investors so incredibly giddy over solar again, I won't be surprised if Sunrun gets a rather large price tag attached to it. In which case, I'll happily wait for the sell-off and scoop up a few shares after the smoke has cleared.

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

March 18, 2015

Trade Wars Send Chinese Solar Companies Offshore

Doug Young

Bottom line: A new wave of overseas investment by Chinese solar panel makers should ease western complaints of unfair state-support and provide a more solid foundation for the sector’s longer-term development.

Solar panel makers migrate overseas

As a settlement to avoid anti-dumping tariffs for Chinese solar panels exported to Europe showed signs of unraveling last week, a new report emerged that showed a more positive trend for a sector that has become the subject of nonstop trade wars over the last 4 years. That newer trend has seen a growing number of embattled Chinese solar panel makers set up overseas factories, helping them to avoid punitive anti-dumping tariffs imposed by the US on their domestically produced goods.

Both Beijing and the west should welcome and encourage this kind of development, which not only can help diffuse trade tensions but also benefits everyone, including governments inside and out of China and the solar panel makers themselves. Most fundamentally, such a development greatly reduces the complaints of unfair state-support lodged by western governments, since such new factories lack access to many of the beneficiary policies that manufacturers receive in China.

At the same time, such overseas investment boosts jobs in economies of recipient countries, while also helping China by raising its outbound investment and extending its global influence. Despite experiencing some short-term pain, the panel makers themselves also benefit by becoming more diversified and efficient through competition with western rivals on a more level playing field.

The solar panel trade wars date back nearly 4 years, starting with a string of bankruptcies by western players that couldn’t compete with their Chinese rivals. The failed foreign companies complained that their Chinese peers enjoyed a wide range of unfair government support, from policies such as export tax rebates, low-interest loans from state-run banks and subsidized land supplied by local governments for factory construction.

The US responded by imposing anti-dumping tariffs. The EU threatened to follow with a similar move, but the dispute was resolved after the Chinese manufacturers agreed to raise their prices to levels similar to western rivals. That deal was showing signs of unraveling last week, as the European Commission investigated complaints that the Chinese manufacturers were using loopholes to avoid charging the higher prices stipulated in the settlement. (previous post)

But amid the latest wave in heightening tensions, a new report showed that the Chinese manufacturers have quietly started building more factories overseas to make panels that won’t be subject to the US tariffs, and possible new tariffs from the EU. (Chinese article)

Mid-sized player JA Solar (Nasdaq: JASO) has become the latest to join the trend, contemplating construction of a factory in Southeast Asia capable of producing panels with up to 400 megawatts in annual power capacity. The company has said it might try to find a local partner to co-invest in the project, bringing multiple potential benefits to the recipient country of such a factory.

That move would come after JinkoSolar (NYSE: JKS), another mid-sized player, began construction last year of a plant in South Africa with up to 120 megawatts in annual capacity. Rival ReneSola is one of the most advanced, with overseas plants planned or already producing in Poland, Turkey, South Korea, Malaysia and Indonesia, the report said. Top-tier player Trina Solar (NYSE: TSL) also said earlier this month it is planning to build manufacturing facilities by itself or with partners outside China.

Analysts have pointed out that many of these countries offer similar advantages to China, including low-cost labor and some preferential tax policies, allowing the Chinese companies to keep prices low. But because they are outside China, such plants’ panels wouldn’t be subject to the punitive tariffs imposed by the US. They would also likely be exempt from future punitive tariffs implicitly threatened by the European Union if last year’s landmark settlement ultimately unravels.

This kind of market-driven movement is a far more constructive response to the western complaints than the angry war of words that has evolved between Beijing and its major trading partners over the last few years. A systemic change in Chinese policies is difficult to achieve quickly, since such policies occur at a wide range of governmental levels that have become pervasive throughout the nation over the last few years as the sector developed.

While the US tariffs and similar moves in other major markets initially looked confrontational and counterproductive to the sector’s development, they could ultimately benefit everyone if they force the Chinese firms to diversify with new manufacturing bases outside their home market. That kind of development should be welcome and even encouraged by Beijing, which should be careful to avoid providing the kind of direct assistance in this new go-abroad movement that led to the original complaints from the west.

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, 2015

EU Likely To Impose Further Sanctions On Chinese Solar Firms

Doug Young

Bottom line: A widening investigation into violations of an anti-dumping solar panel settlement between China and the EU is likely to result in punitive sanctions, dealing a blow to the Chinese panel makers.

What started as some quiet rumblings earlier this week is quickly brewing into a major storm, with word that a landmark settlement between the EU and China a year ago to resolve an anti-dumping dispute over solar panels is quickly unraveling. In this case it’s probably more accurate to say the settlement was between the EU and actual Chinese solar panel makers, rather than an agreement between governments. That’s an important distinction, since Chinese companies are often far more likely to try to undermine such agreements by exploiting loopholes, unlike central governments that are usually a bit more trustworthy.

According to the latest headlines, the European Commission is expanding its probe to include a number of other firms from the 3 originally targeted, as it looks into complaints that Chinese solar panel makers are violating the year-old agreement that was supposed to resolve a dispute over unfair state support. Under the agreement, the Chinese companies agreed to voluntarily raise their prices to levels comparable with their western rivals to offset any advantage they might get from state support via policies like cheap government loans and subsidized land use.

The matter first poked into the headlines earlier this week when media reported that ReneSola (NYSE: SOL), Canadian Solar (Nasdaq: CSIQ) and ET Solar were being probed for potential violations of the agreement.  The reports weren’t more specific, but both ReneSola and Canadian Solar issued statements confirming they were being queried.

Now media are reporting that the European Commission’s widening investigation has seen goods seized in the European warehouses where imported panels are stored. (Chinese article) The reports say the EU has also sent lawyers to the companies’ headquarters in China to conduct inspections. All of this hints that things are developing quickly, and the Chinese panel makers could soon fine themselves formally accused of violating the agreement and subject to punitive tariffs.

The report I read didn’t name any sources for the news, but it appears to be based on interviews with officials from the Chinese solar panel makers who are probably worried about losing access to one of their biggest markets. The report specifically mentions that ReneSola, which sold more than a third of its panels to Europe last year, was saying it would pull out of the settlement agreement.

ReneSola’s intention is a bit strange if it’s true, since such a move would immediately subject the company to threatened punitive tariffs it was trying to avoid. Thus its intention would look a bit like an admission of guilt. I previously said that such violations wouldn’t surprise me at all, since Chinese firms are famous for signing agreements and then immediately looking for loopholes that allow them to undermine their partners.

Rumors that such violations were occurring have been common in industry circles, and a contact explained one scenario that companies are using to circumvent the agreement. Under that scheme, the companies sell their panels to buyers at the prices stated under the agreement. But then they tell the buyers to set up fake service and consulting companies, and rebate money to those customers by paying for bogus services.

Surprisingly, Chinese solar shares weren’t moving very much in the latest trading session in New York, with most up or down by less than 2 percent. But I suspect that’s because this is a breaking story and the latest news has yet to get priced in. At the end of the day I expect the Chinese companies will lose any credibility they had left in the European Commission’s eyes, and the EU will go through with its original plan and impose punitive tariffs similar to what the US has already done.

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 12, 2015

Invest Where Solar Beats $10 Oil

By Jeff Siegel

In Dubai, solar is now cheaper than oil at $10 a barrel.

Yes, you read that correctly.

As reported by the National Bank of Abu Dhabi:

Dubai set a new global benchmark in December 2014: at 5.84 US cents per kW hour, the bid for Dubai Electricity and Water Authority’s 200 MW solar PV plant was cheaper than oil at US$10/barrel and gas at US$5/MMBtu.

You see, while oil in the U.S. is used primarily as a transportation fuel, in the oil-rich Middle East, the shiny black stuff is used to generate electricity. In fact, in Saudi Arabia, oil accounts for more than 65% of all electricity production. In Kuwait, it's as high as 71%, and in Yemen, it's nearly 100%.

Oh, to be a fly on the mud-brick wall when the proverbial poop hits the fan.

Meanwhile, consider this...

In the absence of Saudi Arabia's own domestic oil consumption, the desert kingdom could have generated an extra $43.8 billion in 2013.

With that kind of scratch in play, it's not surprising that the smart money is piling into a burgeoning solar industry in the Middle East.

Grid Parity for All!

In a new report written for the National Bank of Abu Dhabi, researchers have found that renewable energy technologies are fast approaching grid parity in most parts of the world.

And this was no Greenpeace report, either. This thing was actually produced primarily for the finance community in the Gulf region.

Here are some of its findings...

  • More than 50% of investment in new generation capacity worldwide is now in renewables.
  • $260 billion a year has been invested in renewable energy technologies worldwide for the past five years.
  • Green bond issues to pay for low-carbon energy projects reached $36.6 billion in 2014, more than triple the previous year.
  • Prices for solar PV modules have fallen over 80% since 2008.
  • Solar PV will be at grid parity in 80% of countries in the next two years.
  • Solar PV is already cheaper than grid electricity in 42 of the 50 largest U.S. cities.
  • Industrial applications of energy efficiency can deliver 100% payback in five years.
  • Modern wind turbines produce 15 times more electricity than the typical wind turbine in 1990.
  • The cost of energy storage is expected to drop to $100 per kWh in the next five years. Today it's about $250.

These data points are music to the ears of Middle East kings, presidents, and prime ministers. After all, in the Gulf region, oil is the lifeblood of many economies. And make no mistake — the cheap oil party going on right now won't last forever.

Truth is, in the Middle East, there is no greater choice for new electricity generation than solar. You know, because it's a freaking desert!

Quiet Integration

While I remain bullish on solar in the U.S., I'm becoming more and more attracted to the opportunities that could soon be spawned throughout the Middle East. In fact, I'm planning a research junket to the region sometime this year to get a firsthand look at what could soon be one of the most lucrative solar markets on the planet.

In the meantime, keep a close eye on the solar and solar-related companies that are actively investing in the region right now. These include, but are not limited to:

  • SunPower (NASDAQ: SPWR)
  • First Solar (NASDAQ: FSLR)
  • Schneider Electric (OTC: SBGSY)
  • SunEdison (NYSE: SUNE)
  • Trina Solar (NYSE: TSL)

This list will continue to grow, too.

Because while the Saudis and the U.S. play their game of chicken, behind the backdrop of all this nonsense and rhetoric, a strong and vibrant solar market is quietly integrating itself into a fossil fuel-addicted world. And it's doing so profitably.

Invest accordingly.

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 11, 2015

EU Probes Chinese Solar Firms

Doug Young

Bottom line: The EU is likely to resolve its latest dispute with Chinese solar firms over implementation of a year-old pricing agreement, but the clash will undermine trust and hints at future conflict over the issue.

After several months of relative quiet, Chinese solar panel makers are back in the headlines this week with another looming trade dispute in Europe. This particular story, and much of the industry’s woes over the last 2 years, stems from broader western allegations of unfair government support for Chinese panel makers. In this case China and the EU signed a deal a year ago to resolve their dispute, but now the EU is accusing several Chinese firms of violating the deal.

The EU had previously threatened to levy punitive tariffs on Chinese panel makers, saying they received unfair support through policies like cheap loans from state-run banks and low-cost land from local governments. Washington made similar claims and ultimately did impose punitive tariffs, but the EU took a more conciliatory approach and reached a settlement after the intervention of several top government leaders.

The China-EU agreement reached last year didn’t really address the issue of unfair government support. Instead it attempted to level the playing field by calling on Chinese companies to voluntarily raise the prices of their panels to levels comparable to those of European firms. (previous post) Now we’re getting word that the European Commission has told at least 3 Chinese panel makers it believes they may be violating the agreement. (Chinese article)

It’s unclear if the action is limited to the 3 firms, which are named as Canadian Solar (Nasdaq: CSIQ), ReneSola (NYSE: SOL) and ET Solar, or if more names may also be involved. At least one of the trio, Canadian Solar, has issued a statement saying the European Commission has notified it of “potential issues” associated with its compliance with the agreement. (company announcement) It added it believes it has complied with the deal, and that no decision has been made yet by the EU.

The news sparked a sell-off for Chinese solar panel stocks, with ReneSola and Canadian Solar down by 6 percent and 2 percent, respectively, in the latest session. ReneSola is particularly vulnerable in this instance, since it relies completely on exports for its sales. Following the sell-off the shares have lost more than half of their value over the last 6 months, and are coming close to the $1 mark. Shares of other major solar panel makers also sagged, with Yingli (NYSE: YGE) and Trina (NYSE: TSL) also down by about 3 percent.

It’s slightly surprising that Canadian Solar investors were relatively less worried about the news, even though the company was named in the reports and confirmed the situation. But the fact of the matter is that investors have probably worried about this particular agreement ever since it was signed a year ago, and companies are being punished based on their exposure to the EU market.

The reason for investor concerns is relatively straightforward. Put simply, Chinese firms are famous for reaching this kind of deal, and then doing everything they can to undermine such agreements if doing so will benefit themselves. Thus, for example, a Chinese firm may sign an agreement agreeing to raise its prices, and then immediately start looking for loopholes in that same agreement that allow it to continue charging its previous lower prices.

It’s hard to comment in any detail on this particular development without knowing more about the European Commission’s queries. Those queries are almost certainly being prompted by complaints from local solar panel makers, who are hugely distrustful of their Chinese rivals. At the end of the day, the 2 sides will probably resolve this issue and the EU may implement a stronger system to ensure compliance. But this development will undermine the credibility of the Chinese companies, and could also hurt their sales as they are forced to raise prices to fully comply with the 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.

March 10, 2015

India Hates Coal

By Jeff Siegel

indiasolarIf you think the war on coal in the U.S. is bad, you ain't seen nothing yet!

We recently got word that India is set to double the tax on coal production, while promoting electric vehicles and renewable energy projects.

I'm pretty sure there's some Luddite reporter in Mumbai right now who's head's about to explode.

But that's neither here nor there.

While I'm no fan of regulatory regimes of any kind, I'd be lying if I said I wasn't happy to know that a crap-ton of money is getting funneled into renewable energy and electric cars in India, and not coal. This is for two reasons …

1.) India is one of the most polluted countries in the world. And while fuel wood, biomass, and traffic congestion are bigger culprits when it comes to air pollution, certainly reducing coal-fired power isn't going to hurt.

2.) Thanks to India's latest hard-on for renewable energy, we're now presented with even more opportunity to profit from from the inevitable transition of the global energy economy.

This is Huge

As it stands now, India plans to add 175 gigawatts of renewable energy generation capacity by 2022. 100 gigawatts of that will come from solar.

To put this in perspective, the U.S. currently has less than 18 gigawatts of solar capacity installed.

This is huge!

Analysts over Deutsche bank issued a report about a week ago which indicated that by 2022, 25 percent of India's power will come from solar. Analysts also suggested that solar will ultimately become the dominant source of electricity around the globe, generating $5 trillion in revenue over the next 15 years.

