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Canadian Solar (CSIQ)

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Guest sc_solar
Yes, it seems your friends have followed you here..from other boards. They are tearing up everything you say and even blasting your screenname back there. Its childish yet hysterical. It gets so utterly hopeless when one realizes they may have been wrong about a stock. Well, I take it back, they(CSIQ) will have an ugly Q4 especially with accounting the one timer for LDK . I am going out on a limb here...the Analysts starting to speak favorably about CSIQ are not Bachmann et all, so I am going to assume they already know about this LDK issue and its already baked in. Apparently, like you and I, they are looking out 6 months, 1 year, 18 months. Thanks again!! :)

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Guest larryvand

My post was about CSIQ's Q4 and the $40 million arbitration loss. I did not post any comparisons of SOL to CSIQ. Nano did. I only responded to his post that he was incorrect. I wish you and nano all the luck in your investments as we all get affected when one sneezes.

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Guest nanofrogfish_spf

Thanks explo, other than their press release on using Mortenson Construction to complete the EPC on another project in NC (the PPA’s there must be pretty good) of 2.5MW, who CSI was doing business with in the US was a big mystery. It’s also good to know Strata Solar is providing all the financing for these. What’s interesting is how fast Strata has grown. They did 9MW of projects in 2011, and plan on 150MW this year! I’m guessing that the partnership with CSIQ helped make that possible. Now this is pure speculation, but I have to believe CSIQ would be the most likely partner on that 100MW solar farm that’s close to getting its PPA. It should be the biggest on the East Coast when finished. That would also be a nice little addition to the 2014 columns of my project spreadsheet...maybe we’ll hear something about this in the upcoming CC. Another good day for solars...and many more to come!

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Guest N0mistakes

The risk with CSIQ is a high exposure to the spot market when project price is fixed. Should poly and wafer prices rise significantly they can face significant margin compression in the projects, especially since the project revenue is backloaded towards Q4 2013 and Q1 2014. How much will the project margins drop if wafers rise to 40 cents for instance?

This is a good example of a questioning post. It deals with the subject matter - the project pipeline in the face of potential changes in the cost of the BoM. Wafers at 40 cents is quite a huge jump from the current price, but project pricing is based on investor IRR. It varies over time based on cost of debt and required returns on equity, not on the cost of the project itself. The incentives the government offers tend to lag changes in the cost of solar.

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Guest littleguyintucson
Plus they haven't taken the loss of 248.9 million RMB ($40 million) from the arbitration case they lost to LDK on Dec 12. They have set aside only $10 million so based on 43..21m shares outstanding we are looking at another $30 million or -70c/sh loss just from that alone. If they take it in Q4, CSIQ should be posting more than -$1.50 in losses. http://finance.yahoo.com/news/ldk-solar-announces-arbitration-award-102417806.html
Please go read the 20F from 2011. There are mentions of the litigation reserves taken and the potential loss of prepayments that amounted to over $30M. Some of this was for UMG contract that LDK never made as Poly dropped like a rock and UMG became worthless. Setting aside $10M is likely all they have left to owe after LDK kept the prepayment. Search on LDK. http://www.sec.gov/Archives/edgar/data/1375877/000095012311051124/h05069e20vf.htm

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Guest littleguyintucson

My post was about CSIQ's Q4 and the $40 million arbitration loss. I did not post any comparisons of SOL to CSIQ. Nano did. I only responded to his post that he was incorrect. I wish you and nano all the luck in your investments as we all get affected when one sneezes.

Please read the 20F from 2011 by CSIQ. They covered the litigation with LDK. There were prepayments of $30 that they appear to have taken reserves on in 2009/10/11. The 2010 20F also mentions it but to lesser reserves taken. The $10M is likely all they owe. http://www.sec.gov/Archives/edgar/data/1375877/000095012311051124/h05069e20vf.htm

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Guest Klothilde

This is a good example of a questioning post. It deals with the subject matter - the project pipeline in the face of potential changes in the cost of the BoM. Wafers at 40 cents is quite a huge jump from the current price, but project pricing is based on investor IRR. It varies over time based on cost of debt and required returns on equity, not on the cost of the project itself. The incentives the government offers tend to lag changes in the cost of solar.

