[explo 648]

Very nice, but Flour does the EPC, YGE only supplies modules. Still a very good module contract for US market. In terms of big EPC contracts for our solar 11 I think LDK still leads with the major contracts awarded by Gansu province. http://investor.ldksolar.com/phoenix.zhtml?c=196973&p=irol-newsArticle&ID=1701889&highlight= In terms of business model I don't think EPC is a golden vertical over time, it's just now due to the module glut and legacy FIT rates based on pre glut cost levels. CSIQ model of going further down to developing and possibly owning project for sale should be more profitable mid-term if you are a good developer. But CSIQ focus is on small 10 MW projects, not 200 MW projects. Long-term I think the GCL and SOL model of doing all and keeping and operating the finished plants, i.e. the power generation segment is the final way these companies need to go to secure revenues and profitablity over more than a 10-20 year period ahead, since electricity is consumed much faster than a panel and demand is insatiable. For GCL it is already their strategy. SOL is doing this more to learn its end market for now, i.e. understand what customer needs and how their products work when applied for power generation, so that they can improve their products to consider all aspects of actual application. Their goal now is to be broad, i.e. rather one plant in every geographic market for maximum learning of different site requirements, than betting on the downstream segment in one market.

[Guest nanofrogfish_spf]

Good posts today/yesterday explo and odyd... That's an interesting subject between owning to operate, as opposed to owning to sell. When CSIQ first announced the Skypower deal, I thought they were getting into the power generation business, but they later clarified that's not their business model. When asked during one of the CC's, Potter commented that they could get a better IRR long term than on just the sale of the plant, but that they get a better overall return by re-investing that freed-up capital in new plants. I would think that selling the plants and re-investing in new plants is the better plan, as long as you have a strong backlog of profitable projects. If opportunities and/or margins get tight on project type work (I can see this in places like China), then I could see the own & operate model becoming a better choice, but to do it on a large scale would require a significant capital investment in each plant, and most of the solar's balance sheets are pretty stretched right now. Keep in mind the IRR's on operating a plant will continue to go down also as FIT's are reduced or eliminated, but should still be reasonable. But long-term, I do see the build, own & operate model becoming more prevalent...maybe keep 1 out of every 5 you build, or something like that. Having long term visible revenue streams is never a bad thing. One interesting note on most of CSIQ's EPC and Development project news, is that they will also maintain and operate these plants after project completion or sale. A small but steadily growing stream of visible, profitable revenue with no risk of capital.

[odyd 1,339]

The new pattern is in, paying off the payables and debt. Cash is being spent big time. Yingli spent $290M of its cash to pay 184M in debt and around $100M in payables. Their inventory went down by by $140M. 23% down (majority adjusted for cost of carrying inventory at higher production costs). It looks that with exception of Trina everyone met the guidance. SOL said they did not, but I had them at 150MW so I am not sure why mine and Solarzoom numbers show 184MW. for Q3 ships.

[explo 648]

Nano I agree with all your points. Even if the strategy is to own plants, you can build your plant portfolio faster if you only keep a portion of what you develop while the market is growing fast, since building and selling grows capital faster to fuel new project. Once the portfolio reaches critical mass it can fuel its own growth.

[Guest nanofrogfish_spf]

explo, concerning our discussion on owning plants and selling power, an interesting article in Bloomberg today "Canadian Solar Sees Growth From Selling Power", had the following comment;

"The solar company may eventually shift its development strategy by building and retaining power plants. “We’re going to slowly but surely pick some projects that we’re going to keep ourselves,” Potter said. “Two to three years from now, I wouldn't be surprised if we started owning more projects.”"

Not unexpectedly, solar bear Jenny Chase (with zero real world experience in business and manufacturing btw), had the following negative comment to add;

“I don’t think it makes sense for them long term, a manufacturer to be an owner of assets -- it’s two completely different asset and capital requirements,” she said. There “are additional, different risks in project development from being a manufacturing business.”