Deutsche bank notes that over the next 5 to 10 years, new business models will generate a significant amount of economic and shareholder value, and that “within three years, the economics of solar will take over from policy drivers (subsidies).”

I love it!

Here's more …

As we look out over the next 5 years, we believe the industry is set to experience the final piece of cost reduction – customer acquisition costs for distributed generation are set to decline by more than half as customer awareness increases, soft costs come down and more supportive policies are announced.

While the outlook for small scale distributed solar generation looks promising, we remain equally optimistic over the prospects of commercial and utility scale solar markets.

We believe utility-scale solar demand is set to accelerate in both the US and emerging markets due to a combination of supportive policies and ongoing solar electricity cost reduction. We remain particularly optimistic over growth prospects in China, India, Middle East, South Africa and South America.

The biggest solar player in India is Tata Solar Power, which is a subsidiary of Tata Power.

Other solar companies with a solid foothold in India include SunEdison (NYSE: SUNE) and First Solar (NASDAQ: FSLR).

Definitely keep a close eye on India throughout the rest of this year as new laws, regulations and incentives kick the Indian solar market into overdrive.


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

March 06, 2015

Solar Storage Dream Becomes Reality

By Jeff Siegel

sune4While the solar industry continues to heat up, I maintain that one of the best plays in the space is SunEdison (NYSE: SUNE).

This is an aggressive operation, run by incredibly smart people. The company is well-capitalized, fairly liquid, and well-diversified in the energy space, boasting both a top-notch, vertically-integrated solar operation, and a basket of healthy wind assets, too.

The company is also now advancing on energy storage – the final obstacle to the creative destruction necessary to alleviate the world's reliance on fossil fuels.

In a press release this morning, SunEdison made the following announcement …

SunEdison, Inc., the world's largest renewable energy development company, and Solar Grid Storage LLC, a leader in deploying combined energy storage and solar PV systems, today announced that SunEdison has acquired the energy storage project origination team, project pipeline, and subject to customary consents and assignments, four operating storage projects from Solar Grid Storage. SunEdison now offers battery storage solutions to complement solar and wind projects worldwide, providing solutions that can benefit utilities, municipalities, businesses, and consumers alike.

"Storage is a perfect complement to our business model and to our wind and solar expertise," said Tim Derrick, General Manager of SunEdison Advanced Solutions. "Our strategy is to increase the value of the solar and wind projects that we finance, develop, own, and operate by improving their availability and ability to interact with the grid. With this acquisition we have added the capability to pair energy storage with solar and wind projects, thereby creating more valuable projects and positioning ourselves as a leader in the rapidly growing energy storage market."

The growth in the energy storage market is being driven by commercial and municipal customers who are interested in both immediate energy savings from solar and emergency back-up power from storage, and by electricity grid operators, who place a high value on storage for its ability to make the grid more resilient and less susceptible to failure. Renewable generation-plus-storage has proven to be a cost-effective way of integrating renewable energy such as solar and wind into the grid.

"Solar Grid Storage is unique in the storage industry in that we approach storage from a solar perspective. Understanding the core solar customer value proposition, as well as the ways that energy storage can add customer benefits and economic value to solar projects, enables us to deliver renewable energy projects that are more valuable for both customers and grid operators," said Tom Leyden, Chief Executive Officer of Solar Grid Storage. "Becoming a part of SunEdison, a renewable energy market leader with a strong pipeline of customers and development projects, positions us incredibly well to accelerate our growth and integrate energy storage with renewables to help create the electricity grid of the future."

Interestingly, this news comes less than one month after Tesla (NASDAQ: TSLA) genius Elon Musk announced that his company is about six months away from unveiling a new kind of battery that'll be able to power your home.

I'm telling you right now, the elusive storage dream is about to become reality. And it's companies like SunEdison and Tesla that are going to make fat wads of cash by getting this stuff out of the labs and into the marketplace first.

Invest accordingly.


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

SunEdison Adds Batteries to Its Arsenal with Acquisition of Solar Grid Storage

Meg Cichon

The renewable energy market has been slowly strengthening ties with energy storage, and it now seems to be tying a secure knot. Wind and solar developer SunEdison (SUNE) announced today that it bought the energy storage team, projects and 100-MW pipeline of Pennsylvania-based Solar Grid Storage (SGS).

SunEdison is now able to offer integrated battery storage solutions for its renewable energy project portfolio, and delve into an energy storage market that is set to grow 250 percent in 2015, according to a new report from the Energy Storage Association and GTM Research. The solar plus battery storage market alone is set to reach $1 billion by 2018.

“Storage is a perfect complement to our business model and to our wind and solar expertise,” said General Manager of SunEdison Advanced Solutions Tim Derrick in a statement. “Our strategy is to increase the value of the solar and wind projects that we finance, develop, own, and operate by improving their availability and ability to interact with the grid. With this acquisition we have added the capability to pair energy storage with solar and wind projects, thereby creating more valuable projects and positioning ourselves as a leader in the rapidly growing energy storage market.”

Solar Grid Storage saw market opportunity a few years ago when electric vehicle interest started improving battery technology and driving prices down, according to CEO Tom Leyden. It was also a time when significant weather events like Hurricane Sandy caused power outages, sparking greater interest in renewables and emergency power.

“A lot of things have moved in our direction, and because of the success in solar and wind, utilities are raising concerns about grid stability,” explained Leyden. “So there is a lot of interest in storage on a regulatory basis to create grid resiliency, an many companies and individuals want emergency backup.”

Solar Grid Storage offers an integrated inverter plus lithium-ion battery storage system that works best for commercial projects ranging from 150 kilowatts to 10 megawatts, along with valuable grid ancillary services. They are focused on the east coast, where they have a contract with grid operator PJM to establish and operate battery storage to help balance the grid. This contract creates a revenue stream, and allows SGS to go into solar and storage projects, according to Leyden. It currently has four completed projects in its portfolio, with several more in the pipeline.

While their focus has mostly been in the PJM territory, SunEdison’s wide U.S. and global reach will open new doors for the storage technology. “To grow we needed additional capital, so SunEdison decided to acquire us — they have a strong balance sheet and attractive financing, which are all good things for us,” said Leyden.

SunEdison has been in expansion mode for the past year or so. In February 2014, it established a yieldco called TerraForm Power (TERP). This yieldco model allows SunEdison to raise capital by selling its projects to TerraForm and then using the proceeds to purchase additional projects and pay investors. Since yieldcos have very strict criteria, SGS won’t be able to qualify just yet due to a lack of contracted revenue, but it hopes to rectify that by the end of the year, said Leyden.

Back in November, SunEdison and TerraForm announced the $2.4 billion acquisition of wind developer First Wind and its 1.3-GW portfolio, making SunEdison the largest renewable energy developer in the world. It also announced plans for a possible $2 billion polysilicon plant in China, a $30 million module plant in Brazil, and a $4 billion module plant in India to help along its more than 5 GW of potential projects in the region.

For now, Leyden said that SGS will focus on ramping up in the PJM market and moving into California, where there is storage procurement in place. Said Leyden, “Those are our two initial focuses, but we do want to expand beyond that — and we intend to — but it will take some time.”

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.

February 22, 2015

SolarEdge looks to Raise $125 Million in IPO

By Tim Conneally

From a huge crop of Israeli cleantech companies, solar power optimization and management startup SolarEdge has filed for a $125 million initial public offering on the NASDAQ exchange.

SolarEdge has been talking about IPO since 2011, but opted instead to work with venture capital through three separate funding rounds. By the time it completed its Series D, SolarEdge had raised a total of $37 million from more than ten venture capital groups.

The company's CFO recently told Bloomberg that it was difficult to grow such a large company with only private money. An IPO was a given, it was just a question of when it would happen.

Yesterday, the Securities and Exchange Commission published SolarEdge's S-1 filing that revealed the nuts and bolts of this offering.

What SolarEdge offers

A major problem for solar panels is how easily their output can be lessened. When even a portion of a solar panel loses its direct sunlight, the energy output is compromised. SolarEdge claimed to maximize efficiency of panels to mitigate the effects of things like partial solar shading.

By correcting inefficiencies in DC to AC conversion, SolarEdge claimed to be able to boost energy output by as much as 30 percent.

The value of the company is in its patented power inversion technique. It's an upgrade to the dominant method of harvesting solar power. In short, the system uses a distributed architecture of power optimizers. The SolarEdge system hooks up each photovoltaic (PV) module in the array with its own low-cost optimizer. The whole network of optimizers is monitored and managed by a cloud-based interface.

In the company's SEC filing, it describes itself in the following way:

“Our system enables each PV module to operate at its own maximum power point ("MPP"), rather than a system-wide average, enabling dynamic response to real-world conditions, such as atmospheric conditions, PV module aging, soiling and shading and offering improved energy yield relative to traditional inverter systems...Our architecture allows for complex rooftop system designs and enhanced safety and reliability.”

SolarEdge is a B2B company. It sells this solution to solar providers of various sizes in 45 different countries so far. It works with big installers like SolarCity (NASDAQ: SCTY) Vivint Solar (NASDAQ: VSLR) and SunRun and claims to have shipped more than 4.5 million power optimization units and 201,000 inverters since its founding in 2006. Approximately 95,000 installations are hooked up to its cloud monitoring platform.

In 2013, the company's revenue was $79 million. In 2014, revenue grew to $133.2 million. The comany's revenue for the first six months of fiscal 2015 have been double that of the previous year. After a history of losses and negative cash flow from operating expenses, the company is posting a net gain for the first six months of this fiscal year. The first six months of fiscal 2014 resulted in a $13.1 million net loss. So far this year, it's tracked a $5.9 million gain.

But that's an extremely limited run. The company's ability to generate a profit seems to be the biggest question, and it's marked as the number one risk factor in the SEC prospectus. Sure, they market their ability to optimize solar panels for output, but can they optimize their operating costs so they can turn a consistent profit?

SolarEdge will trade under the symbol (NASDAQ: SEDG), and it will not yield cash dividends at any point in the forseeable future.

Tim Conneally is an analyst at Energy and Capital, where this article was first published.

February 16, 2015

The Top Ten PV Manufacturers: What The List Doesn't Mean

by Paula Mints

Every year at this time lists of lessons learned during the previous year give way to lists of top ten PV manufacturers. It’s time to ask what these lists mean, and whether they have a purpose to the ongoing growth and health of the photovoltaic industry.

So Many Numbers, So Little Time

There is more than one way to size the photovoltaic industry and unfortunately, much of the time are the metrics are considered to be synonymous.  The PV industry is sized by capacity, shipments, production, module assembly capacity, installations and grid connections.  Since all of these metric describe something different, a host of misunderstandings can, and often do, arise.  Many times a one-to-one relationship is assumed between installations and shipments.  The difference between c-Si cell and thin film capacity and module assembly capacity is often misunderstood.  The role of inventory is overlooked. 

Many times the goal of sizing the PV industry is to announce continue growth, whether this growth is profitable or not.  All industries suffer a similar fate in this regard; growth is prized, whether or not it is healthy growth.

Figure 1 presents various metrics used to size the PV industry.  The metrics presented in Figure 1 are 2014 supply and demand inventory, module assembly capacity, commercial c-Si cell and thin film capacity, production, shipments from annual production, shipments + inventory and defective modules. In 2014, quality issues primarily with crystalline cells were found in modules that had been installed for, in some cases, over ten years.  In some cases, replacement of these defective modules requires a system redesign. 

Figure 1: 2014 PV Industry Metrics

Module assembly capacity, though not trivial, ramps up more quickly than c-Si or thin film capacity. Traditionally, the PV industry has had more module assembly capacity then c-Si cell and thin film manufacturing capacity.  The size of the PV industry is limited by its semiconductor capacity.  In 2014, the PV industry had ~50-GWp of module assembly capacity and 45.9-GWp of c-Si cell and thin film capacity.  This means that in a perfect world at 100% utilization and without considering inventory, PV industry shipments could only amount to 45.9-GWp. 

Manufacturers announcing quarterly and annual shipment data often (meaning, close to 100 percent of the time) do not differentiate between cell capacity and module assembly capacity.  When these numbers are taken at face value the industry is oversized, often significantly.  This is important for several reasons — one business reason is that manufacturers establishing a strategic direction need to have an accurate understanding of the competitive landscape in which it operates.

Table 1 presents data for the top ten manufacturers (as of publication) for 2014.  A final assessment will not be available until all shipment data are tallied. At that time, inventory from the previous year will be factored into the analysis. 

The manufacturers in Table 1 had 2.7-GWp more module assembly capacity than c-Si cell and thin film manufacturing capacity.  A manufacturer can only ship to the limit of its cell/thin film capacity + inventory in any given year.  It is common practice for manufacturers to buy cells from other sources and assemble these cells in-house, including the resulting product in annual shipment numbers. 

Table 1: 2014 Top Ten Manufacturers Shipment Estimate, Capacity, Module Assembly

One reason the annual top ten manufacturer list has lost meaning is that the buying and selling of cells/modules obscures an accurate count and sizing of the industry.  Another reason the annual top ten manufacturer list has lost meaning is that for many years shipments were not profitable.  Recognition of an unprofitable achievement does not support the worthwhile goal of establishing a healthy, thriving industry. Celebrating data that obscures the facts does not help new and established entrants understand the industry landscape in which they compete.   

Top Ten PV Manufacturers Over Time

Today’s number one manufacturer may be out of business tomorrow or merge with another more nimble entity.  Table 2 presents the top ten c-Si cell and thin film manufacturers from 2001 through the 2014 estimate.  Sharp Solar was the number one manufacturer from 2001 through 2007.  Sharp Solar has reduced capacity significantly overtime.  Q-Cells was the number one manufacturer in 2008.  Q-Cells c-Si business was acquired by Hanwha and its CIGS business was acquired by Hanergy.  Other Q-Cells’ businesses are no longer operating.  Suntech was the number one manufacturer in 2010 and 2011.  Suntech declared bankruptcy. 

Several manufacturers on the annual top ten list, such as Schott, AstroPower and BP Solar exited during trying (unprofitable) times.

Historically, and taken in context with what was happening at the time, the annual top ten list has much to teach and perhaps becomes more relevant over time.  Beginning in 2004, the PV industry began to experience accelerated growth. This growth was driven by the EU Feed in Tariff. In 2005, high prices for polysilicon began to pressure crystalline manufacturers.  During these days, investment in thin film technologies increased, the turnkey equipment concept was announced as the future of the industry and longtime participants without polysilicon contracts in place began to struggle. 

In 2009, aggressive pricing from manufacturers in China began to pressure crystalline manufacturers in other regions and First Solar, a manufacture of CdTe panels was the first and only thin film manufacturer to lead the list.  During 2011, 2012 and 2013, survival was the most important PV metric as low margins became impossible to hide. Many manufacturers ramped up during the early days of the EU FiTs, assuming that growth would continue unabated.  Still, even during unprofitable times, those on the top ten list were recognized. 