I'm not sure sure what you want to say with your post. It is obvious that my post is a questioning post. As you noticed the project price is pretty much set by the Feed-in-Tariff. If project COGS rise after the Tariff has been fixed then margins will automatically drop. Changes in cost of debt and required return are not expected to be large over a 12-18 months period and not likely to affect project price. The relevant question is thus HOW strong project margins can erode with increasing component prices. Will the drop be negligible or significant? Can the projects absorb 10-20 cent higher module prices?

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Guest N0mistakes

I was complimenting you on your post. It is the type of post I wish were more common. You should be able to estimate your answer, though, for any project. One MW at $1/watt is $1M. So 10 cents on 1 MW is $100K. 10MW is $1M. I have not done the detailed modeling that nano has, but I doubt that older projects at higher margins based on FIT and PPA rates when solar was over $3 / watt will suffer that much for a 10 cent move in module prices. I would be more worried about new projects - companies that announce a lot of business in China are getting brand new projects and the pricing is probably much tighter with much less margin. I doubt that it matters that much for the currently announced CSIQ projects, and I am sure that if prices are definitely rising they can stockpile the small amount of panels needed at lower prices. At least for this year. This is actually what makes me challenge the view that poly (and wafers) will just rise. Even if you ignore the vast overcapacity today, what happens to demand if prices come up? Are the residential and commercial markets viable under the new, lower FITs? However, a longer discussion of that is probably better for another thread. For this thread, CS was indeed bullish on CSIQ. They specifically mentioned them even though they are not formally covered by CS. Both DB and CS must like the Canadian pipeline right now as they have lent against it. As have Bank of China and China Development Bank. To ignore that, in the short run, there is more visibility here and both Western and Chinese banks have analyzed it and lent money is cutting your nose off to spite your face.

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I think was this discussion boils down to is revenue visibility vs cost visibility. Having a project pipeline, provides you with an outlet for your module production (module shipment and EPC revenue visibility for internal sales to own project unit) and for already sold (yet to be constructed) you have very good project unit revenue visibility (can be recognized as construction is completed). What CSIQ lack in its project business compared to GCL's project business is what poly and wafer sourcing cost it will have when constructing the project, since CSIQ source components externally and thus it depends on how the market prices for those components move until then. This can be very volatile and visibility can be low. While for GCL sourcing internally it only depends on its own production cost, which should be less volatile, likely trend downward with fairly good visibility. Make it yourself -> cost visibility Use it yourself in own pre-sold projects -> total revenue visibility

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I have not done the detailed modeling that nano has, but I doubt that older projects at higher margins based on FIT and PPA rates when solar was over $3 / watt will suffer that much for a 10 cent move in module prices. I would be more worried about new projects - companies that announce a lot of business in China are getting brand new projects and the pricing is probably much tighter with much less margin. I doubt that it matters that much for the currently announced CSIQ projects, and I am sure that if prices are definitely rising they can stockpile the small amount of panels needed at lower prices. At least for this year.

I agree with this view. The high FiT/PPA projects CSIQ secured before is valuable. I especially like those they developed from the start and sold to Transcanada. That's certain value. The purchase of project pipelines lately pre construction I'm less sure about. In each such case there was a counter part that did an investment exit and trying to maximize their returns. I think buying old projects is related to the fact that the new projects cannot get close to the old FiTs and CSIQ want a nice revenue pipeline. CSIQ should be good for now. The projects LDK, JKS and TSL are doing in China I'm less sure about.

