Trina Solar Expands Project Business With Yunnan Metallurgical New Energy Acquisition

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Trina Solar

Trina Solar (NYSE:TSL), one of China’s largest solar companies, announced that it would be acquiring a 90% stake in solar project developer Yunnan Metallurgical New Energy Co, which is about to begin construction on a 300 MW project in China’s Yunnan province. While the terms of the deal were not announced, we see the move as being positive for Trina since it should help the company quickly scale up its project pipeline, while saving time on project siting and some regulatory related issues. Additionally, the deal helps the company expand its project business to the Yunnan province, which is a natural resource-rich area that also receives abundant sunshine. Trina’s Chinese project business has so far been limited to the Xinjiang, Gansu and Jiangsu provinces.

Trefis has a $14.50 price estimate for Trina Solar, which is about 10% above the current market price.

See Our Full Analysis for Trina Solar

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Trina’s Comparatively Strong Balance Sheet Supports Project Business

Like most other large Chinese solar players, Trina Solar has been making a big push into the downstream solar space. Unlike the commoditized panels business, the projects business offers higher margins. Trina intends to complete between 400 MW to 500 MW worth of projects for this year. [1] The downstream business is very capital intensive and this gives us reason to believe that Trina could have an edge over its Chinese peers, owing to its stronger balance sheet and lower leverage. Earlier this year, the company raised close to $240 million through a convertible bond and  follow-on stock offering, and a part of this funding is expected to be used towards expanding the downstream solar business (see A Look At Trina Solar’s Downstream Business).

Utility-Scale Solar In China

Over three-quarters of Trina’s downstream projects are located in China. The utility scale solar market in China is meaningfully larger than the distributed solar market, and government incentives are abundant.  Over the first half of 2014, around 2.3 GW of utility solar capacity was added in the country, while just about 1 GW of distributed capacity was installed. Some of the incentives provided by the Chinese government include feed-in-tariffs and free grid connectivity for small and medium-scale distributed photovoltaic solar power producers. The feed-in-tariffs for large-scale ground mounted power plants stand at between 0.9 yuan ($0.15) and 1 yuan ($0.16) per kilowatt-hour (kWh) of energy generated, based on the radiation levels at the location of the plant. These subsidies are valid for the next 20 years and this is likely to be a positive attribute for project developers such as Trina, since it would safeguard the rate of return on their solar projects.

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Notes:
  1. Q2 2014 Supplemental Earnings Call Presentation, Trina Solar, August 2014 []