The year 2013 will go down as a major turning point for China’s solar panel makers, with some names emerging as new sector leaders after a prolonged downturn while others quietly disappeared. The latter category saw former leader Suntech (OTC: STPFQ) go bankrupt and LDK (NYSE: LDK) quietly sell off many of its assets, while the former category has seen Canadian Solar (Nasdaq: CSIQ) and Shunfeng (HKEx: 1165) emerge as names to watch in the future. Canadian Solar in particular has been coming back strong in the second half of this year with a steady stream of good news, including its latest mega-deal to sell panels in China.
Sensing the end of a nearly 3-year-old downturn is finally in sight, investors have sharply bid up shares of many healthier solar panel makers this year. Canadian Solar’s shares have posted some of the biggest gains, rising from about $3 at the beginning of the year to their current $28. For anyone too lazy to do the math, that means anyone smart enough to buy the shares in January would have received a 9-fold return on their investment. The rally has helped Canadian Solar shares to regain most of the value they previously held at their peak in 2010 when bullishness towards the solar panel sector was at its height.
All that said, let’s take a look at Canadian Solar’s latest mega-deal, which will see it sell 100 megawatts worth of modules to Chinese power plant developer Zhenfa New Energy to build 3 new plants in Gansu province and one in Inner Mongolia. Normally I don’t write about individual deals, since companies frequently make such announcements. But in this case the size of the deal is quite large, especially when one considers the amount is more than a fifth of Canadian Solar’s total sales for its latest reporting quarter.
This deal also caught my attention because it followed another 100 megawatt deal for the company announced last month with 3 Gorges New Energy, a company associated with the massive 3 Gorges Dam project in interior China. Canadian Solar also announced another big China deal in November to sell 32 megawatts of modules to China Perfect Machinery Industry Corp. That means in the last 2 months alone, Canadian Solar has signed deals for 232 megawatts of modules in China.
Industry followers will note that this series of deals comes as China embarks on an ambitious campaign to build up its solar power generating capacity. Despite producing more than half of the world’s solar panels, China historically wasn’t a strong buyer of those panels. But that has rapidly changed in the last year, as Beijing has steadily raised its targets for an ambitious plan to build new solar plants throughout the country.
In the latest adjustment to its plans, reports last month said Beijing aims to have 12 gigawatts of solar power capacity installed by the end of next year, up from a previous goal of 10 gigawatts. It plans to triple that figure to 35 gigawatts by the end of 2015. That means that if Beijing really follows its plan, these orders we’re seeing now from Canadian Solar should be just the beginning of an ordering frenzy likely to accelerate in 2014.
I fully expect such a buying binge to materialize, as state-owned power plant builders and other local entities will be anxious to carry out Beijing’s plan. That should be great news for the panel makers, and should help propel most back to profitability next year. The binge could be more problematic for China’s grid operator as it tries to connect all these new facilities to the national grid. But that’s a problem for Beijing and not the panel makers.
Bottom line: A recent series of mega deals for Canadian Solar augers a buying binge in 2014 by solar plant builders, as they rush to fulfill Beijing’s ambitious solar energy targets.
This blog was originally published on Young's China Business Blog and was republished with permission.
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