SolarPVInvestor Forums

ReneSola's recently filed 20-F page F-36 (158) contains some interesting breakdowns (the 20-F: http://ir.renesola.com/phoenix.zhtml?c=2…zdWJzaWQ9NTc%3d). It has operated two principal segments in 2010 to 2012 to cover it two major products module and wafer, but added a third to cover some of all the other products that did not fit in the two principal segments. Here's a quote:

The Company operates in two principal reportable business segments, Wafer, Cell and module. The Wafer segment involves the manufacture and sales of monocrystalline and multicrystalline solar wafers and processing services. The Cell and module segment involves manufacture and sale of PV cells and modules. Ancillary revenues and expenses, generated from one solar power plant and other unallocated costs and expenses are recorded in other, beginning from 2012.

Attached (or here: http://ir.renesola.com/phoenix.zhtml?c=2…nNpZD01Nw%3d%3d) are the tables. There you can see the one new product item for 2012 - Power - with 5.1m in revenue. In 2012 segment reporting there is also one new segment - Other - as described above. The Other segment has 6.9m in revenue at 48% gross margin. It is quite clear that the Power sales is part of this segment, but there are 1.9m of other products too, so I search the term "ancillary" to see if I could find something more on this. I only found this:

The increase in such expenses in 2011 and 2012 compared to 2010 was due to our continued research into improving cell efficiency, low-cost production, developing ancillary products and developing and improving in-house production of raw materials.

We expect our research and development expenses to remain at approximately the same level in the future as we continue to expand and promote innovations in our processing technologies of manufacturing polysilicon, ingots, wafers, cells and modules, as well as ancillary products such as inverters and optimizers.

Besides the horisontal integration into inverters, microinverters, optimizers and the mounting solution recently launched on their website and the announced storage solutions to be launched this year, they do vertical integration of their wafer production beyond poly, for example they make and sell diamond steel wires.

Regardless of what that Other part is, it is quite obvious that the Power generation business, though low annual revenue level and high initial investment are almost pure profits and very stable for a long time. I quite like the idea of starting to keep some plants to eventually have these 50% margins help keep up over all margin during industry troughs.

As I read the 20-F it seems the 20 MW plant in Qinghai is now a power plant with assets moved from project assets to PPE with the purpose to generate electricity for sale rather than be an asset for sale as the project assets are:

The power station built up in China for generating electricity business has a carrying amount of $30.0 million under the "Plant and machinery", and $13.5 million under the "Buildings".

Here's how they account for projects that they intend to sell:

Project assets consist primarily of costs relating to solar power projects in various stages of development that are capitalized prior to entering into a definitive sales agreement for the solar power project. These costs include modules, installation and other direct development costs. Once the Company enters into a definitive sales agreement, the Company reclassifies project assets to deferred project costs on the consolidated balance sheet until the sale is completed and all of the criteria to recognize the sale as revenue have been met. The Company expenses project assets to cost of sales after each respective project asset is sold to a customer.

The 25.8m in project assets they have are thus likely for their plant 9.7 MW plant in Bulgaria and the 6 MW plant in Romania.

Timing-wise the Bulgarian plant was connected to the grid by 12Q2 and the Qinghai plant was already connected by then.

In 12Q3 they said that a 6 MW plant in Romania and 40 MW plant(s) of in China were being constructed.

Profitibility-wise they've indicated >25% IRR on the Bulgarian plant (insane since it is all profit from year 4 to 25?) and 15% for the Qinghai plant. With these kind of IRRs I understand that they are in no rush to sell these plants. Considering their strong bank relations I think they should keep these solid and visibility improving assets.

Thanks, that was very helpful. I think the electricity sales was 5.1m. It's more clear on page 57.

(2) Included approximately $4.0 million, $0.6 million and $1.9 million from sales of solar cells in the years ended December 31, 2010, 2011 and 2012, respectively. Included approximately $nil, $nil and $5.1 million from sales of electricity generated by our power systems in China for the years ended December 31, 2010, 2011 and 2012, respectively.

The Bulgarian plant was connected around a year ago. They talked about the early Chinese and Bulgarian projects in their 12Q2 ER presentation (page 11):

http://phx.corporate-ir.net/External.Fil…TF8VHlwZT0z&t=1

The Romanian and newer Chinese projects were under construction and talked about in the 12Q3 ER presentation (page 11):

http://media.corporate-ir.net/media_file…_11_30_2012.pdf

There's not much details on this in the 20-F, but I found this:

Furthermore, we made several acquisitions of equity interests in 2012. Our wholly owned subsidiary, ReneSola Singapore Pte. Ltd., acquired 100% equity interests of Nove Eco Energy Eood and MG Solar Systems Eood in Bulgaria in April 2012 as project assets. We also acquired 100% equity interests in Lucas Est S.R.L and Ecosfer Energy S.R.L in Romania in September 2012 as project assets.

