Producer of solar cells and panels, Canadian Solar Inc. (CSIQ) has entered into a joint venture agreement with SkyPower Limited to acquire a majority interest in SkyPower’s 16 solar projects for $185 million.
These projects have a generating capacity of 190-200MW DC. Under a 20-year power purchase contract, the electricity generated from these projects will be sold to Ontario Power Authority. Currently, these projects are in the advanced permitting stage. Construction on these projects is expected to commence in 2013 and be fully operational in 2014.
The company expects this global strategic initiative to yield revenue within the next two to three years. Canadian Solar expects to generate $800 million, or 40% of total revenues, from these projects.
Both the companies have come together in an equal joint venture to build and deploy solar energy solutions in Ontario and to jointly develop solar projects in some selected emerging markets internationally. The landmark venture will create hundreds of new jobs in Ontario.
Canadian Solar is a vertically integrated manufacturer of silicon ingots, wafers, cells, solar modules and custom-designed solar power applications. The company designs, manufactures and delivers solar products and solar system solutions for both on-grid and off-grid use to customers worldwide. It caters to a geographically diverse customer base spread across its key markets in Germany, Spain and the U.S., as well as emerging market opportunities in France, the Czech Republic, Italy, South Korea, Canada, Japan and China.
The company also pursues a balanced and diversified supply channel mix by entering into long-term supply contracts and toll manufacturing arrangements, in addition to in-house solar cell, wafer and ingot manufacturing. By taking an active role in developing energy projects, the company will have more control over sales of its panels. A similar policy is followed by its peer First Solar Inc. (FSLR).
Given the industry-wide high inventory level, we do not foresee any short-term improvement in margins of the company. So we are looking for a favorable entry point in the future. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
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