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CSIQ, SunEdison in Solar Power Deal

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One of the world's largest solar companies, Canadian Solar Inc. (CSIQ - Free Report) has acquired majority interest in two utility-scale solar power projects from SunEdison Power Canada Inc. ("SunEdison"), a subsidiary of MEMC Electronic Materials Inc. for $38 million.

Located in Ontario, these two plants have a total capacity of approximately 24 MW DC. These two projects have received Renewal Energy Approvals and are scheduled to begin construction in early 2013 and are expected to be on line by late 2013.

Subject to certain conditions, the company has the option to buy two additional utility-scale solar power projects in Ontario with a total capacity of approximately 22.5 MW DC. Per the agreement, Canadian Solar can also purchase a fifth solar project from SunEdison in the future. The additional three projects, however, are in the advanced stage of receiving Renewal Energy Approvals. Construction of these projects is expected to get underway in early to mid 2013 and they are likely to commence operations by late 2013 or early 2014.

Under a 20-year purchase power agreement, all the energy generated from these five projects will be sold to Ontario Power Authority under Ontario's Feed-In-Tariff Program.

These projects will not likely face funding hindrances during their construction period. Very recently, the company entered into a financing agreement with Deutsche Bank AG (DB - Free Report) . Per the agreement, Deutsche Bank will provide $139 million to Canadian Solar with non-recourse, short-term construction financing for solar power projects in Ontario. The loans are expected to be repaid from the proceeds of the sale of these projects.

Apart from generating renewable energy over the long term, these projects will create employment opportunities in Ontario. Aided by established project infrastructure and excellent support services, Canadian Solar has been progressing well with its project pipeline and total solutions business. Moreover, this financing would help in accelerating growth of the company’s project portfolio. Also, this financing would increase the confidence of prospective project partners.

Going forward, Canadian Solar looks favorably poised based on a geographically-diverse customer base and improving operating efficiencies through its vertically-integrated manufacturing operation.

On the flip side, the company’s growth prospects are hampered by industry-wide oversupply that leads to sharply falling average selling prices of company modules; tepid module demand in Europe and rising competition in the market. The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.

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