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SPVInvestor Forum - is a data-research based, retail investor assembly, engaged in analysis of public solar corporations, focusing on US-listed, Chinese companies.  The group uses proprietary China Export Data Report to evaluate operational conditions and merits of the investment thesis. More on the report's content is available at SPVinvestor Research. Forum is fee-based.



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Emerging Markets News Sept 2014


JinkoSolar offers utility company characteristics in early stages of growth.

I would add the point of low financial risk as another attractive point: Once a PPA is signed there is a beautiful cashflow visibility for the lifetime of the project because both the incoming cash and outgoing cash can be forecasted accurately (no volatile fuel cost component). This provides tremendous potential for the securitization of the cashflow and hence for low-cost financing.

Exactly. For someone with plenty of capital reserve this is a great investment. For those short on capital holding PV power plants are too capital intense to allow sufficient revenue growth if there's no other capital inflow stream. The capital intensity is a major barrier.

However, this is not the point. My thesis was that under free market conditions there will no more profits in the PV power generating business than in the conventional power generating business. After all it is a commodity business with low barriers to entry. That is the sad truth.

There will be barriers. These will be the utilities of the future. How many utilities do you have now in each market? Only a handful. So who will claim the position as one of the big global PV utilities of the future? Right now you can buy a plant directly, or you source panels and EPC to build your own plant. Once these future utilities establish they will own all of the most competitive panel production and EPC resources as well as having the huge capital needed to build new plants and they won't sell these plants.

What you describe is a scenario where everyone will make electricity so it will be free and you can't make money on producing electricity in the future. The world doesn't work like that. The most competitive panel makers are already removing supply to third parties. Jinko is already allocating 20% of their super cost efficient panels to themselves, and I only see this trend to continue, as these guys need to grow the part of the value chain they operate in to maximize profit growth. 20% is a good start building mass in the utility revenue, then the segment can be self-funded from huge cash flows and allocate more and more of the groups panel production and EPC service. Just growing panels shipment volumes is a dead-end in my view. It will not make anyone fat but those owning the PV plants in which the cheap panels are installed. I estimate close to half of the value-chain profits to be in the electricity sales. Thus the enablers of plants with good IRR need to keep them for themselves. And we all know with 4 big operators in a market (utility, banks, networks etc.) they won't compete themselves out of profits, but they will solidify themselves as big enough to be viable in the market and comfortably avoid new entrants to come and pressure their profits.

If you were talking about panel assembly I would understand the low barrier to set up shop, but I'm talking full value-chain. Third party panel sales are just a phase in the utility segment. For DG it will be best integrated suppliers who win the market under different ownership models.

The only question is if the most successful integrated manufacturers will succeed in their venture to become the big PV utilities or if they will be acquired by them. The end result with a few big global PV utilities with full in-house supply chain to secure roll out of new plants with full cost control is the same in both cases.

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