Table 2: Top Ten PV Manufacturers 2001 – 2014 Estimate 

The top ten list is primarily useful in hindsight, offering lessons about what pitfalls to avoid and where caution might have forestalled failure. It is used most often as a marketing tool, and, when the data are obscured or are confusing, is of little use in that regard. 

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.

February 15, 2015

Chinese Bureaucracy Casts Cloud Over Shiny Solar Finance

Doug Young

Bottom line: Complaints of problems from a major solar plant builder reflect the difficulty of new construction in China, and could wreak havoc on the sales and finances of panel makers and their construction partners.

Solar entrepreneur Shi complains of bureaucracy

Two solar energy news items are showing both the attraction and also the frustration that developers are feeling as they try to build new clean-energy power plants to help China wean itself from its dependence on fossil fuels. On the attraction side of the story, the industry has just won a major new backer in the form of insurance giant Ping An (HKEx: 2318; Shanghai: 601318), which is teaming up with panel maker Trina Solar (NYSE: TSL) in a new plant-building initiative.

But the frustrations that many plant builders are feeling were on prominent display in a separate report that cited another major developer complaining of the difficulties of new construction. Those kinds of complaints aren’t really new, and are being caused by provincial government interference and other local issues in the many remote locations where new plants are being built.

While solar power proponents are quite happy to talk about all the money they’ve raised and their big plans for new plant construction, few like to talk about the many troubles they face when they actually try to build those plants. Everyone is being attracted by Beijing’s ambitious plans to build up solar power in the country, partly to support the nation’s big field of solar panel makers and partly to clean up the nation’s polluted air.

Beijing has repeatedly boosted its target for new solar plant construction, with a current aim of installing 35 gigwatts of capacity by the end of this year. And yet an industry official was cited last fall saying that only 10 gigawatts were likely to be added by the end of 2014, making the 35 gigawatt target look nearly impossible to reach. Despite that, the ambitious target has continued to draw in big investors who believe Beijing and local governments will provide them with financial and other assistance in the drive to realize China’s solar energy dreams.

Now Shanghai-based entrepreneur and multi-millionaire Shi Yuzhu is showing just how difficult the road to solar construction can be in China. Shi announced a major new solar construction fund last year, but his enthusiasm has quickly turned into frustration since then. A new media report cites Shi as complaining on his microblog that of the 3 major plants his fund was planning, 2 have run into difficulties that could delay them indefinitely. (Chinese article)

The article details the situation with one stalled project in Inner Mongolia, but the bottom line shows that local government officials are playing their usual tricks designed to benefit themselves rather than facilitate business. Such games are quite common in China, especially in less developed provinces like the ones where many solar plants are being built. Shi is probably being hurt by his own lack of experience as well, but it’s quite likely that his story is being repeated at many similar projects around the country. That certainly doesn’t bode well for solar panel makers or plant builders.

One such panel maker that was counting on a local construction boom is Trina, which has just announced a new plant-building initiative with PingAn Trust and Jiuzhou Investment Group, an investment arm of the Jiangsu provincial government. (company announcement) The trio plan to build new solar plants with total capacity of up to 1 gigawatt over the next 3 years. The arrangement looks quite risky for Trina, as it appears Trina will borrow money from its partners for plant construction, and give them the option to convert the loans into equity ownership at a future date.

Trina and its peers like Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ) have announced a string of similar initiatives, which often see the companies join hands with financial backers for new plant construction. If a big portion of those plans runs into troubles like the ones we’re seeing from Shi Yuzhu, which seems almost inevitable, both panel makers and their plant-building partners could find themselves in a big mess that could wreak havoc on their finances and even threaten their survival.

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 13, 2015

Enphase Acquires O&M Provider Next Phase Solar

Meg Cichon

Enphase (ENPH) has been slowly inching its way into the solar service business on both a residential and commercial scale, and may even tap utility-scale projects in the near future, according to Marty Rogers, Enphase’s vice president of worldwide customer service and support. Last year Enphase announced a partnership with solar crowdfunding platform Mosaic to offer O&M services to residential solar loan customers. More recently, it announced a commercial O&M offering that combines its C250 commercial microinverter technology with services that assist the design, installation and maintenance of solar projects, including cloud-based monitoring and a dedicated service team.  

Next Phase Solar adds both residential and commercial projects to Enphase’s portfolio — about 70 percent of those are commercial installations, and the remaining 30 percent residential with a small amount of utility-scale.

“This is a repeatable business and it will be interesting moving forward since the market is really based on both the increase and age of installations,” said Rogers. “We don't see anyone else grabbing this market sector, so we decided it was a great move for us to go after it.”

With services that encompass project needs from start to finish, Enphase claims that its system will reduce financial uncertainty and capital costs while enhancing system performance and ultimately the return on investment (ROI). It’s sort of like commercial office space, explained Rogers. If an owner maintains office space with the highest levels of efficiency, the asset will stay strong and valuable. However, if the owner leaves the asset alone, it will decrease in value over time. “What we’re saying is: Let’s create asset value over a longer period of time, and include documentation to prove that it has been maintained — this will prolong the life and value of the system.”

Enphase also revealed a new Energy Management System at the 2014 Solar Power International (SPI) conference, which is set to hit the market in the third quarter of 2015. The system combines its microinverters, storage and monitoring technology and aims to satisfy the growing commercial and residential storage-plus-solar market that is set to reach 318 MW by 2018.

“The energy storage business requires service, and it will be important to have the right teams in the right places to maintain systems,” said Rogers. “This will be huge for those trying to dive into residential storage, and I can’t think of one company that has a residential fleet for service — but you have got to have this.”

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.

January 09, 2015

Sol-Wind: New Yieldco With A Tax Twist

By Tim Conneally

The pool of public solar yieldcos keeps growing.

Just before the Christmas holiday, Sol-Wind Renewable Power LP filed for a $100 million initial public offering with the Securities and Exchange Commission. This will be the eighth Yieldco to debut since 2013, and the stock will trade on the NYSE under the symbol SLWD.

But there's something different about this one.

Sol-Wind is a yieldco that utilizes a Master Limited Partnership (MLP) structure, so it will be taxed differently from the other Yieldcos.

Generally speaking, a Yieldco is similar to MLPs by nature, but the taxation rules are very different.

The offering from Sol-Wind merits a closer look.

What it is, Why it's different

Sol-Wind is a New York-based company that has only existed for a year. It has already booked $15 million in PPAs across the U.S., Puerto Rico, and Canada. It has a portfolio of 184.6 MW of generating capacity which is made up of 131 discrete solar assets and 16 wind assets.

According to the IPO prospectus, Sol-Wind intends to put the proceeds of the IPO toward acquiring more assets. The document states:

“We are focused on acquiring assets from middle-market developers, which is an area where we see particularly compelling opportunities. We define "middle-market developers" as those developers who typically, in the case of solar assets, develop projects of between 100 kW and 5 MW in nameplate capacity and, in the case of wind assets, between 1 MW and 10 MW in nameplate capacity.”

It seems pretty straightforward, but Sol-Wind is attempting to structure itself in such a way so that it can receive the tax benefit of an MLP instead of a typical yieldco.

A regulation known as I.R.C. § 7704 allows certain publicly-traded master limited partnerships to be taxed as partnerships instead of corporations, and Sol-Wind has the ability to meet that exemption.

It's a tricky arrangement that's often used by private equity and hedge funds to avoid taxation. A blocker corporation is set up to absorb the 35% corporate tax that would otherwise be applied to the partnership's assets. However, the corporation makes nothing, and any income made by the MLP is taxed only at shareholder level.

Why is this structure necessary?

“By statute, MLPs have only been available to investors in energy portfolios for oil, natural gas, coal extraction, and pipeline projects. These projects get access to capital at a lower cost and are more liquid than traditional financing approaches to energy projects, making them highly effective at attracting private investment,” Senator Chris Coons (D-DE) says on his website. “Investors in renewable energy projects, however, have been explicitly prevented from forming MLPs, starving a growing portion of America's domestic energy sector of the capital it needs to build and grow.”

Currently under federal law, qualified sources of income for tax-free partnerships include: interest, dividends, rents, capital asset sales, real estate, and natural resources (including oil/gas/petroleum, coal, timber, etc).

Several bills known as the MLP Parity Act (MLPPA) were submitted to congress in 2012 and 2013, seeking to amend the tax code for publicly traded partnerships to treat all income from renewable and alternative fuels as “qualifying income”.

Unfortunately, senate bills and house resolutions known as the MLP Parity act all died in committee.

Tim Conneally is an analyst at Energy and Capital, where this article was first published.

December 20, 2014

Commerce Department Finalizes Tariffs on Chinese and Taiwanese Solar Panels

Jennifer Runyon

Yesterday the U.S. Department of Commerce announced its final findings in the 3-year long trade war between the U.S. and China. Additional tariffs will be imposed on modules from China and Taiwan. Although this is good news for SolarWorld and other American solar PV manufacturers, many in the U.S. solar industry are not celebrating and the decision is expected to further divide an already shaken solar industry.

Specifically, Commerce determined that imports of certain crystalline silicon PV products from China have been sold in the U.S. at dumping margins ranging from 26.71 percent to 165.04 percent and that imports of certain crystalline silicon PV products from Taiwan have been sold in the U.S. at dumping margins ranging from 11.45 percent to 27.55 percent.  Finally, Commerce determined that imports of certain crystalline silicon PV products from China have received countervailable subsidies ranging from 27.64 percent to 49.79 percent.  Named in the suit, Trina Solar (TSL) and Renesola (SOL)/Jinko (JKS) received final dumping margins of 26.71 percent and 78.42 percent, respectively. Commerce also found that 43 other exporters qualified for a separate rate of 52.13 percent (PDF of fact sheet here lists all 43 exporters beginning on page 7.)

The China-wide entity received a whopping final dumping margin of 165.04 percent — this is for companies that did not cooperate with the investigation.

In the Taiwan AD (anti-dumping) investigation, mandatory respondents Gintech and Motech received final dumping margins of 27.55 percent and 11.45 percent, respectively. All other producers/exporters in Taiwan received a final dumping margin of 19.50 percent.

In the CVD (countervailing duty) investigation, Commerce calculated a final subsidy rate of 49.79 percent for mandatory respondent Trina Solar. Mandatory respondent Suntech and five of its affiliates (see final subsidy rates chart at the bottom of this article) received a final subsidy rate of 27.64 percent. All other producers/exporters in China have been assigned a final subsidy rate of 38.72 percent.

Next, U.S. Department of Commerce will investigate if the dumping injured U.S. manufacturing. If injury is found to have occurred, the tariffs will stay.  If no injury is determined, the investigation will be terminated. That decision will be made on or about January 29, 2015. However, U.S. Customs and Border Protection will immediately begin to collect cash deposits equal to the applicable weighted-average dumping margins. If injury is not found, the money collected will be refunded.

Industry Divided

The solar petitioner in the case, SolarWorld (SRWRF), applauded the decision. The company said that by comprehensively addressing the unfair trade practices of China and Taiwan, Commerce has paved the way for expansion of solar manufacturing in U.S. market.  Makesh Dulani, U.S. President of SolarWorld Americas believes the tariffs set the stage for companies to create new jobs and build or expand factories in the U.S. Last month, SolarWorld announced that it was expanding its Oregon factory and adding about 200 jobs.

Rhone Resch, president and CEO of the Solar Energy Industries Association (SEIA), said the ruling is “ill-advised” and feels that it will harm many and benefit few. “We remain steadfast in our opposition because of the adverse impact punitive tariffs will have on the future progress of America’s solar energy industry.  It’s time to end this costly dispute, and we’ll continue to do our part to help find a win-win solution,” he said.

SEIA held a webinar for its members on December 18 at noon EST to discuss the ruling.

SEIA’s non-neutral stance has raised some eyebrows in the industry.  Yesterday, PetersenDean, a privately-held roofing and solar company, called for Resch’s resignation as well as that of the full SEIA board because of its position in the case. According to PetersenDean Roofing & Solar President Erin Clark, the trade association’s support for China and Taiwan in these matters is a clear conflict with its own stated purpose to keep America competitive.

“SEIA has become nothing more than a tool used by Chinese companies to try and bankrupt and destroy American solar manufacturing. Thanks to some of these actions, thousands of American workers have lost their jobs in the past three years due to the closure of solar manufacturing plants in America. All of this at a time when our domestic economy and employment are struggling to recover from the devastating recession,” said Clark.

The Coalition for Affordable Solar Energy (CASE) thinks the decision will raise prices and kill jobs and believes the decision is in direct opposition to the pledges recently made by the U.S. and China to work together to curb global warming. “Hundreds of megawatts of solar projects remain unrealized due to deleterious solar trade barriers in the U.S., China, Europe and globally. Eliminating taxes in cleantech trade represents the lowest-hanging fruit in the global fight against climate change,” said Jigar Shah, President of CASM.

All of this contention comes at the heels of a recent announcement that the U.S. solar industry is on track to install 41 percent more solar in Q4 2014 than it did in 2013.  In total, the U.S. is expected to install 6.5 gigawatts of solar in 2014, a 36 percent increase over last year.

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. 

December 19, 2014

Casting Off The Electric Company Cord

By Jeff Siegel

Billy Adams doesn't get an electric bill.

Perched along a hillside in the mountains of Western Maryland, Billy's home gets all its electricity from the sun.

He has a small battery pack that stores about five hours worth of electricity, and he heats his home with a very powerful 100,000 BTU wood stove.

Of course, Billy isn't your typical American.

He's never been a fan of living in the suburbs. He enjoys the peace and quiet of mountain living, rarely eats anything he hasn't hunted or grown himself, and doesn't have a single penny of debt.

For the most part, Billy's head is on straight. He doesn't seem to want for much and doesn't really seem to need much of anything. That being said, he can be a bit delusional at times when it comes to how he sees himself.

For instance, the last time I saw Billy, he was building a walipini. If you don't know, a walipini is basically an underground greenhouse. Tired of eating little more than canned vegetables throughout the winter, he decided he was going to use a walipini so he could grow fresh vegetables year-round.

He told me that once it was finished, he'd never have to leave his house again.

Then I reminded him that no one's going to deliver his diesel for his truck, and until he learned how to make his own toothpaste, he would have to venture out into the world at some point.

Still, Billy's doing pretty well for himself. He told me the electric companies fear people like him because more and more folks are realizing they don't need to be connected to the grid to live comfortably.

Most People

Truth is, while he may be right about not having to be grid-connected to live comfortably, most people aren't going to follow in his footsteps.

Most people don't want to chop wood for heat. Most people don't want to be limited to only five hours of electricity per night. Most people don't want to use propane to cook their meals.

The bottom line is that Americans have it pretty easy when it comes to energy.

We flip a switch, and there's light.

