TOP CONTRIBUTORS

Drew Cameron

SOL AT A GLANCE

P/E ► -2.97   EV/EBITDA ► -5.92   ROA ► -10.5% AVG ROE ► -30.8% AVG Debt to Equity ► 2.43 AVG Current Ratio ► 0.982 AVG Interest Coverage Ratio ► -11.0 AVG

 

 

 

 

 

 

ReneSola is a Chinese manufacturer of monocrystalline and polycrystalline silicon ingots and silicon wafers. It sells the silicon wafers to solar panel manufacturers that process the wafers into solar cells and assemble them into modules. In 2007 62.3% of ReneSola's revenue came from sales within China, while another 28.8% came from Taiwan.^[1] At the end of 2007, the company had an annual ingot manufacturing capacity of approximately 378 megawatts and a solar wafer manufacturing capacity of approximately 305 megawatts.^[2]

Demand for ReneSola's silicon wafers, which are specific to the solar industry, follows demand for solar panels. High oil and gas prices, fears of climate change, and political support for alternative energy sources are all playing a part in helping the emerging solar market develop. To encourage growth in the solar market, for the 2008 tax year the US federal government has a $2000 tax credit for individuals who install residential solar panels on their homes.^[3]However, there is a shortage of refined monocrystalline and polycrystalline silicon, which are the principal inputs required to make silicon wafers and solar panels. This shortage has driven up prices for all three, making solar energy more expensive than other power sources. The average long-term contract price of polysilicon increased approximately 20% from $50-$55 per kilogram in 2006 to $60-$65 per kilogram delivered in 2007, with market prices sometimes spiking as high as $400 per kilogram .^[4] ReneSola's main competitors in the silicon wafer market are LDK Solar, and solar wafer manufacturing divisions of large conglomerates engaging in solar wafer manufacturing such as Deutsche Solar AG, a divisoin of SolarWorld AG, Kyocera (KYO) and M. SETEK Co.

Business Financials

ReneSola is a Chinese manufacturer of monocrystalline and polycrystalline silicon ingots and solar wafers that entered into the solar wafer market in 2005 and had its first public offering in January of 2008.^[5] It began by producing only monocrystalline wafers, and expanded into the polycrystalline market in the third quarter of 2007. ^[6] The company sells its products to PV solar panel manufacturers, including JA Solar Holdings, Motech Industries, Solarfun and Suntech Power. ^[1] As of December 31, 2007, it offered monocrystalline wafers in sizes of both 125 by 125 millimeter and 156 by 156 millimeter. ^[2]

As of the end of 2007, the company had an annual ingot manufacturing capacity of approximately 378 megawatts, consisting of monocrystalline ingot manufacturing capacity of approximately 218 megawatts and polycrystalline ingot manufacturing capacity of approximately 160 megawatts.^[2] The company also had a total solar wafer manufacturing capacity of approximately 305 megawatts by the end of 2007.^[2] The capacity values are based off of the conversion efficiencies of 16% for monocrystalline and 15% for polycrystalline silicon cells. ^[5] These numbers were chosen because they are characteristic of the conversion efficiencies of their customers’ solar cells. The company also offers ingot and wafer processing services to certain customers.^[7]

In 2007 the company had an operating income of $43.43 million, representing 17.4% of the $248.97 million in revenue. ^[7] Although operating income nearly doubled from the $22.23 million in 2006, it increased at a much lower rate than revenue, which almost tripled. In 2006, operating income represented 26.3% of the company’s $84.37 million in revenue.^[7]

In 2007, over 62% of the company’s revenue was from sales within China, with another 28.8% from Taiwan.^[1] The remaining revenue is divided between Korea, India and the United States. Both the US and India were new markets in 2007 and each accounted for 2.7% of ReneSola’s revenue.^[1] The origin of revenue in 2007 is a sharp contrast from that seen in 2005, when Germany accounted for 65.6% of the company’s revenue.^[1] At that point the newer markets of Taiwan, Korea, India and the US were negligible.

Much in the same manner that the countries of business have changed from 2005 to 2007, the products that contributed to the company’s revenue have changed as well. In 2005 77% of the company’s revenue was from solar modules, with significant contributions from the sale of ingots and solar cells as well. ^[8] In 2007, the three accounted for only 0.5% of the company’s revenue, with solar wafers accounting for a whopping 91% and processing services contributing 7.1%.^[8]

Trends and Forces

Environmental Concerns, High Oil, and High Gas Prices Make Solar Panels More Appealing

As the price of oil has skyrocketed and the average citizen has become more aware of their environment, there has been a strong push for the development of economic alternatives, especially renewable sources of energy. The push for clean energy has benefitted the solar industry, which has averaged 41% growth per year from 2001 through 2008, and is projected to continue in the future.^[9] In 2007 alone, there was 2,826 MW of PV solar installations, over a GW more than the 1,744 MW installed in 2006.^[10] With the expansion of the industry and increased investment, PV solar energy has made great strides in the last five years as the panels have become more efficient and costs of production have decreased. According to the Department of Energy’s Solar America Initiative, the hope is that with continued research and more companies entering the market, PV solar power will become a competitive source of commercial electricity by 2015.^[11]