Really???...so what are these unidentified "risks" associated with operating a power plant and selling the power? And isn't owning and building a power plant, regardless of whether or not it's sold or kept, the definition of "project development"? Since they're already doing everything now except selling the power (including maintaining and operating these plants), it sure seems like a pretty good idea to me if you've got the capital to back it up. I hate these vague comments that analysts throw out there to support whatever agenda they may have. I guess she knows more about the business and its future prospects than Qu and Potter...

[explo 648]

nano, i agree that that's a strange comment by Chase and that analysts in general often fail to make sense, deliberately or not. It's true that project development has very different business challenges from manufacturing, but once you've done that successfully and built a successful plant it's more just a matter of how quickly you want to cash in on that cash cow asset when deciding to sell it or own it (even if you sell it you might keep an operation and maintenance contract for it).

[Guest nanofrogfish_spf]

I guess it’s obvious from my post that I believe it’s deliberate...this is based on a year’s worth of commentary and on who her employer is (Bloomberg). It’s like FOX vs MSNBC...you can spin stuff anyway you want to make your point. But just another example IMO, there’s an article in REW about Large Scale Solar Plants in Spain without subsidies being planned, and she has the following comment;

“Utility-scale solar projects in Spain will face overcapacity in the electricity market, according to New Energy Finance’s Chase. “We fear the economics may not work long-term, even if supported by current electricity pool prices, because large amounts of solar in the Spanish grid would depress daytime power prices,” she said.”

So I guess her argument against these plants is that it will make electricity too cheap in the future? But isn’t that a good thing? And how come there is never any mention of the clean energy and energy independence parts of the equation...which is the whole purpose of all this solar stuff to begin with?

I could go on and on about “New Energy Finance”, and their “expert” who’s constantly quoted (btw, they’re technically quoting themselves in these articles...Mark Roca from Bloomberg quoting Jenny Chase from Bloomberg’s affiliate), but who also has no experience in the real business world (just look at her bio), let alone the solar manufacturing world. Odyd has ten times or more the knowledge of the industry...he should be in charge of “NEF”, but his “fair and balanced” views would probably not be welcomed there...

Ok, my mini-rant regarding “NEF” is over for now...at least until the next self-quoted solar article comes out on Bloomberg...

[explo 648]

Nano, I can understand your frustration, but the best way to handle the resistance is to play into it by accumulate the future winners on the bargains the resistance is causing. One has to be careful to not be burned on the volatility though. Anyone who thinks about it realizes that their resistance is futile over time. If the virtually unlimited and easily accessibly sand supply can cheaply be converted to clean non-emitting power generators, why cook the planet by burning limited fossil reserves? Save the fossils for a rainy day when portable high density fuel is really required and can be converted efficiently. Unlimited, cheap, clean, non-emitting, self-sufficient. Who wouldn't want that as their energy supply strategy? The nuclear fission parantheses have lasted 50 years and should be in decline now. I think we'll have a 100-200 years parantheses of solar and wind dominance until new technology allows clean and safe release of the nuclear forces.

[Guest nanofrogfish_spf]

explo, excellent points to remember. At some point down the road I'm sure I'll be thankful for these extended buying opportunities at ridiculously low prices. I believe the future winners and losers are much clearer now, and like you noted it's more a matter of "when" now instead of "if"...

[explo 648]

Chase displaying logic again in Bloomberg article:

http://www.bloomberg.com/news/2012-12-21/first-large-solar-plants-without-subsidy-sought-in-spain.html

"Utility-scale solar projects in Spain will face overcapacity in the electricity market, according to New Energy Finance’s Chase.

“We fear the economics may not work long-term, even if supported by current electricity pool prices, because large amounts of solar in the Spanish grid would depress daytime power prices,” she said. "

So solar would make electricity cheaper and therefore it does not work long-term? Big Oil Busted or what?