Trina Solar expects 30% of revenue from downstream project business

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Trina Solar, one of the last major tier one module manufacturers to embrace the downstream project business model, is planning to have 30% of annual revenue attributed to PV power plant projects in the next three years.

Management noted in a conference call to discuss third quarter financial results that it expected a rapid ramp of its project business in 2014, which would equate to a quarterly project run-rate of between 100MW to 200MW by the end of next year.

The expected growth is primarily due to renewed support for solar by the Chinese government and attractive incentives for both utility-scale and distributed generation (DG) programmes that are expected to see around 15GW installed in 2014.

“I’m happy to report that our 50MW PV project in China connected to the grid in September 2013 and is already generating electricity on schedule,” noted Jifan Gao, chairman and CEO of Trina Solar.

“The project has attracted interest from a number of potential buyers. We are currently assisting what option may generate the greatest shareholder value. In the future, we will continue to strengthen our leading position in the module products. We are expanding our downstream efforts.”

The 50MW China project was said to provide a 10% IRR if retained due to feed-in tariff payments and could generate 20% gross margins if the project was sold outright.

However, Trina Solar noted that projects in the UK, US and emerging markets such as South Africa and Latin America would also provide meaningful revenue from its growing downstream business.

Management noted that its PV project pipeline momentum and plans would lead to around 15% of revenue in the next two years and targeted 30% or more in the coming next three years.

The company also embraced the idea recently seeded by SunEdison that it was looking at retaining a percentage of projects that could be bundled into a portfolio to attract investors in a ‘yieldco’ arrangement. 

Terry Wang, Trina Solar’s CFO, said in response to analyst’s questions on yieldcos that it was too early to make a definitive decision but noted that it was “one of the option[s] we should think about it if there is a promising future”.

Return to profitability

Trina Solar reported third quarter 2013 net revenue of US$548.4 million, an increase of 24.4% from the second quarter, supported by record module shipments of approximately 775MW, 19.8% higher than the prior quarter.

The company reported gross profit of US$83.4 million, an increase of 62.9% from the second quarter and a gross margin of 15.2%, compared to 11.6% in the second quarter of 2013.

Operating margin in the quarter was 1.1%, compared to negative 5.4% in the second quarter of 2013. Net income was US$9.9 million, compared to a net loss of US$33.7 million in the previous quarter.

Revised forecast

Due to continued strong demand, Trina Solar said that total PV module and system shipments would be in the range of 2.58GW to 2.62GW, up from previous guidance of between 2.3GW and 2.4GW.

During the fourth quarter of 2013, total module shipments are expected to be between 760MW to 790MW. The company said that overall gross margin would be in the middle teens in percentage terms for the fourth quarter.

Capacity expansion and outsourcing

According to Trina Solar’s CFO, the company does not have any significant plans to expand capacity, reiterating that CapEx would be in the region of US$60 million in 2013.

However, Zhiguo Zhu, president of the Module Business Unit at Trina Solar, said: “We have several ways to increase our capacity of production. Firstly, we do some upgrade of technology. So next year our efficiency productivity increase[s]. Actually, we have done that for quite a lot. So that it will be used at an existing facility or plant to increase our capacity.

“Secondly, we are looking for the existing capacity in the market and try to do some expansion including acquisition or merger. We are trying to do that because next year we believe we’ll have better sales.”

Management noted that through production line upgrades and throughput improvements it was able to increase its quarterly module run rate from 600MW to approximately 720MW.

This effectively takes annual nameplate capacity from 2.4GW to 2.8GW, according to the company. Management also noted that upgrades in its solar cell lines had enabled around 200MW extra annual capacity, equating to cell nameplate capacity increasing to 2.6GW.

The company also noted that to fill the void between capacity and demand it would continue to outsource solar cell production in Taiwan to meet US market demand and requirements to avoid anti-dumping duties, effectively boosting cell production to meet upwardly revised shipment forecast for 2013.

Management also noted that it was using OEM modules as well to meet demand, without providing further details.

Annualised in-house ingot and wafer production capacity was said to have remained at approximately 1.2GW, indicating increased outsourcing to match cell and module in-house capacity increases.

The company said that it would provide full-year 2014 guidance in its fourth quarter conference call.

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