Bottom line: Diversification moves away from manufacturing by Canadian Solar and ReneSola could bring more stability to the companies, while panel makers are likely to take a big hit from new US anti-dumping measures.
A trio of solar energy stories are in the headlines that underscore difficulties panel makers are facing due to a recent glut that looks quite typical in this highly cyclical sector. Two of the stories reflect a trend that has panel makers trying to diversify into the less cycle-prone business of solar plant building, with major new developments from Canadian Solar (Nasdaq: CSIQ) and ReneSola (NYSE: SOL). The third has a research house predicting demand for the panels, which are the main component of such plants, could dive by up to half in the US this year, following a major new anti-dumping ruling by Washington.
Again, all of this shows that the world is still swamped with too much solar panel-making capacity and is in sore need of a downsizing. The main obstacle to that is coming from China, where many companies have slipped into the loss column but refuse to slim down due to resistance from local interests intent on staying in the business come hell or high water. It’s a bit unclear who will blink first in this battle to stay in business, though in this kind of war the market usually determines who emerges as victor.
All that said, let’s start with the biggest of the three headlines, which had the US International Trade Commission (ITC) last Friday determine that cheap and unfairly state-subsidized panels from abroad were harming US rivals. (English article) The finding, which was unanimously approved by all four commissioners determining the matter, follows a formal protest by bankrupt panel maker Suniva earlier this year.
Following the determination, it’s now up to Donald Trump to decide whether or not to level more anti-dumping tariffs on imported products. Given Trump’s protectionist leanings, coupled with the fact that the Chinese panels really are the recipients of strong state support, I can easily see Trump leveling major new tariffs.
That would put a chill not only on panels from China, but also from a host of other Southeast Asian countries where many of the Chinese panel makers have set up new shops to avoid earlier anti-dumping tariffs from the U.S. and Europe. If all that happens, some analysts are predicting US demand for panels could plunge by as much as half next year, which certainly wouldn’t do much for the industry. (press release)
Next there are the two smaller stories, one from ReneSola and the other from Canadian Solar, which show how the panel makers are trying to protect themselves from this kind of trade war and perhaps eventually leave the manufacturing realm completely. Instead, such companies would focus on the building of solar plants, which is much more stable business and should be universally welcomed by everyone as part of the global drive to go green and reduce reliance on fossil-fuel created energy.
The first of those developments has seen Canadian Solar announce the separate listing of a fund in Tokyo that owns 13 of its solar plants that it built in Japan. (company announcement) Canadian Solar likens the Canadian Solar Infrastructure Fund to popular real estate investment trusts (REITs), since both products are really just a long-term investment vehicles that yield stable annual returns. This is one of the first such separate listings of this type that I’ve seen for a group of solar farms, and if it gets positive reception maybe we could see more such separate listings in other markets.
ReneSola’s development was first floated in June, and has now formally come to fruition with a definitive agreement. That deal has seen the company agree to sell its manufacturing assets to its founder, who will also assume the company’s 3 billion yuan ($455 million) in debt. (company announcement) The deal is expected to close in the third or fourth quarter, and would transform ReneSola from its roots as a solar panel manufacturer to a builder of solar farms.
ReneSola’s stock rose 6 percent after the announcement, which would seem to indicate that investors like the idea. Still, at current levels the company is only worth a paltry $47 million, and the stock now trades at just around the levels it was at when the plan was first announced in June. That means people are waiting to see how the plan really works, which won’t really become apparent until ReneSola’s first report when the manufacturing assets and debt are officially off its books.