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A Look At Yingli's Recent Utility-Scale Solar Deals

Posted
1/7/2014 1:09:00 PM
By: Trefis
Referenced Stocks:FSLR;MW;TSL;YGE

Yingli Green Energy ( YGE ) has made some headway in its downstream solar business over the last month or so by signing a series of utility scale contracts. In this note, we take a look at some of these projects and why it is important for the company to increase its presence in the utility scale solar space.

See Our Complete Analysis For Chinese Solar Stocks Trina Solar | Yingli Green Energy

A Slew Of Deals

In early December 2013, Yingli signed a deal to develop and sell around 300 megawatts ( MW ) of solar power projects to China Merchants New Energy (CMNE), a Chinese project developer. Separately, Yingli was also part of a three-party consortium that will design and build a total of around 233 MW of power plants in Algeria for a subsidiary of the country's state run electric utility company.

Additionally, during the first week of January, Yingli signed a joint venture agreement to develop and construct solar power plants with the Datong Coal Mine Group in the Shanxi province in Northern China.(( Yingli forms JV with Chinese state-owned coal mining company , PV Tech)) Since the Datong Coal Mine Group is China's third largest state-owned coal mining company, we believe that its backing could be beneficial to improving Yingli's presence in the downstream solar space. While Yingli has not provided the financial details of any of the deals or joint ventures, we believe that it is likely that they will be accretive to overall margins.

Downstream Space Allows Solar Companies To Capture More Value

While the solar panel business has become largely commoditized over the last few years, the solar project development business has been thriving, benefiting from lower panel and equipment costs, which are making solar power an increasingly viable alternative to conventional sources of energy. While Chinese companies have historically had a relatively small presence in the project development space (Yingli, for instance,  derived less than 2% of its revenues in 2012 from its projects business), they have been slowly ramping up their presence. This so-called "downstream" business has healthy margins compared to the panels business, since it involves providing value-added services such as design and construction, in addition to procuring equipment. For example, First Solar ( FSLR ), one of the world's largest solar companies, had gross margins of around 10% for its panel business in 2012, while the margins for its projects business stood at more than 35%.

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