We turn the knob, and the stove burner lights up.

We set a dial, and the heat or air conditioning fires up.

Given the very comfortable way of life we all enjoy, why would anyone give that up?

Most won't.

Energy Independence

As much as I love the idea of being energy independent, I don't think most people realize just how reliant they are upon the grid.

Sure, you can slap some solar up on your roof. But chances are, you're still going to be connected to the grid. And despite the fact that the nation's electric grid is severely flawed in terms of efficiency and safety, it still works well enough that you live a lot more comfortably than most folks on this planet. No amount of yearning for energy independence will change that.

Don't get me wrong — one day these huge towers and thousands and thousands of miles of copper and rubber won't be necessary. And the truth is, that day could come sooner than many would like to admit. But the fact is U.S. utilities are not these weak entities that are going to be brought down by dreams of energy independence and really cool software.

Although we have the technology right now to make the grid superfluous, there's a lot of money at stake for the utilities. And mark my words: They're not going to roll and over and die just because they are inferior to distributed generation.

Where the Profits Are

According to a new report published by Accenture, as solar power and energy conservation initiatives grow, U.S. energy utilities could lose as much as $48 billion a year.

That's a lot of scratch!

But the utilities have at least another three to five years before this really starts to become a thorn in their sides. And by then, I suspect they'll be doing major deals with solar finance companies and installers to make sure they can still get a piece of the action.

Sure, there are some, like the Salt River Project (SRP) in Arizona that's been doing the equivalent of CIA-styled enhanced interrogation techniques on the solar industry there. The utility for the Phoenix area has gone out of its way to penalize anyone wishing to use the state's amazing solar resource to generate homegrown electrons — including new fees and rate hikes for solar providers.

Interestingly, I've found that most of the folks who dictate energy policy in the Grand Canyon state are bitter, hostile shut-in types who still think solar is some kind of socialist plot designed to destroy America. It's the Luddites in Arizona responsible for solar struggles — not the economics.

But aside from the knuckle-draggers over at the SRP, most utilities are waking up to the reality that they will either be part of the transition to a new energy economy or wither away and die under a cloud of mediocrity and denial.

As an investor, I haven't touched a utility in three years. And I have no intention of chasing these shaky institutions in 2015, either.

Instead, I remain focused on the disruptors — the companies that are bringing solar and other new energy technologies to the masses. SolarCity (NASDAQ: SCTY), Vivint Solar (NYSE: VSLR), SunPower (NASDAQ; SPWR), First Solar (NASDAQ: FSLR), SunEdison (NASDAQ: SUNE). These represent the new face of distributed energy.

No, distributed energy will not replace the grid anytime soon. The utilities and their massive control will not go gently into that good night. But they're also not going to experience the meteoric growth that you're going to see in new distributed energy developments.

And that's where the action is. That's where the opportunity is. That's where the profits are.


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

December 05, 2014

Top 10 PV Module Suppliers for 2014

The 2014 rankings for solar module suppliers have been released from the newly combined Solarbuzz and IHS Technology solar research team. The team predicts that the global top 10 PV module suppliers will stay the same, although some reshuffling will occur. The rankings are based on full year shipment estimates.

The group is forecasting Trina Solar (TSL) to be the largest module supplier in 2014 in terms of global shipments. IHS said that Trina is expected to break industry records for both quarterly and annual PV module shipments in Q4’14. Yingli Green Energy (YGE), the holder of these previous records, is expected to be come in as the 2nd largest supplier having adopted a new strategy to prioritize profitability.

JA Solar (JASO) is forecast to gain most ranking places amongst the top 10 and should come in as the fifth largest supplier in 2014, said IHS. JA Solar’s module shipments are expected to double from 2013 level, outpacing all of the other top 10 suppliers. IHS attribute this growth to JA’s successful transformation from a major cell manufacturer into a leading module supplier.

China, Japan, and the U.S. have been the largest three PV markets in 2014, and unsurprisingly were the key markets for all of the leading PV module suppliers. Japanese suppliers, Sharp Solar and Kyocera leveraged high brand awareness and acceptance in their domestic market to retain positions in the top 10 rankings in 2014.

The 2014 top 10 PV module suppliers are almost the same group of companies as one year ago. SunPower (SPWR) entered the top 10 in 2014 and was ranked joint 10th largest suppliers alongside Kyocera (KYO) according to IHS estimates.

Many of the top 10 suppliers also accelerated the use of a large quantity of PV modules for internal solar projects in 2014, especially Trina Solar, Yingli, JinkoSolar (JKS), and JA Solar. Total unrecognized module shipments that will be used in internal projects will reach 1.4 GW in 2014 for these four companies combined, reflecting these companies efforts to shift towards PV project development, which was pioneered by Canadian Solar (CSIQ), First Solar (FSLR), and SunPower, said IHS.

This article is by the editors of, where it was first published. It is republished with permission.

December 01, 2014

Solar Stocks Slide On Oil Slick

Doug Young 

Bottom line: The recent plunge in solar stocks is the result of panic selling due to falling oil prices, meaning the shares could rebound sharply once the sell-off subsides.

US investors were showing signs of new energy indigestion in the shortened trading day after Thanksgiving, dumping stocks of all the major solar panel makers in a messy post-holiday sell-off. With no major news from any of the companies, the driving force behind the sell-off appears to be the recent plunge in oil prices, which hit new 4 years lows late last week after OPEC declined to cut its daily output quotas.

Investors appear to be worrying that falling oil prices will dampen enthusiasm for building new solar plants, since lower oil prices mean solar power will be less competitive with more traditional power sources derived from fossil fuels. The only problem with that logic is that solar power was never competitive with fossil fuels to begin with, meaning solar stocks could be getting punished for no good reason.

All that said, let’s look first at what’s been happening to oil prices, which were in the spotlight last week after Saudi Arabia vetoed a plan by other OPEC members to cut oil output in a bid to boost sagging global prices. That move fueled fears that oil prices will continue to fall from current lows not seen since 2010 when the world was still suffering from the effects of the global economic downturn.

Following the drop last week, oil prices are now down by about a third since June. The plunge has understandably hit major oil companies, which will get far less revenue even though their costs will remain fixed. But suppliers of equipment used to make alternate energy are also getting hammered and took an especially big beating last Friday.

Leading the post-Thanksgiving sell-off was high-flyer Canadian Solar (Nasdaq: CSIQ), whose shares plunged 11.6 percent on Friday and are now down 40 percent from a September peak. The picture looked similar for most other solar panel makers, with Yingli (NYSE: YGE), Trina (NYSE: TSL) and JA Solar (Nasdaq: JASO) all dropping 7-8 percent on Friday. Wind power also got caught in the selling frenzy, with wind turbine maker Ming Yang (NYSE: MY) down 7 percent on Friday and off 24 percent since September.

One of the worst hit was ReneSola (NYSE: SOL), which tumbled nearly 9 percent on Friday and whose shares have lost nearly half of their value since September. The company may have looked especially vulnerable since it is one of the few that relies completely on exports, unlike its peers which have positioned themselves to take advantage of a major solar power building program in China.

So the big question now becomes: Is all of this selling justified, and is the industry headed into a new downturn just as it starts to emerge from its previous slump? I’m not a major expert on solar energy policy, but my answer to both of these questions would be a fairly confident “no”. The reason is simple, namely that solar and wind were never economically competitive power sources using current technology, even when oil prices were still high. The only reason solar and wind energy plants are being built at all is due to government policies that subsidize their development. [Ed. note: There's also the much more relevant fact that solar and wind compete with other sources of electricty, such as coal, natural gas, and nuclear.  Even at current prices, oil (diesel) is too expensive to compete with solar and wind without subsidies.]

Those policies typically see governments set prices for solar and wind power at artificially high levels, and then force utilities to buy that power at those inflated prices. Thus even if a power company can make its own power at much cheaper costs, it still has to buy all the output from solar energy plants at the government-set prices. That reality means that solar plant construction shouldn’t see any major shifts despite the big drop in oil prices, and that solar stocks are likely to rebound strongly once the current round of panic selling subsides.

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 30, 2014

Chinese Solar Cos Go Shopping To Avoid Troubles At Home

Doug Young 

Bottom line: Sputtering progress for China’s solar power build-up could erode domestic panel makers’ performance, prompting some to buy more overseas assets to avoid punitive trade barriers in the west.

The latest trouble signs in China’s ambitious solar power build-up are coming in newly released quarterly results from Trina (NYSE: TSL), which has reduced its annual sales targets after scrapping one of its planned new projects in the country. At the same time, China’s industry continues to look for ways to circumvent anti-dumping tariffs in the west by setting up off-shore production and purchasing foreign assets to avoid such penalties. In the latest move on that front, a unit of China National Chemical Corp, also known as ChemChina, has just announced its purchase of a major panel producer in Norway for about $640 million.

China’s major solar panel makers have relied on exports for much of their explosive growth over the last decade, with the big majority of sales going to buyers in Europe and North America. But both markets have taken punitive actions against Chinese panels over the last 2 years, complaining that Chinese manufacturers receive unfair state support in the form of policies like export credits and cheap loans from big state-run banks.

The Chinese firms were depending on a major build-up of China’s domestic solar power industry to help offset losses in western markets, though signals earlier this week indicated that program was running into some headwinds. (previous post) Now we’re starting to see some real results of those headwinds in the newly released quarterly results of Trina, one of China’s top panel makers.

The company reported fairly respectable results for the third quarter, with revenue up nearly 20 percent on a quarter-to-quarter basis and profits up a more modest 3 percent due to foreign exchange factors. (company announcement) But investors were spooked by the company’s downward revision of its full-year guidance for module shipments.

The main factor behind that revision appears to be a solar farm that Trina planned to develop in Inner Mongolia, but ultimately scrapped due to changes in government policy. Trina said those policy changes could also affect the company’s pipeline of other projects. That gloomy outlook sent Trina’s shares down 5.2 percent, and they now are trading 43 percent lower than a peak reached back in March.

Interestingly, shares of other major players like Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ) didn’t drop in the latest trading session, even though these companies will also be affected by the same trends that are hurting Trina’s outlook. Accordingly, I wouldn’t be surprised to see these shares also come under pressure soon, and for the entire sector to feel some pressure through the first half of next year until the China situation clarifies.

Meantime, the other major news bit from the solar sector has China National BlueStar Co, a unit of ChemChina, purchasing Norwegian solar panel maker REC Solar (Norway: RECSOL) for 4.34 billion kroner, or about $460 million. (English article) REC previously had manufacturing operations in Norway, but later closed all of those and now does all of its manufacturing in Singapore. Analysts are saying the deal could be followed by similar ones that see Chinese producers purchase offshore assets to circumvent barriers in Europe and North America.

The United States has levied punitive anti-dumping tariffs against Chinese-made panels, and the European Union (EU) has taken similar actions through an agreement negotiated last year requiring Chinese panel makers to voluntarily raise their prices. But solar panels made in the west and other markets like Singapore aren’t subject to those actions. Accordingly, we could see more similar purchases in the year ahead, and the trend could even accelerate if the solar build-up in China shows further signs of stalling.

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, 2014

China Struggles To Meet Solar Targets

Doug Young

Bottom line: China is likely to fall well short of its plan for 35 gigawatts of solar power capacity by the end of next year due to profit-seeking speculation and lack of experience among plant builders and operators.

I’ve been quite skeptical for a while about China’s ambitious plans to rapidly build up its solar power capacity, arguing that many of the plants being built are more designed to please central planners in Beijing than of real practical use. Now it seems at least one researcher at a major government institute agrees with that view, prompting him to slash his forecasts for new construction this year. That certainly doesn’t look good for big domestic names like Yingli (NYSE: YGE) and Trina (NYSE: TSL), which are hoping to keep their recent positive momentum going with big new demand from plant developers in their home market.

The latest report contains interesting details on some of the major problems dogging China’s new solar building campaign, which has the country aiming to install 35 gigawatts of capacity by the end of 2015. The biggest problem is one that I previously discussed, namely that many of these projects would be built in remote locations that would have difficulty delivering power to China’s central grid.

But a second problem also emerged this fall as some developers started using the build-up program to make some quick money through a quirk in recent modifications to the power pricing system. None of this is too unexpected, since it was probably unrealistic that China could successfully execute such an ambitious build-up so quickly, especially when it had very little experience at such construction just 2 years ago.

But the growing reality could crimp ambitious sales targets for solar panel sellers that were depending on strong domestic demand to keep fueling their recent rebound. It could also turn into headaches for names like Trina and Yingli, which have recently set up funds for solar plant construction. Those funds could take a hit if many of their new projects get built but then fail to find long-term buyers due to poor planning.

China is now expected to build 10 gigawatts of new solar power capacity this year, well short of an earlier target for 14 gigawatts and a sharp slowdown from last year’s 13 gigawatts, according to the new report from Wang Sicheng, a researcher at the Energy Research Institute of the National Development and Reform Commission (NDRC). (English article) Only 3.8 gigawatts of new capacity were built through September this year, though the report notes that the fourth quarter is typically the strongest for new construction.

It seems that one of the biggest issues has come from lower-than-expected usage of power by local customers from these newly built plants using rooftop-mounted solar panels. Earlier plans that envisioned that such local consumers would use 80 percent of power generated at such plants, with the remaining 20 percent set for sale to more distant locations. But plant operators have only been able to sell about 60 percent of their power locally, because many such plants are located in remote locations with sparse population.

Adding to the problems was a wave of speculative new project announcements that look purely related to a recent preferential tariff announcement designed to promote growth in inland areas. The NDRC quickly moved to plug a loophole that was fueling the speculation, but the result is that many of the new plants announced during that window may never get built since many were conceived simply to earn some quick profits.

These kinds of shenanigans and logistical problems certainly aren’t unique to China. But in this case they’re quite acute due to Beijing’s desire to ramp up solar power output so quickly despite its lack of experience. I do expect we’ll see the rapid build-up continue, but at the end of the day we could see a significant number of planned projects get scrapped, and an equally significant number that do get built ultimately hit financial difficulties due to poor planning.

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 24, 2014

Walmart Loves SolarCity

SolarCity (NASDAQ: SCTY) is up 5% on an unsurprising new solar deal with Walmart (NYSE: WMT)

By Jeff Siegel

slarwmtSolarCity (NASDAQ: SCTY) investors were a bit giddy Friday.

The company enjoyed a nice bump after it was announced that Walmart (NYSE: WMT) had hired the company to install new solar projects at Walmart facilities in up to 36 different states over the next four years.

SCTY has actually been working with Walmart since 2010, so it's not particularly surprising that Walmart's next round of solar installations is being carried out through SolarCity.

Now while I'm certainly pleased to see SCTY continue its healthy relationship with Walmart, it's not the actual solar installations I'm so excited about this morning. You see, this deal includes energy storage projects as well.