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Guest nanofrogfish_spf

Finally, some good discussions on CSIQ...some quick comments; The argument against CSIQ seems to be that they will be less competitive when poly/wafer spot prices rise because of their “high exposure” to the spot market. The problem with this argument is, they only have high exposure if they want to when prices are low (that’s the beauty of being virtually integrated, you have flexibility in your upstream). Their main partner for wafers is GCL (in fact, GCL built a 600MW wafer plant right next to and dedicated to CSIQ in China)...if spot rises, they just buy more from GCL (and some others they've built relationships with). GCL’s prices will remain extremely competitive...it’s in their best interests to see that all their clients (incl. TSL, etc.) remain competitive, and they have a lot of unused capacity I’m sure they’d like to turn the switch on again.. Btw, I agree with NOmistakes that the dynamics of the entire solar industry will not support large price increases at any point in the supply chain...progress must be made on the cost side. But let’s just assume that CSIQ’s modules do end up costing 5c/w more someday from today’s prices (highly unlikely IMO). It would make very little, if any difference on the profitability of the projects, because it’s such a small percentage of the overall project costs. I think Jigar Shah summed it up nicely in a quote from a recent article; “Shah adds that most developers today are “not looking for price reductions,” citing significantly lowered costs as the primary reason. “The difference between getting a 70 cent a watt module and a 65 cent a watt module is just not that big of a deal anymore for system costs,” Shah said. “People are now looking at non price features for making decision on who to buy from.” “ And btw, almost all the projects CSIQ has were inked when module costs and ASP’s were significantly higher (and we’re not talking nickels here)...so they will actually be getting much better returns than when estimated when the contracts were first signed. And they will also probably sell these solar farms for more than the initial estimatesused in calculation the IRR’s (they always use the term “expect to generate OVER $....). These farms with FIT/PPA contracts are like govt backed bonds with much higher returns, so they are in very high demand.

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Guest nanofrogfish_spf

This is from the 20F;

As of December 31, 2010 and 2011, the Company had provided a full allowance against the advance to LDK of $9,517,110 due to the uncertainty of recovery. The Company believes the allegations are without merit and that the potential for additional loss is remote and, accordingly, has not recorded an additional liability associated with such lawsuit.

From this statement, they only made allowance against the deposit. So they will need to take a 1-time hit of about $30 Mil., even if they decide to appeal it (but they'll probably just pay it). I don't think it really matters for this upcoming earnings period anyways...actually good timing since the all the focus for all the solar companies will be on 2013 outlooks, not Q4 results (and especially 1-timers).

At this point the only question for each company will be; can they turn a decent profit sometime in 2013?...

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Guest littleguyintucson

The PR indicates CSIQ forfeits the prepayment of the contract and owes an additional $30M+. However, there were several contracts in dispute and CSIQ had made several prepayments if you read further in the 20F. The PR does not make mention that these funds owed might already have been received and that LDK may have lost some parts of the arbitration. Thus based on wordings and your indications of a $10M reserve, it would appear the other prepayments and reserves taken int he 09/10 years might cover the remaining owed from the ruling and the $30M hit would not occur. From the SC filling ""We made an allowance for advances to LDK amounting to $9.0 million and 9.1 million for 2009 and 2010, respectively. We also made an allowance of for advances to an UMG-Si supplier amounting to $9.7 million in 2010." LDK In July 2010, CSI Cells filed a request for arbitration against LDK with the Shanghai Branch of the China Economic & Trade Arbitration Commission. In its arbitration request, CSI Cells asked that LDK refund (1) an advance payment of RMB10.0 million (approximately $1.5 million based on the exchange rate in effect on April 15, 2011]) that it had made to LDK pursuant to a three-year wafer supply agreement between CSI Cells and LDK entered into in October 2007 and (2) two advance payments totaling RMB50.0 million (approximately $7.66 million based on the exchange rate in effect on April 15, 2011) that CSI Cells had made to LDK pursuant to two ten-year supply agreements between CSI Cells and LDK entered into in June 2008. The first hearing was held in October 2010, during which CSI Cells and LDK exchanged and reviewed the evidence. After the first hearing, LDK counterclaimed against CSI Cells, seeking (1) forfeiture of the three advance payments totaling RMB60.0 million (approximately $9.2 million based on the exchange rate in effect on April 15, 2011) that CSI Cells had made to LDK pursuant to the October 2007 and June 2008 agreements; (2) compensation of approximately RMB377 million (approximately $57.8 million based on the exchange rate in effect on April 15, 2011) for the loss due to the alleged breach of the June 2008 agreements by CSI Cells; (3) a penalty of approximately RMB15.2 million (approximately $2.3 million based on the exchange rate in effect on April 15, 2011) due to the alleged breach of the June 2008 agreements by CSI Cells; and (4) arbitration expenses up to RMB4.7 million (approximately $719,743 based on the exchange rate in effect on April 15, 2011). The second hearing was held on March 9, 2011, during which the parties presented arguments to the arbitration commission. The arbitration commission will host settlement discussions between the parties in late May 2011.

