Trina’s Sempra Deal Can Help It Grow In The U.S. Utility Solar Market

Trina Solar (NYSE:TSL), one of China’s largest solar panel manufacturers, recently won a contract to supply over 1.1 million solar panels for Sempra Energy’s 345 megawatt Copper Mountain Solar 3 project located in Nevada. ^[1] We see this deal as a significant win for the company given that this would be the largest multicrystalline panel based solar power plant in the world, and could effectively help Trina Solar build its brand image and make further inroads into the sizable North American utility solar market.

Trina Solar will supply 1,133,550 of its 72-cell PD12 multicrystalline modules to the project that is owned and operated by Sempra U.S. Gas & Power. The construction of the project will be handled by AMEC, a British engineering and project management company. Shipments are expected to occur during Q4 of this year. ^[2] While the firm hasn’t disclosed the financial terms of the deal, we believe it could be positive to its financial performance given the large volumes of panels involved and the related economies of scale.

See Our Complete Analysis For Trina Solar Here

How Trina Stacks Up Against The Competition In The U.S. Utility market

The Solar Energy Industries Association (SEIA) expects 5.3 gigawatts (GW) of solar capacity to be installed in the United States in 2013, up from around 3.3 GW last year. The U.S. market has been geared towards large scale solar power projects. During the first quarter of this year, around 24 utility projects were completed, nearly double the last year’s number. Utility solar installations in the United States are expected to touch 2.3 GW in 2013. ^[3] While the market has been expanding, competition has also been strong, with well-established players such as First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR) building some of the county’s largest solar plants.

First Solar actually won contracts to supply panels to the first two portions of Sempra’s projects – the 58 MW Copper Mountain 1 and 150 MW Copper Mountain 2 projects. However, the firm didn’t supply to the larger Copper Mountain 3 project since space constraints on the project site limited the use of First Solar’s thin-film solar panels. ^[1] First Solar’s panels use a cadmium-telluride based thin-film technology which makes panels slightly less efficient (conversion efficiency around 13%) and also larger than silicon based solar panels. (See Also: A Comparison Of Solar Technologies And What They Mean For Companies) First Solar has also seen its historical cost advantage erode over the past year as prices for Chinese polycrystalline based panels plummeted by over 30% last year. Chinese panels now cost about $0.66 per watt on average while First Solar’s panel manufacturing costs alone stand at around $0.67 per watt, making its panels quite a bit more expensive. SunPower, another large U.S. based solar panel manufacturer and power plant developer sells monocrystalline solar panels which offer higher conversion efficiencies (up to around 20% on some panels) and a more compact footprint. However, these panels are significantly more expensive, and we estimate that the firm’s panels cost upwards of $1 per watt.

Trina Has An Edge Over Chinese Peers In Supplying For Large Projects

Chinese multicrystalline panels are likely to be hitting the sweet spot at the moment, in terms of the price to performance trade-off, particularly for large solar power plants. Multicrystalline panels offer efficiencies that are slightly higher than thin-film panels at prices that are lower than both thin-film and monocrystalline panels. We believe that Trina Solar is better positioned in the U.S. market compared to some of its Chinese rivals such as Suntech Power (NYSE:STP) and Yingli Green Energy (NYSE:YGE) since customers signing  large or long term contracts typically look at the financial stability of the vendor. Trina is among the healthier Chinese solar companies with a relatively low debt load and a better liquidity position. Additionally, Trina already has a significant presence in the U.S. market with around 25% of its sales coming from the country.

We have a price estimate of around $5 for Trina Solar, which is around 30% below the current market price. We will be revisiting our model and price estimate for Trina Solar once the company releases its Q2 results on August 20.

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1. Reuters [↩] [↩]
2. Ecoseed [↩]
3. SEIA [↩]