As I've mentioned in the past, it's the company's storage initiative that I believe will help keep it ahead of the curve. And for the past few years, SCTY has been testing storage projects at 13 Walmart locations. This new deal adds another ten storage projects to the list.

Of course, despite today's news and the nice push, SCTY is still trading below $60. Well below where I expected to see it this time of year. So it's still a pretty good bargain if you're looking for a long-term play in the solar space.

I currently have a one-year price target of $70.

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

November 13, 2014

GCL-Poly Mops Up Chaori Solar Mess

Doug Young

Bottom line: Solar consolidators like GCL-Poly and Shunfeng will suffer short-term pressure due to difficult acquisitions, but could be longer-term beneficiaries as they earn government goodwill for their actions.

The latest deal involving an insolvent solar panel maker is seeing a group led by GCL-Poly Energy (HKEx: 3800) take control of bankrupt Chaori Solar, in a takeover that looks slightly ominous but also potentially interesting for investors. The ominous element comes from the fact that these bankruptcy proceedings are occurring Chinese courts, where local politics are often more important than forging deals that make commercial sense.

But the interesting element comes from the fact that many of these insolvent companies enjoy strong backing from their local governments. That means that once all the finances are cleaned up for these insolvent firms, they could actually become good longer-term assets for their new owners.

The short-term headaches for solar buyers are evident in the recent mixed fortunes for Shunfeng Photovoltaic (HKEx: 1165), which looked like a rising solar superstar when it purchased bankrupt former solar superstar Suntech. But Shenfeng’s fortunes have suffered a sharp setback in the last month, as the Suntech effect wears off and people realize the turnaround story could be long and difficult.

We’ll come back to the Shunfeng-Suntech story shortly, but first let’s look at the latest news that has the parent of GCL-Poly leading a group that will buy 66 percent of Chaori for 1.46 billion yuan ($240 million). (English article) The deal was part of a broader restructuring for Chaori, which made headlines this year when it became the first company in modern China to default on a corporate bond. (previous post)

The restructuring plan was approved by the Shanghai Municipal First Intermediate People’s Court late last month, and the buyer group has pledged to return Chaori to profitability this year and re-list it in 2015. That kind of pledge means that the buyer group has probably received key government support for the restructuring and will find a way to meet its targets, even if that means using aggressive accounting to return to profitability and calling on state-owned investors to make the new IPO a success.

It’s important to note that this GCL-Poly deal has several key differences from the earlier Shunfeng-Suntech one. In this case the buyer is actually GCL-Poly’s privately held parent, Golden Concord Holdings, meaning the risk associated with taking over Chaori isn’t being shouldered by the publicly listed company. In addition, the GCL-Poly parent is part of a larger group that includes 8 other members, and thus Golden Concord will only own 30 percent of Chaori after the deal, equating to an investment of about $72 million.

So, how have GCL-Poly’s shares reacted to the news? The stock has dropped steadily over the last 6 weeks, and is now down 17 percent from a peak at the end of September. That performance mirrors Shunfeng, whose shares have lost nearly half of their value over the last 2 months after media reports emerged saying a major solar plant it was helping to build had run into trouble. (previous post)

I suspect the magnitude of the Shunfeng sell-off was at least partly due to profit taking after a big run-up in the company’s shares on high hopes after the Suntech deal. And in fact, Shunfeng’s shares are now almost exactly at the same levels where they were at the start of this year before they embarked on a major rally.

So, the next bigger question becomes: What’s ahead for consolidators like GCL and Shunfeng, whose actions are motivated as much by local politics as by commercial factors? As I’ve said above, the political element of the equation means the stocks could come under short-term pressure as they deal with financial issues related to their purchases. But the goodwill they receive from local governments could be quite valuable over the longer term, meaning the stocks could see some strong upside potential once the current messes get sorted out.

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 27, 2014

Will Investors Flock to SunEdison’s Emerging-Market YieldCo?

by Tom Konrad CFA

SunEdison is proposing something entirely new: a YieldCo with a focus on projects in Africa and Asia, but it's a long way between an S-1 filing with the SEC and and IPO.

The June launch of SunEdison's (SUNE) first YieldCo, TerraForm Power (NASD:TERP), transformed the parent company's prospects. Now it wants to repeat the performance with a first-of-its kind YieldCo that will focus on investment in Africa and Asia.

A YieldCo is a publicly traded company that is formed to own operating clean energy assets that produce a steady cash flow, most of which is returned to shareholders in the form of dividends. Like many other renewable energy developers, SunEdison formed TerraForm Power in order to appeal to a pool of income-oriented investors who would never consider owning the company's common stock. Such investors look for reliable income streams generated by existing businesses, and often won't even consider buying stock in a company that does not pay a regular dividend. 

The low interest rate climate over the past few years has made income-oriented investors, many of who rely on dividend payments to support current expenditures, increasingly desperate for yield and much more willing to enter new asset classes in order to find it. YieldCos and the renewable energy developers that formed them have been direct beneficiaries. 

Arguably, no energy developer has benefited more from forming a YieldCo than SunEdison. Unlike large utilities that have formed YieldCos, includng NRG Energy, NextEra, Abengoa SA and TransAlta Corp., SunEdison does not have a history of profits and dividendimg

These utilities' YieldCos, NRG Yield (NYSE:NYLD), NextEra Energy Partners (NYSE:NEP), Abengoa Yield (NASD:ABY), and TransAlta Renewables (TSX:RNW), appeal to investors who might have been interested in the parent companies' stock, but like the higher yield and relatively greener assets offered by the YieldCo subsidiaries.

YeildCo Sponsor earnings.png

In contrast, SunEdison has never paid a dividend, and has not been profitable under generally accepted accounting principals (GAAP) since before 2011. On an adjusted basis (in which items deemed to be one-off by management are eliminated), the small profits in 2011 and 2012 were more than wiped out in 2013, and analysts expect losses to continue at least through 2015 (see the chart above).

While the lack of earnings and dividends makes SunEdison's stock unattractive to income investors, they have rushed to buy the stock of TerraForm Power. According to one estimate, investors are effectively paying $5 per watt for TerraForm's projects when they buy the stock. When such projects are sold in private transactions, they typically fetch only $3 per watt, so TerraForm investors are willing to pay a 67 percent premium over the going market price.

SunEdison has a huge appetite for investor capital.  According to its cash flow statements, the company has raised an average of $1.2 billion in debt and equity in each of the last three years. So it's not surprising that after seeing the appetite of income investors for the mostly developed-market assets owned by TerraForm Power, SunEdison is hoping income investors will also be interested in projects in Asia and Africa.

To date, YieldCos hold a majority of their assets in the developed world, especially the U.S., Canada, and Europe. The reasons for this are simple: income investors consider the safety of a company's income stream to be extremely important, and developed electricity markets offer long-term contracted power-purchase agreements.

In contrast, electricity markets and grids in Asia and Africa range from the state-controlled to the unreliable and even the nonexistent. The lack of reliable grid infrastructure in some Asian and African countries means that renewable power is often competing with electricity from diesel generators on price. The following slide is from a 2012 presentation by Christian Breyer of the Reiner Lemoine Institut. The green and yellow areas on the map denote places where the economics of displacing some diesel power generation with solar during the daytime is highly economical, even without subsidies. These areas have expanded as solar prices have fallen over the last two years.

PV displacing diesel.png


Clearly, sub-Saharan Africa and Asia's interior are both excellent prospects for solar from a purely economic standpoint, without any subsidies whatsoever. Indeed, the slide above shows that diesel subsidies serve to limit the number of countries in which replacing diesel with solar generation makes economic sense.

One problem is that these parts of Asia and Africa are better known for outbreaks of disease and terrorism than for the stable political and economic conditions that usually give rise to businesses producing reliable long-term dividends.

Perhaps SunEdison intends to focus on more stable parts of Asia and Africa, but that will make its projects more dependent on local political support to produce the reliable returns that income investors expect. 

Either way, SunEdison is proposing something entirely new. From the perspective of using the power of markets to fight climate change, it's entirely welcome. What remains unclear is if income investors are ready for the idea. If the new YieldCo can pay a dividend high enough to attract such investors despite the risks, it will be a big win for the planet -- and for SunEdison's current shareholders.


Disclosure: Long RNW, Short NYLD.

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

October 22, 2014

Five Solar Stocks For 2015

By Jeff Siegel

Times sure have changed!

In 2006, I attended my first Solar Power International (SPI) conference in D.C.

It was a no-frills event but loaded with valuable information I used to help Energy and Capital readers get a jump on the solar bull market that ran from 2006 to 2008.

Truth be told, we cleaned up. But nothing lasts forever. And when the market nosedived in 2008, solar stocks were not exempt from the ravenous bears that mauled everything in their path.

Of course, as the broader market began to inch back up in 2010, solar stocks didn’t miss a beat... at least the handful that were still viable.

Since 2010, solar stocks have enjoyed a fantastic ride. First Solar (NASDAQ: FSLR), SunPower (NASDAQ: SPWR), and JA Solar (NASDAQ: JASO), just to name a few, showed non-believers that the solar industry was no longer a niche market catering only to tree huggers and wealthy eccentrics. And when I arrived at this year’s solar conference, I expected to hear more cheering and chest pounding from the gatekeepers of this industry.

What I heard instead was something every energy investor should know about — because there’s a very real possibility that the solar industry could soon be heading face-first into another meltdown.

A Solar Nightmare

I should preface this section by telling you that despite some ominous news, the solar industry has still put up some pretty impressive numbers. Consider the following:

  • Annual solar installations in 2014 will be 70 times higher than they were in 2006.
  • By the end of 2014, there will be nearly 30 times more solar capacity online than in 2006.
  • Solar has gone from being an $800 million industry in 2006 to a $15 billion industry today.
  • The price to install a solar rooftop system has been cut in half, while utility systems have dropped by 70%.
  • It took the U.S. solar industry 40 years to install the first 20 gigawatts (GW) of solar. It’ll install the next 20 GW in the next two years.
  • During every week of 2014, the solar industry installed more capacity than it did in the entire year of 2006.

Now, the reason I focused on 2006 in this list is because this is when the solar Investment Tax Credit (ITC) kicked in.

The solar ITC is a 30% tax credit for solar systems on residential and commercial properties. And it is the ITC that, without a doubt, has been one of the most important federal policy mechanisms supporting the deployment of solar energy in the U.S.

It’s also scheduled to expire in 2016.

Now, if you’re a regular reader of these pages, you know I’m not a fan of energy subsidies. There is no greater threat to a free market than government intervention. And in the case of energy, it’s these subsidies that push lawmakers to pick and choose winners in the energy industry. This goes for everything from solar and wind to fossil fuels and nuclear.

That being said, I completely understand why Rhone Resch, president and CEO of the Solar Energy Industries Association, said the following at the opening session of SPI:

It’s absolutely imperative... job #1... that we extend the 30 percent solar Investment Tax Credit past 2016.

 2015: The Year of Solar

The truth is, no one actually knows whether or not the ITC will be extended beyond 2016.

If I had to put money on it, I’d say it’ll get extended for at least another four years, taking us into 2020. But when it comes to policy, nothing’s certain until all the votes are counted.

So as a result, many in the solar industry are now operating at a capacity that suggests 2015 will be the last year for that 30% tax credit. In other words, they’re kicking it up a notch in 2015 in an effort to take full advantage of the ITC before it expires.

I suppose it’s a bit of an uncomfortable indicator for solar supporters, but for energy investors, it is a call to action: Ride the wave of aggressive integration in 2015.

There’s no doubt that the big dogs in the solar sector are treating 2015 as if it’s the last year for the ITC. Although that may not be the case, it’s still a precautionary measure that’rsquo;ll help these companies hedge against uncertainty as 2016 approaches.

No solar company will take it slow in 2015, but there are five solar companies (or companies with skin in the solar game) in particular that I believe will intensify marketing, acquisition, and development efforts so much that they’re going to blow the doors off and deliver record revenues before 2016 arrives.

Not surprisingly, these are the companies that are currently well capitalized and already have competitive and first-mover advantages. And for the sake of full disclosure, the success of these companies does put money in my pocket:

  1. SunPower (NASDAQ: SPWR)
  2. First Solar (NASDAQ: FSLR)
  3. SolarCity (NASDAQ: SCTY)
  4. SunEdison (NYSE: SUNE)
  5. Hannon Armstrong Sustainable Infrastructure (NASDAQ: HASI)

Of course, if the solar ITC is extended, then 2015 will just be icing on the cake. And while I certainly won’t vocally support any subsidy for energy, as long as fossil fuels and nuclear continue benefitting from direct and indirect subsidies — just as they have been for decades — then it should not come as a surprise when the solar industry gets the go-ahead to wet its beak from the government trough, too.

So invest accordingly.

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.  follow basic@JeffSiegel on Twitter

October 17, 2014

Solar Bonds For Small Investors

By Beate Sonerud

SolarCity (NASD:SCTY) is issuing US$200m of asset-linked retail bonds, with maturities ranging from 1-7 years and interest rates from 2-4%. Wells Fargo is the banking partner. While the bonds are registered,SolarCity expects the bonds to be buy and hold, and not traded in the secondary markets.

The bond is issued for small-scale investors, with investment starting at US$1000, giving this bond issuance a crowdfunding aspect. Choosing such a different structure allows SolarCity to diversify their investor base – the company stresses that small-scale investors are a complement, not substitute, for large-scale institutional investors. While this is the first public offering of solar bonds in the US, in the UK, such small-scale retail and mini-bonds in the solar and wind sectors have been popular for some time.

SolarCity is the largest installer of residential solar in the US, and this is not the first time they are pioneering in the green bond space. In November last year, SolarCity was the first US company to issue asset-backed securities for solar. Since then, it has issued another two rounds of ABS backed by power-purchase agreements from their customers. All of these issuances have been private placement offerings.

SolarCity’s securitisation offerings have shown a steady decline in coupon, providing the company with cheaper funding. The company’s first issuance was rated BBB+ with coupon at 4.80% - right off the bat achieving investment grade rating with no credit enhancement. In April this year, the second issuance, US$70.2m, was also rated BBB+, but achieved a better coupon at 4.60%. In July 2014, the third issuance, for US$201.5m, achieved a lower coupon still. The upper tranche of this issuance achieved rating of BBB+, and a coupon of 4.026%, with the lower BB tranche getting 5.45%, providing an overall coupon of 4.32%.

In September, SolarCity also issued US$500m of 5-year convertible bonds, with a 1.625% coupon. We like the wide range of different structures of green bonds they are using.

In terms of the green credentials, we consider SolarCity a pure-play company aligned with a climate economy, although it’s worth noting that their bonds are not labelled green bonds. We do think there is room for labelling also for solar companies like SolarCity, mostly because it would make it easier for investors to identify the company’s bond issuances as green. Although easy investor identification is less relevant for this specific retail bond, it is something to consider for future issuances. It is also a much simpler process to label solar than non-pure play companies - check out our solar standards for details of what we’d expect from a labelled solar bond.