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Guest nanofrogfish_spf

good dig-down littleguy...your take has merit, and I certainly hope you're right...

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Guest nanofrogfish_spf

Now this is pure speculation, but I have to believe CSIQ would be the most likely partner on that 100MW solar farm that’s close to getting its PPA. It should be the biggest on the East Coast when finished. That would also be a nice little addition to the 2014 columns of my project spreadsheet...maybe we’ll hear something about this in the upcoming CC.

According to this article , CSIQ will be supplying the modules for that 100 MW project... Photovoltaics will be used to cover about 400 acres of land, and roughly 400 workers will be employed during the construction phase. Total cost is an estimated $250 million. Solar panels will be provided by Canadian Solar, an Ontario-based company. The Duplin County installation will sell electricity to Progress Energy Carolinas.

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Guest sc_solar

I read it early yesterday, but it seemed unclear for sure at the time. Thanks Nano and Explo!! Awesome!!! Thats a nice big farm. Nice addition to the spreadsheet!!! Love this great news!!! Thanks....keep it coming CSIQ!!!

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Guest MichaelZhao

CSIQ will be supplying the modules for that 100 MW project...

Actually I am not that happy with this news, we all know that selling modules won't make money these days for CSIQ, and neither in 2013 (if you read into what CSIQ CEO said). I was hoping CSIQ could expand it's project business into US quickly, but looks like we have to wait longer for that.

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Guest spiritcraft

I hope so. Both CSIQ and TSL have been range bound for some time. I am thinking about selling additional shares of JKS now that it is on the verge of $10 and putting the in CSIQ.

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Guest larryvand

CSIQ spend almost nothing on R&D, and so they don't have any patented strength and uniqueness among solars. Look for R&D spending to pick the winners.

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Guest MichaelZhao

CSIQ spend almost nothing on R&D, and so they don't have any patented strength and uniqueness among solars. Look for R&D spending to pick the winners.

Actually I believe the only way for Solar company to make $$$ is to get involved in downstream project business, even in the near future. That's why SPWR is up big time recently, that's why FSLR is still profitable.

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In 2012 the margin movement trend was upstream -> downstream In 2013 the margin movement trend will be downstrem -> upstream Still downstream state should be good in 2013, especially for CSIQ. SOL + CSIQ provides a good value-chain diversification.

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Guest larryvand

That's why SPWR is up big time recently

SPWR has some of the highest efficiency panels. They spend a tremendous amount on R&D and it shows.

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Guest spiritcraft

It's not like I own just one. Thanks all for the SOL heads up, those buys are looking really good. As for CSIQ, I think they are due for a rise shortly as well. I also do think that downstream activity may lead to a PE or valuation premium for reasons financially relevant and purely sentimental.

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Guest MichaelZhao

SPWR has some of the highest efficiency panels.

Agree, but their cost is high on per watt basis as well, that's why their stock wasn't doing good untill they got that 500MW project bisiness.

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Guest larryvand

Their panels are still expensive per watt but they get these contracts for their technology which provides more watts/sqft.

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Guest larryvand

Another reason why CSIQ is a laggard could have something to do with the price of poly rising. Solar companies without poly capacity are going to be at a huge disadvantage. Plus all those projects were signed when prices were low. And so by the time they are built the price of poly and CSIQ costs could be much higher and their margins very low to negative.

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