A couple of year-end announcements from solar majors Trina (NYSE: TSL) and ReneSola (NYSE: SOL) are pointing to a coming flood of new orders for the entire solar panel sector next year, fueled by huge new demand from their home China market. I fully expect we’ll see a steady stream of similar announcements throughout next year and even into 2015, providing a flow of good news for rebounding solar stocks after a 3-year sector downturn. But amid the bright news, potential downside lurks in the risk that payments for some of these mega-orders could be slow to come, as many solar plant operators are big state-owned entities that may lack the funds and skills to pay for and operate all of their ambitious new projects.
I certainly don’t want to throw too much cold water on this nascent rebound for China’s solar panel makers, who along with their global peers have suffered through a prolonged downturn dating back to early 2011 due to massive overcapacity. Much of the older, less efficient capacity has now been shut down through a series of facility closures and bankruptcies, putting most remaining players on track to return to profitability in 2014. Aiding the rebound is an extremely aggressive build-up plan by Beijing to have 35 gigawatts of installed solar power generating capacity by 2015, compared with virtually nothing just 2 years ago. (previous post)
Achieving such a grand target will be tough, but big state-run companies are showing they will embark on a major new building spree to help Beijing reach the goal. As part of that, Trina announced has just signed a new framework agreement to build 1 gigawatt of generating capacity through a new tie-up in the far western Xinjiang area. (company announcement) Investors cheered the news, bidding up Trina’s shares by more around 7 percent in early trade after the announcement.
The tie-up will see Trina team team with the local government in the Turpan region in a series of projects over a 4 year period starting from next year. The first 2 phases are designed to have 300 megawatts of capacity and be connected to China’s national grid by the end of 2014. In a noteworthy disclaimer, Trina says that each new phase of the project will require approval from local governments and China’s national grid operator before work can begin.
Meantime, ReneSola has announced its own similar deal involving 3 solar plants also in western China, with a more modest capacity of 60 megawatts. (company announcement) Under the deal, ReneSola is building the plants and will sell them upon completion to the longer-term owner, a company based in eastern Jiangsu province. ReneSola stock also got a nice boost from the news, rising nearly 5 percent in early New York trading.
Such “build-and-transfer” arrangements are becoming relatively common, and Canadian Solar (Nasdaq: CSIQ) has become particularly adept at the business model. The new projects for Trina and ReneSola follow Canadian Solar’s own announcement of 3 separate China-based deals over the last 2 months, which will see it supply solar modules with total capacity of 232 megawatts. (previous post)
While all this news certainly looks good, one big cloud looming on the horizon is the element of payments for all these projects. Big state-owned companies are famous for rushing to comply with Beijing’s wishes, even when such firms may lack the financial resources and other expertise for such projects. One of my sources has told me some panel makers have already begun building projects for such clients, even though they have yet to receive any payments. I do expect that most panel makers will get paid for their goods eventually. But I also suspect that many problems will emerge as this building spree runs into a wide range of issues, resulting in delays and even the scrapping of some less well-conceived projects midway through construction.
Bottom line: New deals from Trina and ReneSola mark the start of a massive building spree for new solar plants in China, though some new projects could run into delays and financing problems.