We look forward to see what SolarCity will do next as a green bonds pioneer. The company seems to just be getting started, as SolarCity states that: “(…) this is the first of fairly continuous offerings”. Great stuff!

———  Beate Sonerud is a policy analyst at 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. 

October 14, 2014

China Plans Aggressive Renewables Deployment But Falling Incentives

Doug Young

Lofty targets contained in a new report show that China intends to push ahead with ambitious plans to build up its renewable energy sector. But perhaps the most interesting thing about this new report is word that Beijing finally intends to sharply reduce the inflated state-set fees now paid for solar and wind-produced power, in one of the sharpest indicators that it expects the industry to stop depending on government support and become commercially viable on its own. Such state support through a wide array of measures, which also include export credits and low-interest loans, have become a huge sticking point that has led to a series of trade wars between China and the west.

All that said, let’s jump right in and look at the latest aggressive targets now being finalized by Beijing under its upcoming 5 year plan for the sector between 2016 and 2020. China makes such 5 year plans for all major sectors, a relic of a Soviet-era practice for centrally planned economies. Under revised figures for its current 5-year plan, Beijing announced late last year it was aiming for national solar power-generating capacity of 35 gigawatts by the end of 2015, a very ambitious target for a country that had virtually no such capacity just 3 years earlier. (previous post)

Anyone who thought that figure looked ambitious will probably think the newest plan looks even more aggressive, aiming to build up solar generating capacity to 100 gigawatts by 2020. (English article) The country has even more ambitious plans for the wind power industry, with a target of 200 gigawatts of capacity by 2020.

At the same time, officials who are leaking details of the upcoming plan are also making it clear that state support will be phased out over the next 6 years for makers of solar panels and wind generation equipment. One of the biggest forms of support comes via artificially high state-set prices for renewable energy, which force big power companies to buy such clean energy at rates that are well above the cost of power from more conventional fossil fuels. The use of such high, state-set fees is also common in the west, used as a policy tool to promote the clean energy sector’s development.

Under the new 5 year plan, China’s tariffs for solar generated power will be reduced by a hefty 50 percent by 2020, falling from the current 0.9 yuan per kilowatt-hour to 0.6 yuan, according to an unnamed government energy official. Wind power tariffs will also be cut sharply, falling to 0.4 yuan per kilowatt-hour from the current 0.6 yuan. Equally interesting is a more general quote from the official saying the solar panel and wind equipment makers should improve the efficiency of their products “instead of depending on government subsidies.”

This is one of the first times I’ve seen a government official openly acknowledge what western governments have been saying all along, namely that Chinese solar panel makers like Trina (NYSE: TSL), Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ) get a big advantage over their western rivals due to extremely strong state support through a wide range of favorable policies from Beijing. Such support led Washington to slap anti-dumping tariffs on Chinese solar panels last year, and the European Union has also considered taking similar action.

So what does this flood of new information mean for the Chinese panel industry? The ambitious construction target means that Beijing will continue to push for construction of new solar power plants, even if such plants aren’t economically viable. That problem could become worse as solar power prices are lowered, leading to a bumper crop of unusable solar and wind power plants by 2020. That means that the big Chinese solar panel makers could see strong business over the next 5 years from a domestic building boom, but could then see a sharp slowdown if many new projects prove to be economically unviable.

Bottom line: China’s aggressive new energy power goals and determination to reduce state support could result in a building boom of economically unviable solar and wind power generation 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.

October 11, 2014

Politics and Debt Rain On Chinese Solar

Doug Young

The solar power sector has become a highly volatile place these days, with company stocks rallying one week on upbeat news, only to tumble days later on more downbeat signals. Much of the volatility owes to 2 factors that have created big uncertainty: protectionism and doubts about funding for many new power plants now being announced. Both of those factors are at play in a new string of downbeat news on industry lead Canadian Solar (Nasdaq: CSIQ), as well as struggling Chaori Solar (Shenzhen: 002506) and the now defunct former superstar Suntech.

Of these 3 companies, only Canadian Solar is currently a serious player, though it is seeing early trouble signs in the important Japan market. Suntech has been mostly liquidated after being forced into bankruptcy last year. But ghosts from its past continue to haunt the company, with word that Suntech is being sued by a former customer. Chaori is also undergoing its own painful reorganization after defaulting on a domestic bond earlier this year, and the latest reports say that debt holders will end up losing most of their money.

Let’s begin with Canadian Solar, which has just announced that some of its projects in Japan are now running into problems after the government stopped approving connection of new solar power plants to the national grid. (company announcement) Japan has become a major bright spot for many Chinese solar panel makers over the last year, as that country tries to wean itself from reliance on nuclear power following a major disaster in 2011.

Canadian Solar now has 500 megawatts in late-stage projects in Japan, and aims to increase that by up to 20 percent by the end of this year. The Japanese government’s suspension of new approvals has affected Canadian Solar’s projects with about 135 megawatts of combined capacity, though the company said it expects to win eventual approval of the projects and sees no near-term impact on its sales.

I’m no expert on Japanese politics, but I do expect that these affected projects should eventually win approval since the country is under a lot of pressure to develop safer power sources. Still, I’ve also heard that protectionist forces may be growing, as Tokyo tries to promote domestic panel manufacturers. If that’s the case, politics could place a damper on future sales to Japan by Canadian Solar and other Chinese solar panel makers.

Next let’s look at the other 2 cases, starting with word that Suntech is being sued by a former customer named ZKenergy for failing to deliver 206 million yuan ($33.5 million) worth of solar panels. (company announcement) In this case the amount isn’t huge, but it could cause problems for Hong Kong-listed Shunfeng Photovoltaic (HKEx: 1165), which acquired Suntech’s manufacturing assets during the bankruptcy liquidation.

Shunfeng is already reeling from bad news 2 weeks ago, when media reported a 500 million yuan, 130 megawatt solar farm being built with the company’s panels had run into trouble. (previous post) Shuntech shares have fallen sharply since that report, and the stock could see more turmoil if other former Suntech customers start stepping forward with similar lawsuits.

Lastly there’s Chaori, which made headlines early this year when it became the first company in modern history to default on a Chinese domestic bond offering. Other struggling solar panel makers like Suntech had previously defaulted on bonds, but all of those were dollar-denominated and sold to more sophisticated international investors.

According to the latest report, Chaori is working on an agreement with its bond holders that could see them ultimately recoup as little as 20 percent of their original investment. (English article) Such payouts aren’t that unusual for this kind of default, and Suntech bondholders probably received similar rates. But the figures do underscore the ongoing risk for solar investors, as the industry continues to clean up after its prolonged downturn that saw many mid-sized and smaller firms go out of business.

Bottom line: A new report from Canadian Solar indicates politics could dampen Chinese panel maker sales in Japan, while separate reports indicate heavy debt continues to plague 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.

October 10, 2014

Two New Reasons to Buy SolarCity

By Jeff Siegel


SolarCity truck Well, SolarCity's (NASDAQ:SCTY) latest news probably won't be enough to silence the bears and scare off shorty, but it has stopped the bleeding a bit.

After falling more than 25% over the past month, SCTY has stabilized after announcing a new loan program that will allow customers to buy a solar energy system outright instead of leasing a system.

Thanks to the company's massive scale and low cost of capital, SCTY will now lend directly to customers. This is a huge advantage over having customers seek out loans provided by third-party banks. And as far as I know, no other installer offers such an option.

Users of the company's new loan program, called MyPower, will also still benefit from SolarCity's 30-year warranties, production guarantees and monitoring services.

Bank of America analyst Krish Sankar chimed in on the news today, reiterating his buy rating and $95 price target on the stock. Of course Sankar also noted that the loan product was expected.

In any event, SCTY is still going to be a roller coaster ride throughout the rest of the year. Many of those who bought at the top are likely going to sell in an effort to offset capital gains liabilities for 2014. But folks like me, who bought in on the dip and see the long-term potential of SCTY will hold tight, and maybe even pick up more while the stock is still relatively cheap.

Also worth noting today is the recently renewed partnership between SolarCity and Honda (NYSE:HMC) to finance $50 million in new solar projects for Honda and Acura customers and dealerships in the U.S.

This is actually a pretty big deal, but the news is getting overshadowed by SCTY's new loan announcement.

Nevertheless, I remain bullish on SCTY and see any major dips below $70 as a buying opportunity.


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

October 02, 2014

Trina Solar's Second Convertible Bond

By Beate Sonerud and Sean Kidney

China’s Trina Solar (TSL)is issuing US$100m of convertible bonds with 5-year tenor and 4% annual coupon, with semi-annual payments. An extra US$15m could be raised, as Trina has given the underwriters a 1-month window to buy additional bonds. Guess they are waiting to gauge demand. Underwriters are Deutsche Bank, Barclays, and Credit Suisse, with Roth Capital Partners as co-manager.

The bonds can be converted to shares (American Depositary Shares, meaning they are listed in the US) at an initial price of US$14.69 per share. Currently, Trina’s shares are trading at US$11.40, after falling sharply due to concerns that Japan, the world’s second largest solar market, will reduce subsidies to solar – which would mean reduced business demand for Chinese solar companies, including Trina. So shares will have to rise substantially before it’s attractive for bondholders to convert the bond.

Trina Solar is a leading manufacturer and service provider in PV solar – therefore we consider it a pure-play company aligned with a climate economy. However, this bond, as their previous offerings, are not labelled green bonds and consequently there is no second party review on the green credentials of the use of proceeds (Trina reports that the proceeds will be used for general corporate purposes, which may include development of solar power projects, expansion of manufacturing capacity and working capital). We do think there is room for labelling also for solar companies like Trina, as it would make it easier for investors to identify the investments. It is also a much simpler process to label solar than non-pure play companies - check out our solar standards for details of what we’d expect from a labelled solar bond.

This is Trina’s second convertible bond offering so far in 2014, following a previous issuance of US$150mn in June. Convertible bond issuances have been a popular financing choice for solar companies this year. We are including them in our climate bond universe because, although they are more complicated than vanilla bonds, they are still bonds until converted.

———  Beate Sonerud is Policy Researcher and 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. 

September 28, 2014

SolarCity or Vivint Solar?

By Jeff Siegel

In as soon as five years, you could be living right next door to a power plant.

Actually, even closer. The power plant could be operating from right inside your home.

I'm serious. Take a look...


This is a backup battery system installed in a home that's powered by domestically generated electrons, courtesy of the biggest nuclear reactor known to humans: the sun.

And according to super genius Elon Musk, within five to 10 years, every set of solar panels installed by SolarCity (NASDAQ: SCTY) will come with a battery pack.

Nighttime Solar

Musk's cousin and SolarCity CEO Lyndon Rive recently spoke at a private meeting in New York, where he announced that due to the economies of scale that will soon come from Tesla's (NASDAQ: TSLA) new battery manufacturing complex, SolarCity's solar power systems, with the new battery system installed, will be able to produce energy cheaper than the local utility company.

This means powering your home with solar day and night, and at a price lower than what your utility charges.

That's a pretty bold claim, but it's one I wouldn't sleep on. Musk and his ilk are not the type to fall short, nor are they the type of folks you should bet against.

The truth is, beyond the battery system, SolarCity is taking the appropriate steps to drastically slash the cost of solar altogether.

A few months ago, I told you about the company's acquisition of solar manufacturer Silevo. This deal will allow the company to lock in a steady supply of low-cost, high-efficiency panels that'll enable it to stay competitive against a rise in new U.S. start-ups as well as low-cost producers from China.

Then, just last week, the company unveiled a new solar mounting product called ZS Peak. It basically allows installers to install systems on flat roofs in half the time it takes today. And according to company reps, this new product can increase generation capacity on flat-roof buildings by 20% to 50% per building.

This technology now makes it possible for far more businesses, schools, and other organizations to install solar power on their buildings and immediately pay less for solar electricity than they pay for utility power. It will also help the company expand its reach into the commercial solar market.

The Best Part

Now here's the best part...

SolarCity has been getting knocked down a few pegs over the past week or so. Some believe the new Vivint Solar IPO, which is a competitor to SCTY, is luring SCTY investors away with a cheaper share price.

But while I'm also looking forward to picking up a few shares of Vivint, this isn't a reliable comparison. If anything, I would caution investors against picking one over the other and instead recommend maintaining positions in both — especially now that SolarCity fell below the $60 mark. That's a bargain compared to Deutsche Bank's $90 price target and Credit Suisse' $97 price target.

Point is, there's plenty of room for more than one company to grow and profit. And there's no reason you can't ride both.

Full Disclosure: I currently own shares of SCTY.

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

Jeff Siegel Signature

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

September 24, 2014

Signs Of Trouble For Chinese Solar Stocks

Doug Young

Regular readers will know I’m a bit bearish lately on the solar panel manufacturing sector, largely because I believe its recent rebound is being fueled as much by hype as real business after a prolonged downturn. A new report on some of the sector’s so called “growth engines”, coupled with a separate report on a dispute at one of the top surviving players, are adding fuel to my skepticism that the sector’s recent sharp rebound isn’t really happening. At the very least, the recent reports indicate the rebound isn’t nearly as strong as many are claiming, and solar panel makers and their shares could soon be set for far slower growth than many were hoping for.

A number of factors are behind this looming slowdown, most notably financial bottlenecks and related issues in China and other emerging markets that the Chinese panel makers hope will fuel their rebound. They’re being forced to rely on such markets after the US and EU imposed tariffs and took other punitive measures against the Chinese manufacturers for receiving unfair state support from Beijing.

Let’s start off our solar round-up with the worrisome report on Shunfeng Photovoltaic (HKEx: 1165), which emerged as a player to watch last year when it won the bidding to buy most of the assets of bankrupt former solar pioneer Suntech. The new media report is saying that a 500 million yuan ($81 million), 130 megawatt solar farm being built with panels from Shunfeng in China’s interior Ningxia province has run into trouble. (Chinese article)

The report is quite detailed about the issue, but apparently the dispute is purely financial and involves Shunfeng’s failure to pay funds that it promised to help to build the plant. I wrote about this kind of self-financing issue just last week, which has seen most of China’s major solar panel makers partner with other companies to build new power plants, and then provide some or all of the money for such construction. The solar panel makers win new business by selling their panels to such projects, but then end up with big risk if they can’t sell the plants to long-term owners on completion. (previous post)

Shareholders got a bit spooked by the report, with Shunfeng’s shares droping 8 percent after the news came out. The stock was on a steady upward trajectory after the Suntech deal was announced last year, but have now lost about a third of their value since peaking in late May. The decline follows a roughly similar trend for many other solar panel stocks, which have seen bumpy trading this year after a surge in 2013 over optimism for their rebound.