As a source of renewable energy, solar has a wide appeal as it is a virtually limitless resource, and once installed, can produce electricity without emitting harmful pollution. In developed countries that heavily use air conditioners the times of peak electricity usage are during the hottest, sunniest days of the year; the same days when solar panels can produce the most energy. Solar comes with limitations, however, most notably the poor efficiency of PV modules, which is further reduced by the need to convert DC from solar cells into AC current. Moreover, solar is weather dependent and intermittent, requiring storage or back-up systems to supplement during times of weak generation. In 2007, solar power represented only a tiny fraction of total electricity generation and energy demand (less than 1% at the end of 2007).^[12]

Continued Worldwide Silicon Shortages Will Hurt ReneSola

Silicon, a necessary input to most solar panels, is one of the most abundant elements on Earth, but refined silicon has been in short supply. The bottleneck has resulted in rising prices, especially in 2006 and 2007. As solar power has increased in popularity, silicon producers, who previously catered only to the semiconductor market, experienced a surge in demand. Due to limited mining capacity and processing capital they were unable to keep up with the increased demand. This created a "shortage" of refined polysilicon, and caused prices to soar.

For silicon wafer vendors like ReneSola, higher silicon prices mean higher production costs and lower margins. Higher silicon costs ultimately decrease demand for silicon as the cost is passed on to consumers through ReneSola’s customers and into the solar PV market. In the silicon PV industry, the cost of the silicon accounts for approximately 45% of each module’s manufacturing cost.^[13] This means that when silicon prices rise silicon PV manufacturers are forced to either absorb the extra cost, or pass it on to consumers. The price of silicon has increased with the average long-term contract price of polysilicon increasing from $50-$55 per kilogram in 2006 to $60-$65 per kilogram delivered in 2007, with market prices sometimes spiking to as much as $400 per kilogram .^[14] The effect of the higher prices can easily be seen when one considers that for every month in 2007, ReneSola used on average 70 metric tons of raw silicon.^[1]

The increased demand in the world market has caused severe shortages, but these shortages are being addressed by silicon manufacturers and likely will not last much longer. Hemlock Semiconductors began production from its new facility in June of 2008, a facility that is expected to produce 9,000 metric tons a year, and perhaps as much as 36,000 metric tons per year after improvements slated for 2011. This alone dwarfs worldwide silicon production in 2005 of only 26,000 metric tons.^[15] Although the demand for silicon is expected to stay quite strong, these and other additions are likely to ease the silicon shortage and soften prices.

ReneSola has Entered the Expanding US Solar Market

The demand for solar wafers is dependent upon the demand of the end product that is sold to consumers, solar panels. Any increase in the demand for solar panels, correlates to an increase in the demand for silicon wafers, as approximately 90% of the solar market is silicon based panels.^[16] The expanding US solar market represents a significant opportunity for ReneSola. For the 2008 tax year, the US government has a personal tax credit of up to $2000 for the installation of residential solar panels, and 30% of corporate installation costs go towards a tax credit.^[3] The future of the federal incentives beyond 2008 are in question, though; in June of 2008, the Senate failed to vote on HR 6049, the Renewable Energy and Job Creation Act of 2008. In order to encourage the development of renewable energy, the act would have extended the solar subsidies and raised limits to the personal and corporate tax credits.^[17]

Many states have their own monetary incentives for private and commercial installations. One New York program offers as much as $1.5 million for the creation of a manufacturing facility and the production and sale of clean energy products.^[18] These and other subsidies will need to remain intact until solar power becomes competitive with incumbent energy generation if solar is to become an important part of our power supply. States have also pressured utilities to invest in renewable energy sources by setting mandates that require a minimum percentage of the state’s energy to come from renewable sources. One example is California, which has said that 25% of its electricity will come from clean sources by 2020 and 75% by 2050.^[19] These mandates benefit renewable energy companies as they force utilities to expand their generation portfolios, regardless of subsidies, or purchase Renewable Energy Credits(RECs) from others that produce electricity from renewable sources.

ReneSola is in Prime Position to Exploit Chinese Growth

According to the International Energy Agency (IEA), China's energy demand will surpass that of the United States soon after 2010, based on what it considers a conservative growth rate of 6.0% per year. ^[20] Chinese energy demand is expected to grow by 3.2% every year and double between 2005 and 2030, with potentially higher growth rates resulting in even greater energy demand.^[20] Part of the increasing demand is a result of China’s growing transportation needs. The IEA expects Chinese oil demand for transport quadruple between 2005 and 2030, with new vehicle sales exceeding those of the United States by 2015.^[20] To meet the growing needs, China will need to add 1,300 gigawatts to its electric generating capacity by 2030, more than the total installed capacity in the United States in 2008.^[20] To meet this demand, China will need to invest 3.7 trillion dollars in energy infrastructure to meet the energy needs in 2030.^[20] ReneSola is in a prime position to benefit from the future growth of the energy industry and solar market in China, with over 60%^[1] of its revenue coming from the country in 2007.

