Solar Survival Tactic – Canadian Solar to copy US solar companies First Solar and Sunpower strategic shift to solar system business
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November 21, 2012Solar Survival Tactic for Canadian Solar
Solar panel companies have been badly bruised by the price war raging in the massively oversupplied solar module market today. Even the best in class companies like Trina Solar are showing almost breakeven gross margin and a large negative net margin. Despite costs falling rapidly by almost 40% year on year, the ASP falls have been greater. Pricing has become irrational to great extent leading even top global solar panel manufacturers like Canadian Solar to stop selling to markets where pricing is too low. The only big solar company making a profit is First Solar mainly due to its past wins of big solar projects under US government subsidized loan programs. Sunpower has also maintained high revenues through its solar system business whereby it does the complete building, financing, development of the solar project and sells its to a 3rd party on completion.
Canadian Solar plans to increase its solar system business to almost 50% from 10% now as it looks to survive through this torturous downturn. Note companies with less favorable cost structure like Suntech and LDK are effectively bankrupt surviving on Chinese government largesse. Solar system business which is less profitable than pure module sales has become the savior for large solar companies. This is due to the fact that Gross margins in this business are 15-25% compared to the zero to negative margins for module sales. Other big solar companies like Suntech, LDK, Renesola, Jinko Solar, JA Solar, GCL, OCI too have invested in the solar system business. However the percentage of sales from this segment is still too small to make a difference either to the topline or bottomline.
Earlier this year, the company agreed to a joint venture with solar-energy project developer SkyPower Ltd. in a deal that at the time was potentially valued at 185 million Canadian dollars (US$185.7 million). This included a majority interest in 16 solar projects and the joint development of solar projects in emerging markets. It also lowered its view for the year, expecting 1.5 gigawatts to 1.6 gigawatts from its prior view of 1.8 gigawatts to 2 gigawatts.