Two more mega solar deals in China

Doug Young 

More bright signs are emerging in the solar panel sector with word of 2 major new tie-ups, one involving ReneSola (NYSE: SOL) in Japan and the other Yingli (NYSE: YGE) in China. In the first, ReneSola has signed a massive deal to sell panels to a Japanese solar power plant developer.

The latter case looks similar, with Yingli in its own deal for a major joint venture to co-develop new solar power plants with one of China’s top nuclear power companies.

The deals point to the huge potential from the China and Japan markets for solar panel makers in the next 2 years. Up until now, neither market has been a major player for the sector, with the lion’s share of sales going to the US and Europe. But that is starting to change, following Beijing’s roll-out of an aggressive plan to build up its solar power generation capacity and Japan’s efforts to diversify its power generation base after the Fukushima nuclear disaster of 2011. The rise of the Chinese and Japanese markets is a welcome development for China’s solar panel makers, who are seeing their access limited to US and European markets due to allegations of unfair state-subsidies from Beijing.

Let’s start with ReneSola, whose tie-up will see it supply panels for up to 420 megawatts of generating capacity for more than 10 new power plants in Japan. (company announcement) ReneSola didn’t give the Japanese developer’s name, but said it will construct the plants over the next 2 years. The amount is quite sizable for a company like ReneSola, whose panel shipments totaled 851 megawatts in its latest reporting quarter. It’s also one of the largest single deals I’ve seen in 3 years of writing about the sector. ReneSola shares didn’t move too much on the news, though it’s worth noting they are up 22 percent since the start of the year.

The case was different for Yingli, whose shares jumped 8 percent after it announced a new joint venture with China National Nuclear Corp. (company announcement) Following that rally, Yingli’s shares are up a hefty 40 percent in just the first week of 2014, a year that promises to see most of the sector’s major surviving players finally return to profitability after 2 years of losses during a prolonged downturn.

Under its tie-up, Yingli will form the joint venture with China Rich Energy Corp, a subsidiary of China National Nuclear. The deal will see Yingli supply panels for 500 megawatts of new generating capacity, with at least 200 megawatts of that to come from sites supplied by China National Nuclear Corp. No time frame was given for the supply deal, though presumably most deliveries will occur over the next 2 years as state-owned plant operators race to meet Beijing’s ambitious goal of 35 gigawatts of capacity by the end of next year.

Announcement of its new tie-up comes less than a week after Yingli announced another joint venture with Datong Coal Mining Group for new solar plant construction. (previous post) I commented that the tie-up looked smart because Datong is one of China’s top coal producers and thus has experience in the energy sector. Equally important, Datong also has strong cash flow to pay for new plant construction.

Yingli’s latest joint venture follows a similar trend, though I suspect that China National Nuclear Corp has far less cash flow and thus could run into potential financing problems as construction accelerates. The new ReneSola plan looks more solid, even though it’s slightly strange that it didn’t include the name of its partner in the tie-up announcement. Despite those potential issues, investors are clearly growing bullish on the sector after 2 years of bearishness, and I expect we could see some more upside in the stocks during the first half of this year.

Bottom line: New solar plant construction tie-ups by ReneSola and Yingli point to a boom in demand from Japan and China in 2014, providing potential upside for solar panel maker stocks.

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