Canadian Solar sees ‘exponential’ growth in energy storage, warns of possible project delays as prices spike

In reporting first quarter results, the company said it would use some of its $1.5 billion in cash to stockpile materials as a hedge against rapid price rises.

May 20, 2021 David Wagman

Image: Pixabay

Canadian Solar said its first quarter 2021 results included $1.1 billion in revenue, a 17.9% gross margin, and $23 million in net income.

For the quarter, net income rose to $0.36 per diluted share, up from $0.11 per diluted share in the fourth quarter of 2020. The company ended the quarter with $1.5 billion in cash, some of which it used to stockpile materials both to meet customer demand and to lessen the impact of rising raw material costs.

In announcing the results, Dr. Shawn Qu, chairman and CEO, said that demand for battery energy storage systems is growing “at an exponential rate.”

The company said that virtually all its solar power projects under development can co-host energy storage facilities and have done so during the first quarter. The approach helped the company nearly double its energy storage pipeline to almost 17 GWh during the quarter.

“By co-hosting energy storage facilities with solar power plants on the same piece of land and using the same interconnection point, the company expects to significantly enhance the value of its assets under development,” it said.

The company also reported a “challenging quarter” with cost inflation driven by continued higher raw material and transportation costs, and with what it said were unfavorable foreign exchange fluctuations. It said the price of polysilicon has tripled over the past 12 months. The company mitigated the impact in part by raising module prices, which it said saw a “near double-digit percentage increase” compared to the fourth quarter. The company also said it prioritized margins ahead of shipment volumes.

And while Canadian Solar said that underlying demand for solar energy “remains strong” driven by public and private sector targets, it noted that “increasing price elasticity of demand” is elevating the prospect that “certain utility-scale projects may be delayed.”

That assessment echoed a mid-May research note from Roth Capital Advisors, which warned clients that current price pressures could delay as much as 15% of planned 2021 utility scale solar development. Roth Capital’s Philip Shen said that U.S. utility scale module pricing six months ago for delivery in the third quarter of 2022 was on the order of $0.25 per Watt freight on board (FOB), or $0.27/W delivered duty paid (DDP).

Shen pegged more recent pricing at $0.28/W FOB and as high as $0.32/W DDP. And with unlevered internal rates of return as low as 4-8% and levered IRRs of between 13-18%, “there is not much room to absorb input cost inflation.”

Looking ahead to the second quarter, Canadian Solar said it expects total module shipments to be in the range of 3.5 GW to 3.7 GW, including roughly 80 MW of module shipments to its own projects. Total revenues are expected to be in the range of $1.4 billion to $1.5 billion. Gross margin is expected to be between 9.5% and 10.5%.

The company also reiterated its full-year 2021 module shipment guidance of 18 GW to 20 GW and project sales guidance of 1.8 GW to 2.3 GW. The company introduced 2021 total battery storage shipment guidance of 810 MWh to 860 MWh. Total revenue guidance for 2021 is expected to be in the range of $5.6 billion to $6.0 billion.

Currently, the company has around 500 MW of projects in operation, more than 5 GW of projects under construction or in backlog (late-stage), and another 15 GW of projects in the pipeline (mid- to early- stage).

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