My guess is they intend to sell these, but will wait for a good price.

Quoted from "Klothilde"

Was SOL affected by the 39% retroactive grid fee in Bulgaria?

http://www.pv-magazine.com/news/details/…/#axzz2RmxJSxTk

Sounds like they could have been hit by that. It's a risky business. SOL is not really going into it seriously, but do it partly to learn more about their end market. I think this shows that the strategy of CSIQ and SOL to not do mega projects and to either focus on "safe" markets or diversify between market is reducing risk significantly.

ReneSola might wait to see if EU can get the member states to back off from slapping FiT cuts retroactively.

http://www.pv-magazine.com/news/details/…/#axzz2Rn5F5Eae

While googling for more info in Bulgaria policy I found this preso on renewable energy support in Europe:

http://www.europarl.europa.eu/document/a…9ATT55207EN.pdf

Based on this information from the Bulgarian Photovoltaic Association and that ReneSola had stated the IRR as >25%, the worst case change of IRR would be if the project was commissioned in first half of 2012, i.e. the 39% FiT cut from 32 US cents to 20 US cents:

http://www.bpva.org/modules/downloadReso…50a2b5a8c576791

A rough calculation says that a 25% IRR would drop to 15% with that FiT cut. If that means much lower profit on selling the plant I think the should keep it and collect those 15% IRR, since this again gives those 50% margins. Bad for short-term cash flow, good for long-term profitability.

There are actually some details in the 20-F on new PV plants to be built in 2013:

We are developing our power generation projects in Qinghai and Xinjiang, China. Our 20 MW project in Qinghai that is already in operation and connected to the grid occupied a site area on a piece of allocated land of approximately 533,000 square meters, or the Qinghai Land Phase I, as of December 31, 2012. We are also in the process of constructing a 20 MW project in Xinjiang on a site area on a piece of allocated land of approximately 600,000 square meters, or the Xinjiang Land, as of December 31, 2012, and we anticipate it to be completed in the first half of 2013.

In 2012, we added a second phase to the Qinghai project on a separate site occupying an area of approximately 406,000 square meters, or the Qinghai Land Phase II, as of December 31, 2012, which is expected to generate additional power of 20 MW starting in the first half of 2013.

Here are some details given on the financing of the project business in China and eastern Europe:

In July 2012, we obtained a 15-year long-term loan from China Development Bank of RMB220 million ($35.3 million), of which RMB2.5 million ($0.4 million) was due and repaid in November 2012, RMB5 million to be repaid in each of 2013, 2014 and 2015, RMB18 million to be repaid in each year from 2016 to 2026 and RMB4.5 million to be repaid in 2027. The proceeds from this loan are to be used to finance our PV power generation project in Qinghai. In March 2013, we obtained another two 15-year long-term loans from China Development Bank of RMB110 million and RMB120 million, respectively, and in April 2013, we obtained another RMB50 million and RMB40 million, respectively, under the same loan arrangements. For each of these two 15-year loan arrangements, RMB4 million is to be repaid in each year from 2014 to 2018, RMB10 million is to be repaid in each year from 2019 to 2023, RMB20 million is to be repaid in each year from 2024 to 2027 and RMB10 million is to be repaid in March 2018. The proceeds from the loans are to be used to finance our two PV power generation projects in Xinjiang and Qinghai, China.

In March 2013, we obtained two four-year term loans from a lender in Korea totaling Korean Won 35.7 billion. These loans are to be repaid in March 2017. The proceeds from these loans are to be used to finance our PV plant projects in Romania.

Some general financing comments in the 20-F:

Subsequent to December 31, 2012, the Company obtained new financings totaling $337.9 million, which are comprised of $252.9 million in short-term borrowings, for its working capital needs, and $85.0 million in long-term borrowings, for its project development.

Yes, it is much better profits to keep the plant and sell the power than selling the plant, but it is more cash consuming. I think that's why they don't do as much projects yet. If you want to do a lot of projects you need to sell them to release cash for next project and so on to not quickly get an overextended balance sheet. I kind of like the idea of doing a few very good ones and keep them.

Good selling point too: "We are confident in our panels and put our money where our mouth is by owning and operating several PV plants using our own panels"

Anyway it will be interesting to hear if they give some news on their project plans. So far they wanted to keep it at a relatively small scale. I don't think it is strategically wise long-term for these guys to depend to much on project development business. I'd rather they have some of that predictable profit and cash flow from electricity sales, so build a couple of plants a year at moderate scale and keep them.