Meantime, another new report on the wider industry trends also hints that the current rebound may be overly optimistic. That report begins with upbeat numbers showing that shipments from China’s major solar panel makers jumped 26 percent in the second quarter of this year, reaching 5.2 gigwatts of capacity, according to data tracking firm NPD Solarbuzz. (English article) But then the same report goes on to cite a range of factors for the rise, many of which don’t look too encouraging.

One of those is the rise in demand from China, which I’ve already explained looks troublesome due to the self-financed nature of many new projects. The report also cites a surge in shipments to the US, as many panel makers raced to beat a new round of punitive tariffs set to take effect. Lastly the report also credits the jump to growing shipments to emerging markets, many of which include financing and protectionist obstacles similar to the ones I’ve already discussed. On the whole, I can’t find any causes for optimism in either of these 2 new reports, and suspect we’ll see the panel makers’ sales and share prices start to come under growing pressure over the next 1-2 years.

Bottom line: A new financing squabble involving Shunfeng and a report on factors fueling a solar panel rebound point to slowing growth for the sector, which will put pressure on both sales and stock prices.

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 20, 2014

Chinese Solar Development Funds: Recipe For Disaster?

Doug Young

Canadian Solar Logo

Canadian Solar (Nasdaq: CSIQ) has joined a growing field of Chinese solar panel makers entering the risky business of speculative development in China, with its launch of a new locally-based fund for solar power construction. The move follows the establishment of self-financed vehicles for similar speculative construction by rivals Trina (NYSE: TSL), Yingli (NYSE: YGE) and wind power equipment maker Ming Yang (NYSE: MY), as they try to create more demand for their products.
Under such a strategy, solar panel makers typically provide some or all of the money for new plant construction, and then sell their panels to the project. They later recoup their money by selling off the plants upon completion to long-term institutional buyers.

Such a model often works well in the west, where power station developers are very familiar with their industries and know they can easily sell completed projects to a sophisticated long-term institutional buyers that understand the business. But such speculative development could be much riskier in China, where most solar panel makers have limited experience with plant construction, and few experienced institutional buyers can step in to own and operate such facilities over the long term.

That mix could become a recipe for disaster over the longer term, potentially leaving solar panel makers with huge debt if they can’t find buyers for projects that may have design flaws and other logistical problems. Accordingly, Beijing should take steps to cool such speculative construction, or at least offer guarantees and guidelines that could lower the risk.

Canadian Solar made headlines last week when it announced it would launch a new solar power investment fund with Sichuan Development Investment Management. (company announcement) The fund would have 5 billion yuan ($810 million) in investment, making it one of the largest to date to focus on solar power development in China under Beijing’s ambitious plans to clean up the nation’s air.

Canadian Solar and Sichuan Development would each contribute equal, unspecified amounts to the new fund, with the remainder coming from other investors. That means Canadian Solar could probably expect to provide at least $200 million and possibly more, equaling more than a quarter of its current cash reserves.

Canadian Solar’s plan follows a similar move by rival Yingli, which in April announced its own new fund in partnership with local partner Shanghai Sailing Capital. (previous post) That fund had an initial target of 1 billion yuan, a more modest figure than the Canadian Solar plan but still sizable for a company like Yingli that had just $150 million in cash reserves at the end of June.

Trina also embarked on a similar plan earlier this month when it announced a partnership with 3 local partners to build the largest solar power plant in southwestern Yunnan province, with a massive capacity of 300 megawatts. (previous post) Under that deal, Trina is providing 90 percent of the project’s financing, again stretching its own limited cash resources. Wind power equipment maker Ming Yang also joined the speculative development team in June, when it announced its own plans to build and co-finance a massive 300 megawatt wind farm project in eastern Jiangsu province. (previous post)

This kind of short-term self-financing for new projects works well under healthy economic conditions in mature markets. It has served Canadian Solar well in Canada, where the company frequently finances and builds new plants using its own solar panels, and then sells the projects after completion to local institutional buyers who understand the business and the returns they will get.

But such speculative development proved ruinous 2 years ago for former industry pioneer Suntech, which launched its own such fund for speculative development in Europe. Conflicts involving that fund set off a downward spiral that ultimately led to Suntech’s bankruptcy last year.

Beijing is eager to foster more clean power generation under its plans for building 35 gigawatts of capacity by the end of next year, in its bid to clean up the country’s air and support the development of companies like Trina, Yingli and Canadian Solar. Thus it’s likely to support the establishment of these new funds, and perhaps even provide them with some money.

But central policymakers also need to take steps to ensure these speculative new projects are economically viable and can find long-term buyers once they are complete. Failure to do so could spark a new crisis for the sector if these projects turn out to be lemons and can’t find long-term buyers, creating new financial woes for manufacturers just as they start to recover from the recent downturn.

Bottom line: Beijing should step in to offer guidelines or guarantees to ensure a new generation of solar farms being built by panel makers are economically viable and can find long term buyers upon completion.

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 19, 2014

One Solar Installation, Five Stocks

Tom Konrad CFA
2014-09-08 08.56.59.jpg

Invest In What You Know

"Invest in what you know" is an old stock market adage.  The idea is that, if you have some personal knowledge of the real economy, you can use that to make better investments. 

How useful this adage is depends on how you apply it.  If you know more about a stock market sector than other investors because of "what you know," it's possible to make better investments because you may be better at spotting future trends.  If, on the other hand, you feel you know a sector because you buy its products, you may get caught up in a herd mentality and end up buying a company (along with a bunch of its other customers) just when the popularity of its products peaks along with its stock price.

I'm a recent customer of the solar industry.  Last week, my solar installer flipped the switch on my new solar PV system, and my meter started spinning backwards.  Like many new solar owners, I'm a bit obsessed the system.  Here, I'm channeling that obsession into an article about the companies that supplied parts of the system, and what we can learn about their prospects.

The System

Solar systems are far from uniform, and vary significantly depending on energy usage, location, available space, and local incentives.  My system is a little larger than average, at 6.6kW. I have a fairly high load because last year I installed air source heat pumps to supplement my oil-fired boiler.  My 2 person, 2000 square foot house in New York's Hudson River Valley uses an average of 13 kWh a day outside the heating season, but and another 10-20 kWh a day during the four month heating season, for an average annual usage of 21 kWh/day.

According to my calculations using PVWatts, my 6.6kW system should produce just about that much in an average year, but my solar installer used more conservative numbers, and expects it to produce about 20kWh a day.  Below is a monthly production and usage chart based on my calculations.

Solar Production and Usage.png

Because my usage is highest in the winter, and my production is highest in the summer, I will be relying on net metering rules to "bank" kWh produced from April to October to be used for heating from November to March.  My utility requires that this kWh bank be trued up once a year, which I will set in March or April.  I've shown the true-up here in March, where I'm "billed for" negative kWh (i.e. paid by the utility.) 

This "banking" is actually to the utility's advantage because, not only do they effectively get an interest-free loan of electricity for an average of 6 months, but New York electricity prices tend to be a little higher in the summer than in winter.  Since 2005, only 2014 had a higher peak winter price than the previous summer peak.  Last year's exceptionally high winter prices were caused by locally high natural gas prices, in turn fueled by the polar vortex.  The utility also benefits from daily production swings: solar production is highest when hourly prices are highest in New York.

Although the utility receives significant benefits from my solar system, it is also a good deal for me, mostly due to Federal and State incentives. If I assume electricity price increases completely offset system maintenance costs (I expect them to more than pay for any maintenance), my expected internal rate of return over 30 years will be 9.7% (or 8.3% over 20 years.)  The payback of my initial investment will take about 9 years. Without subsidies, the 30 year return would have been a paltry 1.9%, with a 22 year payback.

I expect that many New York solar systems have even better returns than mine, because I made a number of decisions which raised cost without increasing electric production.  First, I wanted to reserve part of my roof for a future solar hot water system, so I chose somewhat more expensive monocrystalline panels in order to make the most of the roof space I was willing to use.  Second, I decided to go with SMA TL-US strong inverters rather than microinverters because TL-US inverters can provide some back-up power when the grid goes down.  Third, I had to do some upgrades to the frame of my garage and attic of my old (1930) house to support the extra weight of the panels.  Finally, I wanted an awning to protect a third floor balcony from rain, and so I had my installer project the edge of the panels past the edge of the roof to serve this function, making the installation more difficult.

The Stocks

I don't follow any of these stocks closely, so I decided to ask my panel of professional green money managers. 

SMA SB 3800TL-US-22 and SB 3000TL-US-22 Inverters

SMA Solar Technology (S92.DE, SMTGF)

My inverters were from SMA Solar Technology AG (S92.DE, SMTGF), a Sunny Boy 3000TL-US-22 and a Sunny Boy 3800TL-US-22. These cost about $0.50/W and account for about 13% of the total system cost.

There was some real disagreement about SMA.  Shawn Kravetz manages a solar focused hedge fund at Esplanade Capital LLC in Boston, so I pay attention to his thoughts on solar related stocks.  He notes that SMA Solar Technology's string inverters have been losing market share to suppliers of micro-inverters and optimizers. 

These competing technologies make better use of the power produced when power production from panels is not uniform, such as when the panels are partially shaded.  Fortunately for me, I have very little shading, and living in a rural area, I wanted to be prepared for long-term power outages.  To the right, you will see an image of me testing the inverter's ability to power my furnace on a cloudy day (it was raining at the time.)  The furnace draws 340W, which is about 8% of the rated capacity of the larger of my two solar arrays. I expect that I should have enough power to run the furnace for an hour or two even on cloudy winter days, as long as I keep them clear of snow.SMA TL-US Power backup

Frank Morris, the former portfolio manager of the Global Ecological mutual fund (EPENX) describes the technology as a dramatic innovation:
With the flip of the switch, SMA's TL-US inverter will send up to 15A of 110V power to your home outlet even during a power outage.  This feature is unique to the SMA TL-US line of inverters.

When there is a power outage, a solar roof with SMA TL-US line of inverters can provide electricity to your home, independent of the grid.  During hurricane Sandy, millions lost electricity-and the thousands of solar roofs in Sandy's wake were useless: most inverters lose function when the grid is down.  The SMA TL-US line of inverters represent a dramatic innovation for the world solar market.  The convergence of resilient distributed affordable solar electricity generation, affordable electricity storage, and breakthroughs like the SMA TL-US line of inverters, should have a dramatic effect on the global utility industry.

Thomas Moser, CFP® of High Impact Investments® in Tucson, Arizona likes SMA most of the companies listed from a buying viewpoint, also because of its applications to backup power.  He says, "Energy storage will be needed as individuals and companies look to disconnect from utilities.  The level of concern regarding energy backup systems in case of total utility shutdown will rise, especially with worldwide threats capable of shutting down the grid.  SMA's R&D is well ahead of the curve on energy storage."  That said, he sees many more attractive clean energy buying opportunities right now, and says SMA's stock price would need to decline from the current €22 and change to around €15 before he'd buy it.

2014-09-05 13.12.11.jpgLG Electronics (066570.KS) 

My panels are 22 LG 300W Mono X® NeON Modules.  These are fairly high-end modules using 60 monocrystalline silicon cells with a total module efficiency of 18.3%.  The panels can be bought retail for approximately $1.50/W, and account for approximately 40% of the total system cost.  LG Electronics is a listed Korean conglomerate with symbol 066570 on the Korea SE. 

LG is a large conglomerate.  My experts did not feel that its solar segment was a large enough part of its overall business to make an investment case.  That's not to say they don't know anything about the company: Kravetz knew mine were from LG's MonoX® line just from of the power rating. 

DSC05294.JPG Schneider Electric SE (SU.F, SBGSF)

Schneider Electric SE (SU.F,SBGSF.) supplied five Square D brand Solar DC disconnects and a circuit breaker box for combining the current from the two inverters.   I'm guessing these amount to between 10¢ and 30¢ per Watt, or about 5% of the total system cost.

Schneider makes a number of clean energy related products, but the experts I consulted were not familiar with the company or did not think clean energy is a significant enough part of its business to make an investment case.

ABB Group Ltd. (ABB)

ABB meter

My installer included an analogue "dumb" meter from ABB Group (ABB) to keep track of total system output (the SMA inverters each keep track of their own energy production.) The system also required 200 to 300 feet of conduit and electrical boxes from Carlon, a brand owned by ABB. These components likely cost between 10¢ and 15¢ per Watt, or about 3% of the total system cost.

Although ABB is another conglomerate, it has enough cleantech to get the attention of my panel. Jan Schalkwijk, CFA® of JPS Global Investments in Portland, OR says,

ABB touches on renewables and energy efficiency in various ways, with offerings such as solar inverters, HVDC [high voltage direct current] links that connect renewables power sources to the grid (ABB has installed 13 of the 14 HVDC projects commissioned worldwide to date), offshore wind power projects, and high efficiency motors, among other power products. In the most recent quarter, orders were up 13% year-over-year, half of which came from a HVDC ink project in Canada to connect renewable power sources to the North American grid. Another large project in progress is the 900MW DolWin2 offshore wind converter platform that will be installed in the German North Sea. Recently the company has faced industry headwinds related to offshore wind in Europe, unprofitable EPC projects [engineering, procurement, & construction, i.e. projects for which ABB was primarily responsible for construction] for solar (which it is discontinuing), and contracts that did not have equitable risk sharing with partners. The company is aware of these issues and is changing its strategy to de-risk and improve profitability of the Power Systems business. With a dividend yield of 3.6% vs 3% for the peer group, a strong competitive position, and a relative valuation 5-10% below peers (averaging relative P/E, EV/EBITDA, P/B, EV/Sales, P/CF) ABB looks like a decent bet. Risks include unfavorable currency movements (Swiss Franc), further trouble in offshore wind, and failure to deliver on strategic refocus of the Power Systems business.

Jim Hansen at Ravenna Capital Management in Seattle, Washington also owns ABB, and "will be buying again if the price drops." Moser is more skeptical, and comments that its recently announced $4 billion stock buyback looks like "putting a fresh coat of paint on an old truck."

Itron reversing smartmeter Itron, Inc. (ITRI)

Although not directly involved in the project, my utility replaced my meter with a new I-210+c SmartMeter from Itron, Inc. (ITRI) to support net metering.  I don't know what this cost the utility, but it was probably not significant as a percentage of system cost, likely only a few pennies per watt.

Itron makes a full range of electric meters, and was more popular with clean energy investors when residential smart grid was a greater focus of attention than it is today.  Hansen has owned it in the past, but does not currently.  Moser says the stock does not interest him because its stock performance is "as lumpy as its sales."

Installer, Balance of System

The remaining approximately 40% or $1.60/W of the system cost was overhead, labor, equipment rental, permitting, and components such as racking (Unirac). wiring, and flashings (QuickMount) which are made by privately held companies.  My installer is a local privately held company, Solar Generation.


