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ReneSola Ltd. (SOL - Analyst Report) has entered into a three-year agreement with Solairedirect SA. Per the agreement, Solairedirect Technologies (Pty) Ltd, a South African-based module manufacturing subsidiary of Solairedirect SA, will produce 120 megawatts ("MW") of solar modules in South Africa for ReneSola.
Also, the terms of the agreement require Solairedirect to purchase 54 MW of solar modules. Out of this, Solairedirect intends to utilize 20 MW of the solar modules for projects in South Africa and 34 MW of the solar modules internationally.
Solairedirect expects to double its module production capacity in 2013. According to the additional terms of the deal, Solairedirect’s expansion of its module production capacity may translate into additional solar modules for ReneSola.
Despite being a leading global manufacturer of high-efficiency solar photovoltaic (“PV”) modules and wafers, Renesola handed over the responsibility to manufacture modules to Solairedirect given its strong market presence in South Africa and its module production capability and capacity. Solairedirect's products are highly efficient and less sensitive to fluctuation in temperature. Additionally, the abundance of solar energy, scope for rapid economic growth and governmental support in South Africa are expected to benefit the deal.
Import duty for solar panels in South Africa falls in the range of 0% to 20%. This will automatically lower the cost of production for ReneSola, thereby improving margins.
Meanwhile, South Africa has set a target of generating 42% of electricity from renewable energy by 2030. It also plans to heavily invest in clean energy to reduce carbon emissions and bolster electricity supply. Therefore this deal and several others in the offing will boost its clean energy initiatives. Recently, JinkoSolar Holding Co., Ltd. (JKS - Snapshot Report) entered into an agreement with a well-recognized solar project developer (the "Developer"). Per the terms of the agreement, JinkoSolar will supply high-efficiency solar panels totaling 115 MW for two projects in South Africa.
Coming back to ReneSola, the company enjoys a geographically-diversified customer base. Moreover, the company continues to focus on improving its operating efficiencies, generating material cost savings through its vertically-integrated production structure and introducing innovative products.
However, tepid demand for solar products in Europe, rising competition, credit risk from its customers, oversupply of solar wafer & modules in the market, and the company’s high research and development expenses remain concerns. The company presently retains a short-term Zacks Rank #2 (Buy).
Besides ReneSola, other stocks worth considering are Canadian Solar Inc. (CSIQ - Analyst Report) and STR Holdings, Inc. (STRI - Snapshot Report), both with a Zacks Rank #2 (Buy).