Canadian Solar Inc. (CSIQ) announced that it has sold a utility-scale solar power plant to Stonepeak Infrastructure Partners for approximately $48.4 million. As the developer responsible for engineering, procurement and construction of the project, Canadian Solar built the solar power plant to provide enough clean, renewable energy to power more than 1,200 homes in eastern Ontario near the town of Napanee.
Named "Canadian Solar 1" (or "CS1"), the solar installation is now connected to the grid and includes approximately 50,000 Canadian Solar CS6M modules. Canadian Solar also won a 20-year contract to provide operations and maintenance services to Stonepeak for the utility-scale solar power plant.
Stonepeak Infrastructure Partners is an independently owned North American infrastructure investment firm that spun out from The Blackstone Group L.P. (BX) last year. Stonepeak Infrastructure Partners is based in New York, and targets investments in the middle market, focusing on lower risk infrastructure investments across utilities, water and waste, energy, power and renewables, midstream and transportation asset classes.
In recent times, Canadian Solar booked positive growth in Europe, most notably Germany, which offset weaknesses in the U.S. market. However higher volumes were more than offset by steadily falling average selling prices. Average selling prices continued to decline as the Euro weakened and Germany transitioned to a new, lower feed-in-tariff regime.
Looking forward, the company is actively branching out aggressively to capture new opportunities in key solar markets worldwide. The company continues to see attractive opportunities for growth in China, Japan and India, as well as other emerging markets in Asia, Africa and Latin America. Moreover, its specialization at the downstream total solutions business makes it a higher margin business.
In the second quarter of 2012, the company completed the construction of an 11.5 MW power plant in Stone Mills, Ontario. By focusing on such projects, the company would be able to reduce financing and execution risks. Also, in 2011, the company started to acquire, or enter into joint venture, approximately 140 MW of utility-scale solar development projects in the U.S.
These transactions would give the company an expanded presence in the U.S., which the company believes to be an attractive growth market despite near-term headwinds. The company also recently completed the acquisition of 16 solar projects from SkyPower and launched an equally owned joint venture with SkyPower Limited, called CSI SkyPower. The JV would allow the companies to more rapidly expand its total solutions business in Africa, the Middle East and South America.
However, in the near term, fortunes of Canadian Solar would be impacted by the industry-wide oversupply glut leading to sharply falling average selling prices, tepid module demand in Europe, and rising competition in the market. Given the industry-wide high inventory level, we do not foresee any short-term improvement in margins of the company. The company presently retains a short-term Zacks #3 Rank (Hold).
Canadian Solar Inc. is one of the world's largest solar companies. As a leading vertically integrated provider of ingots, wafers, solar cells, solar modules and other solar applications, the company designs, manufactures and delivers solar products and solar system solutions for on-grid and off-grid use to customers worldwide.
With operations in North America, Europe, Australia and Asia, Canadian Solar provides premium quality, cost-effective and environmentally-friendly solar solutions to support global, sustainable development. Over the longer run, we thus maintain our Neutral recommendation on the stock.