If you have a strong opinion about the advantages of microinverters vs. string inverters, or think that the growing interest in grid resilience may allow SMA to reverse some of its recent losses, there will likely be stock market profits to be made by betting on one of these trends, but I don't have the confidence to put my own money on one or the other.  While my own strong preference is the added resilience, companies selling solar leases or power purchase agreements are only paid for producing energy, not for the resilience SMA's products bring.  But the recent trend away from leases and towards other forms of solar financing may allow more homeowners to opt for resilience over maximizing production, as I did.

Of the others, only ABB is in my own portfolio, as it has been for years.  Like Schalkwijk, I like the valuation, dividend stream and solid position in many aspects of the electric grid.

Even ABB's dividend stream does not come close to matching the income stream (in the form of lower electricity bills) of my solar system itself.  Sometimes an industry's products are far better investments than the industry itself. For me, the lesson of this whole exercise is that companies which invest in solar installations are likely to be better investments than the companies that provide the parts.

Disclosure: Long ABB.

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.

September 16, 2014

SolarCity Product Can Increase Generation On Flat Roofs Up To 50%

By Jeff Siegel

scty934While solar bears and short-mongers celebrated the 8% dip in SolarCity (NASDAQ:SCTY) yesterday, opportunists are sniffing around for another buying opportunity. Especially those who didn't take my advice to load up after the stock fell below $50 back in March. What a bargain that was!

In any event, SCTY took it on the chin yesterday, and I suspect there will continue to be some ebbs and flows in the near-term. Long-term, however, SCTY remains a solid play on the growth of solar in the United States.

It's also worth noting that SCTY has just unveiled a new solar mounting product called ZS Peak. It basically allows installers to install systems on flat roofs in half the time it takes today. And according to reps from SolarCity, this new product can increase generation capacity on flat roof buildings by 20 to 50 percent per building.

ZS Peak makes it possible for far more businesses, schools and other organizations to install solar power on their buildings and immediately pay less for solar electricity than they pay for utility power, and will significantly expand the addressable market for commercial solar.

It's this kind of innovation that continues to put SolarCity ahead of the curve, and it's also one of the reasons I remain bullish on the stock.

My very conservative price target on SCTY for 2014 is $75. Other price targets include the following:

  • Goldman Sachs: $85
  • Deutsche Bank: $90
  • Credit Suisse: $97

Full Disclosure: I currently own shares of SCTY.

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.

September 04, 2014

Trina Thrives On Solar Financing

Doug Young


Investors were applauding a new announcement by Trina Solar (NYSE: TSL), after it announced a deal that would see it help to finance and build a massive solar power farm in southwest Yunnan province. The deal should indeed help Trina generate big sales for the near-term, as it involves construction of a farm with huge capacity of 300 megawatts of power. But I’m just a bit wary of this kind of development, which will also see Trina pay most of the bills to build the facility.

This kind of creative financing, which sees solar panel makers take big stakes in plant developers and then sell their own panels to the projects, is good when many sophisticated long-term buyers are available to purchase those finished plants upon completion. But China is hardly such a market, and it’s far from clear that anyone will be ready to purchase this massive new solar farm from a Trina-controlled entity once construction is complete.

According to Trina’s new announcement, the company is taking a 90 percent stake in Yunnan Metallurgical New Energy Co, which will build the new plant in the southwestern Chinese province. (company announcement) Three local partners will hold the remaining 10 percent in the company, whose farm will become the biggest solar power generating facility in Yunnan province.

No financial terms were given, which is slightly unusual as this investment is likely to be quite costly. To put things in perspective, the 300 megawatts in new panel orders Trina is likely to get from the deal are equivalent to nearly a third of the panels it shipped in its most recent reporting quarter, when it generated $519 million in revenue.

Thus if panel prices remain relatively constant, this new plant could generate some $171 million in sales for Trina over the construction period, most likely the next 1-2 years. That means Trina’s investment in the developer should total nearly $200 million, again invested over the next couple of years. That’s not a small sum for solar panel makers like Trina that are still struggling under big debt burdens following a prolonged downturn for their industry.

Despite that risk, investors cheered the news and bid up Trina shares by 5.6 percent after the announcement. It’s probably worth noting that even at their latest closing price of $13.23, Trina’s shares are still nearly 30 percent below their peak reached back in March when solar shares were soaring on hopes for a rapid sector recovery. Since then those hopes have been tempered by new punitive anti-dumping tariffs on Chinese solar panels exported to the US, and signs that the EU could take similar steps.

All that said, let’s return to the main point, which is that this kind of self-financed plant construction is a risky proposition. This kind of model got former industry pioneer Suntech into big trouble, and ultimately set off a chain of events that led to the company’s bankruptcy. Rival Canadian Solar (Nasdaq: CSIQ) has used the model to build smaller plants in Canada, and Yingli (NYSE: YGE) earlier this year set up a similar $160 million fund to build solar plants in China.

Canadian Solar’s model has worked in part because most of the plants it has built are in Canada, where big institutional investors exist to buy such plants after their completion. China is still largely an untested market in that regard, and it’s quite clear that many local state-run enterprises are participating in these new projects to help Beijing meet its ambitious targets to build up the country’s solar power.

Perhaps this new farm is well-designed and a strong long-term buyer will recognize that fact and purchase it after its completion, providing big profits for Trina. But it’s equally possible the plant will run into unforeseen problems, which could easily leave Trina with headaches as it figures out what to do with the massive facility.

Bottom line: Trina could be left holding a big pile of problematic debt if its plan to build a massive new solar plant in southwest China runs into difficulties or fails to find a long-term 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.

August 22, 2014

3 Stocks For The Coming Solar Shortage

By Jeff Siegel

An impending glut of solar panels was going to be the death knell for the industry.

Or at least that's how the solar bears framed the argument just a few short years ago.

Today, however, it's a different story...

A shortage of solar panels is now going to kill the industry.

Or at least that's how the bears are framing the argument this time.

Meanwhile, I'm grinning ear to ear. Because just as opportunity existed during the great solar glut, opportunity exists as the solar industry gears up for a potential shortage.

So don't hate, my friends. Participate!

Solar Goose Bumps

On Tuesday morning, Bloomberg published a pieced entitled, “Solar Boom Driving First Global Panel Shortage Since 2006.”

Ah, that headline gives me goose bumps.

According to Bloomberg New Energy Finance, the solar industry may install as much as 52 gigawatts this year and 61 gigawatts in 2015. That's up from 40 gigawatts in 2013 and more than seven times what developers demanded five years ago.

Bottom line: The smart money is doubling down on the solar manufacturers gearing up for the shortage.

Easily Worth $75

Right now, Canadian Solar (NASDAQ: CSIQ) is building a new solar cell factory that, when completed, will be able to pump out 300 megawatts of annual capacity.

SunPower (NASDAQ: SPWR) has a new facility in the works, too. Production at this new factory is expected to begin in 2017 and will pump out 700 megawatts per year.

And of course, there's SolarCity (NASDAQ: SCTY). This financing and installation company announced in June that it would be acquiring solar panel manufacturer Silevo (as well as building a new manufacturing plant) in an effort to lock in a steady supply of product to meet demand.

We are in discussions with the state of New York to build the initial manufacturing plant, continuing a relationship developed by the Silevo team. At a targeted capacity greater than 1 GW within the next two years, it will be one of the single largest solar panel production plants in the world. This will be followed in subsequent years by one or more significantly larger plants at an order of magnitude greater annual production capacity.

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.

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.

I remain extremely bullish on SolarCity, and I do hope you picked some up after I suggested you do so following the free fall that took the stock down to below $50 back in March.


Today, SolarCity trades for around $70 a share. On the low end, I maintain that this is easily a $75 stock, while Goldman puts it higher at $85 and Deutsche Bank at $90.

Of course, if you prefer a little more action and the opportunity for an even bigger gain in the solar space, consider one of the up-and-coming solar tech plays that don't get much attention in the mainstream but that are poised for major gains as the solar market continues to soar.

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


Jeff Siegel

Full Disclosure: I currently own shares of SCTY.

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

August 15, 2014

How the Don Quixote Principle Drives Solar

by Paula Mints
Don Quixote by Honore Daumier via Wikimedia Commons

For decades the photovoltaic industry has been driven by its beliefs, hopes, the availability of incentives, and what it is willing to ignore in terms of market realities and technological barriers. The apparent achievement of grid parity, even at drastically low margins, was hailed a victory. Continued deployment of multi-megawatt installations in the face of low margins for developers and likely gigawatts of poor quality installations has been regarded as proof of the inevitability of the industry’s success.

Given the competitive landscape for energy technologies and the short attention spans of many, it is courageous to continue the slow, iterative process of technology development in the face of naïve and easily disappointed investors and well-meaning government investment in technologies that, in some cases, have defied the laws of physics. The solar industry (and all of its technologies) continues to push ahead on hope — and this hope is a brave and necessary industry personality trait that must continue to be nurtured.

Don’t Tread on my Unwillingness to Face the Facts

Though there are many examples of companies/individuals/governments/investors persevering despite facts that indicate a change in direction might be a good idea, one of the best examples of unwillingness to fact facts is the prolonged period of negative margins during the late 2000s. 

From 2009 through mid-2013 aggressive pricing for PV cells and modules pushed manufacturer margins to dangerously low levels while losses pushed many companies into bankruptcy.  Low prices for PV technologies led to lower system prices, which were celebrated as proof that the industry had achieved grid parity.  As PV manufacturers began failing these failures were accepted as normal casualties of consolidation.  Figure 1 below depicts average module prices (ASPs) and costs, along with shipments and the delta between costs and prices from 2003 through 2014.

Figure 1: Module ASPs, Costs, Shipments and the Cost/Price Delta, 2003 through 2014  

Ignoring Political Risk, Margin Risk, Incentive Risk and Economic Risk Just May be a Survival Technique

Strong markets in the solar industry continue to be incentive driven.  Denying this fact does not make it any less of a fact.  In the mid-to-late 2000s the FiT driven markets in Europe surged, giving the region an >80 percent share of global demand.  During those days, incentive risk was largely ignored.  Following the retroactive changes that drove system in some countries into bankruptcy, demand into Europe began decreasing (dramatically). 

Currently, the incentive driven and government supported markets in Japan and China, at a combined >50 percent of global demand, are (essentially) providing a base on which the global solar industry can seek out its next dominant market. 

Expectations for strong markets typically ignore incentive risk (the risk that an incentive will be reduced drastically or end abruptly), political risk (in extreme cases war, in less extreme cases tariff interference), margin risk (the risk that a sale will result in loss instead of gain) and economic risk (the risk that a change in the regional/country economy will trigger lower demand).  Monetary risk (the risk of currency devaluation as is the case with countries in Latin America and India) can derail a project’s profitability.  It is common to assume that unpleasant or unprofitable outcomes have a lower probability of happening than do positive or profitable outcomes.  It is also normal to assume that today’s small regional or country market will be tomorrow’s booming market. 

It is difficult to hedge bets and develop a diversified portfolio of markets to serve in an incentive driven industry.  The learned behavior of solar participants is to serve (or over serve) the available market while assuming that another market will take its place when it finally slows.  Historically the industry has been rewarded for this belief.  No matter what, another incentivized or supported market seems to come along to replace a waning market. 

Figure 2 presents an assessment of 2014 global supply (shipment) and demand shares for the PV industry.

Figure 2: Supply/Demand Expectations for 2014  

Solar and the Don Quixote Principle

Figure 3 offers a picture of PV industry metrics from its demand/supply inventory at the end of 2013, through 2014 and into 2015. These metrics include demand/supply inventory, capacity, production, shipments, installations and defective modules.

Figure 3: Global PV Industry Metrics 2014 into 2015 

In an industry surrounded by obstacles, well-funded competitors, ill-thought-out government intervention (including poorly designed incentive programs) and often irrational market behavior, it takes a profound and steadfast hopefulness and belief structure to continue developing and deploying solar technologies.  The need to celebrate decades of often significant growth in a vacuum, that is, ignoring solar’s share in the overall energy mix is understandable given the bone shaking disappointment  experienced by many participants.  Amazing progress has been achieved by ignoring daunting realities. 

Don Quixote tilted at windmills, performed brave acts, fought imagined and real enemies and saw his comrades as heroes — acts of a demented mind or the courage of a man unwilling to be ordinary and saw a world filled with potential.  The solar industry combines courage, willfulness, imagination and a determination to ignore or remain ignorant of market and sometimes technological realities. 

The Don Quixote Principle is the willingness to persevere despite real or imagined obstacles and villains with the goal of heroic action and a more perfect world.  Into this definition, the solar industry and all of its participants falls quite neatly.

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.

August 10, 2014

Convertible Solar Bonds: Trina, SunPower Stoke Fire; Ascent Descends

by Sean Kidney

Trina’s $150m 3.5% 5yr convertible solar bond

In June Chinese solar manufacturer Trina announced the private placement of $150m of 5 year, 3.5% convertible bonds to “institutional investors” (no details provided). Trina weren’t clear how they would use the proceeds, but they are planning to build 400-500MW of solar plants over the rest of this year. Book-runners were Deutsche Bank, Barclays, J.P. Morgan and Goldman Sachs (Asia), with co-manager HSBC.

SunPower issues $400m 7yr 0.875% (!) convertible solar bond

That same month SunPower announced a private placement of $400 million, 7 year, 0.875% senior convertible bonds. What a great interest rate! Being 60% owned by Total may have helped; and then Total bought $250m of the bonds. Proceeds were for debt paydown, working capital and projects.

Then $32m Ascent 8% convertible solar runs into problems

Two weeks ago US thin-film solar developer Ascent Solar Technologies [ASTI] announced it was issuing $32 million of 8% convertible loan notes via private placement with institutional and other investors. Ascent is also owned by a Chinese company, TFG Radiant; it used to be controlled by Norsk Hydro.

A week later they announced it wasn’t happening after all – they’d been unable to get the permissions of one of their lenders and had to instead go for a much smaller ($4m) stock placement deal. Bummer!

Solar Power Inc issues a small convertible bond, but it’s converted 3 wks later. Hmmm.

In mid-July US PV developer SPI Solar (Solar Power Inc), a subsidiary of China’s troubled LDK Solar [LDKSY], one of the world’s largest solar PV companies, announced it had made a private placement of “common stock and convertible bond” for an aggregate $21.75 million to four investors. Proceeds to be used as working capital and to pay down debt.

We noted this as we generally count convertible bonds in our broader “Bonds and Climate Change” universe. At the time SPI didn’t specify the breakdown of stock and bond; but today it announced one of the investors had already converted their bond - a mysterious Hong Kong shelf company Robust Elite Limited. Geez, that was quick. Perhaps it’s something to do with LDK Solar’s re-structuring with the help of a company part-owned by China’s Xinyu City Government – where LDK is based in fact.


Environmental-Finance’s Peter Cripps reports that more convertibles look likely.

(He amusingly quotes a banker: “The markets are very like sheep – if one sees a rival doing something they immediately look at it and think should we do the same.” That BTW is one of the rationales for promoting a green bonds market.)

——— 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. 

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