Competition and Market Share

ReneSola entered the monocrystalline solar wafer market in 2005, and the polycrystalline market in 2007.^[5] The company did not hold a significant portion of the market in 2006, but expanded its production capacity in 2007 and has established itself as a global supplier of silicon wafers.

• LDK Solar had a production capacity of 420 MW of polycrystalline silicon wafers at the end of 2007 and sold $501 million worth of solar wafers.^[21] LDK held 8% of the multicrystalline wafer market in 2006.^[22]

• Kyocera (KYO) - A large electronics and semiconductor corporation, whose silicon wafer division held 13% of the multicrystalline market share in 2006^[22] and produces, among other things, solar panels, consumer electronics products, and telecommunications equipment.

• M. SETEK is one of the world's largest suppliers of monocrystalline silicon wafers and entered into the polycrystalline market in 2007. It predicts production of 2800 tons of polysilicon in 2008^[23] and is involved in significant longterm contracts with JA Solar Holdings, (JASO), Suntech Power Holdings (STP) and SunPower (SPWR), among other leading solar panel manufacturers.^[24]

• Sumco Corporation - A Japanese silicon company that produces wafers for semiconductors and solar panels, and held 6% of the multicrystalline solar market in 2006.^[22] As of December 2007, the company was able to produce 900,000 wafers per month and plans to reach a monthly production capacity of 1,660,000 wafers by March of 2010.^[25]

• PV Crystalox - A British solar wafer company that is also involved in the Japanese silicon trading business. In 2006, PV Crystalox held 17% of the multicrystalline market.^[22] The company had a production capacity of 290 MW as of April 2008.^[26]

• SolarWorld AG - A vertically organized German solar company that operates in all levels of the solar industry, from raw materials to module sales. The company had a multicrystalline wafer market share of 19% in 2006.^[22] Deutsche Solar AG, a division of Solar World AG, had an annual production capacity of 350MW of silicon wafers at the end of 2007, and is expanding rapidly. By 2009, Deutsche Solar expects to have over 750 MW of annual capacity, with other divisions of Solar World adding an additional 320 MW annually.^[27]

• Renewable Energy Corporation - The largest multicrystalline wafer producer, this vertically organized solar company had a 2006 market share of 24%.^[22] In 2007 the company had an annual monocrystalline wafer production capacity of 38 MW and a polycrystalline production capacity of 468 MW.^[28]

ReneSola also competes with smaller local suppliers such as Jinggong P-D Shaoxing Solar Energy Technology Co. and Jiangsu Shunda PV-Tech Co, each of which had a production capacity below 50 MW at the end of 2007.^[29][30]

References

1. ↑ ^{1.0 1.1 1.2 1.3 1.4 1.5 1.6} SOL 20-F 2007 Pg. 31
2. ↑ ^{2.0 2.1 2.2 2.3} SOL 20-F 2007 Pg. 29
3. ↑ ^{3.0 3.1} DSIRE Residential and Corporate Incentives
4. ↑ TSL 20-F 2007 Pg. 7
5. ↑ ^{5.0 5.1 5.2} SOL 20-F 2007 Pg. 1
6. ↑ SOL 20-F 2007 Pg. 42
7. ↑ ^{7.0 7.1 7.2} SOL 20-F 2007 Pg. 2
8. ↑ ^{8.0 8.1} SOL 20-F 2007 Pg. 46
9. ↑ Industry Growth and Policy Progress on the Agenda at Solar 2008
10. ↑ Solar Buzz: Fast Solar Energy Facts
11. ↑ DOE’s Solar America Initiative Draft Pg 5
12. ↑ Electric Power Monthly
13. ↑ Solar Buzz: Fast Solar Energy Facts
14. ↑ TSL 20-F 2007 Pg. 7
15. ↑ Clean Tech ‘What silicon shortage, asks Hemlock’ June 3, 2008
16. ↑ Solar Buzz: Fast Solar Energy Facts
17. ↑ Renewable Energy Incentives Stalled in Senate
18. ↑ New York - NYSERDA - Renewable, Clean Energy, and Energy Efficient Product Manufacturing and Incentive Program
19. ↑ [http://www.newrules.org/electricity/rpsca.html California Mandate Renewable Portfolio Standard]
20. ↑ ^{20.0 20.1 20.2 20.3 20.4} AFX News Limited IEA forecasts for Indian, Chinese energy demand 11.07.07
21. ↑ LDK Solar 20-F 2007
22. ↑ ^{22.0 22.1 22.2 22.3 22.4 22.5} CIBC Initiating Coverage on LDK, July 18th, 2007
23. ↑ Investing in Silicon Suppliers
24. ↑ M Setek Company Profile
25. ↑ SUMCO to Strengthen 300mm Wafer Production Capacity Jan 30, 2008
26. ↑ PV Crystalox Company Presentation
27. ↑ Solar World Annual Report 2007
28. ↑ REC Website Monocrystalline and Polycrystalline
29. ↑ Jinggong P-D haoxing Solar Energy Technology
30. ↑ Jiangsu Shunda PV-Tech