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Canadian Solar plans project sales due to 'greatly reduced' ability to launch yieldco

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Canadian Solar plans project sales due to 'greatly reduced' ability to launch yieldco

Canadian SolarInc. plans to emphasize the sale of developed power projects tothird parties, citing a "greatly reduced" ability to launch an IPOfor a yieldco because of current market dynamics.

The solar panel manufacturer and project developer had beenworking to join the likes of NextEraEnergy Inc., NRGEnergy Inc., SunEdisonInc., Pattern EnergyGroup LP, Abengoa SA,First Solar Inc. andSunPower Corp. withan affiliated yieldco, but continued concern about the yieldco business modelhas dried up the demand for a new one.

Speaking on a May 11 earnings conference call, outgoing CFOMichael Potter said Canadian Solar would still like to have the option to sellinto a yieldco, which would allow the company to retain a stake in itsdeveloped projects, but said the "market reality" is such that itneeds to focus more on private partnerships and other sources of "lessexpensive equity." The company suggestedsuch a move might be coming last quarter.

Potter said the shift will allow Canadian Solar to sell moreprojects in the second half of the year, allowing the company to increase itsguidance by $100 million as the certainty of some sales increases.

The company reported 438 MW of operating solar power plantsin its holding company with an estimated resale value of more than $950million.

Canadian Solar's share price was up more than 12% as of 2:45p.m. ET May 11 on the news, which included better-than-expected financialresults and expanded module shipments.

Project outlook

Company Chairman and CEO Shawn Qu said the markets for solarproject sales are particularly strong currently in the U.K., China and Japan,where "we can definitely make money." Asset sales, Qu said, wouldallow the company to manage its cash flow and its revenue. "We have thisnice asset inventory," he said. "That's a very valuable inventory forus."

Qu added that the pricing looks "quite reasonable"in the United States and that the five-year extension of the investment taxcredit provides a good runway to develop and add more projects. "It's amarket that we can easily execute in and where the financing is quite deep, andthe market is quite mature in terms of buyers and financing," he said.

The company currently has seven solar projects in the UnitedStates that are under construction and expected to come online this year, for atotal of 1,185 MWp in gross terms and 771 MWp when the company's net ownershipafter sales and tax equity are accounted for, according to a news release.Another two projects being developed by its Recurrent Energy LLC subsidiary have secured powerpurchase agreements. A 52-MWp project is scheduled to come online in 2017 and a26-MWp project is scheduled to come online in 2018, both in California.

Earnings beat

For the quarter, the company reported first incomeattributable to Canadian Solar of $22.6 million, or 39 cents per share, downfrom $61.3 million, or $1.04 per share, during the same period a year ago. Theresults beat the S&P Global Market Intelligence consensus analyst estimateof 4 cents per share.

Net revenue for the quarter was $721.4 million, down 16.2%from $860.9 million a year ago, but beating estimates of $658.3 million.

The company raised its revenue guidance for 2016 to a rangeof $3.0 billion to $3.2 billion, up from $2.9 billion to $3.1 billion. Totalsolar module shipments recognized in revenue in the first quarter were 1,200MW, down from 1,400 MW in the fourth quarter of 2015.

The Americas represented 43.1% of its sales, down from 51.9%last quarter and 48.7% a year ago, according to a company statement. Qu, on thecall, added that shipments to the U.S. exceeded 400 MW during the firstquarter.