Canadian Solar to expand Solar Capacity

Top Tier 1 Chinese solar producers are starting to expand capacity, as solar demand has begun growing faster than the stagnant supply. The massive solar downturn in 2012 had resulted in a complete stop in solar capacity expansions, as more than 60 GW of solar panel capacity tried to compete for 30 GW of solar demand. The brutal downturn resulted in hundreds of bankruptcies and most of the solar capacity has been mothballed. Only the top and biggest solar companies have managed to survive the vicious downturn. These companies have started to return to profitability as demand has continued to grow rapidly, thanks to the large solar panel price declines.

Companies such as Jinko Solar (JKS) and Trina Solar (TSL) have started to increase capacity by taking over distressed Tier 2 Chinese solar firms. They are increasing their supply by spending very low amounts of capex. Most solar companies have seen their balance sheet deteriorate badly as they made huge losses. Nobody has the balance sheet to make big bang capacity expansions. Companies have become smarter from the last downturn, as most burned their hands. Two of the biggest players Suntech (STP) and LDK Solar (LDK) have imploded due to their high debt burdens.

Canadian Solar (CSIQ) has been the best performing Chinese solar stock as the company’s bets on the solar development business has paid off handsomely. The company along with Sunpower (SPWR) has become a major global solar developer. The company is now looking to raise capacity of its module part to 3 GW from the existing 2.4 GW. The company has already raised $200 million through a secondary. Note solar demand may jump by 40% in 2014. This means that companies are prudently adding to capacity as shortages could be seen next year. Sunpower is also expanding capacity by 250 MW.

The growing number of expansion announcements market a decisive inflection point for the solar cycle. Most of the news in the last couple of years was about plant closures, bankruptcies etc. Now the new cycle has seen announcements about expansion as the companies start to mark new sales records. Though profitability has remained a concern for most companies, the increasing topline in 2014 should help the profitability also increase.

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