Canadian Solar, Inc. (Nasdaq: CSIQ) is currently the fifth biggest solar module supplier (by megawatts) in the world, but competition is fierce. To compete, subsidiary Canadian Solar USA General Manager Alan King is looking for ways to bind his integrator customers with the companies in his supply chain and make financing more available. Two just-announced Canadian Solar financing programs are designed to do that.
The day of Canadian Solar’s announcement at Solar Power International 2012, Trina Solar (NYSE: TSL), the world’s third biggest module supplier, announced a Partners Plus program that rewards its integrator-partners for using Trina products. Both programs echo moves by companies as different as Borrego Solar and SolarCity to bring added value to their suppliers, integrators and customers.
“It is not that we are bringing anything revolutionary to the marketplace,” Canadian Solar’s King acknowledged. But providing “one-stop-shopping for panels, inverters, balance-of-system components and, now, financing,” he said, “it’s a kind of virtual vertical integration.”
This is not the vertical integration that made SunPower (Nasdaq: SPWR) a solar industry giant, King said. “It is not our strategy to buy companies but to partner with companies,” he explained. “Virtual vertical integration allows us to respond to market trends and changes in economic conditions much more quickly than if we brought all those resources in-house.”
With De Lage Landen Financial Services, Inc. (DLL), a fully owned subsidiary of Rabobank Group, Canadian Solar will offer a project financing program and an extended repayment program.
The financing program, King said, “can take the form of a loan, a lease or just simple construction financing.” It can cover “up to 100 percent of the total project cost and the term is up to twelve years, although we will offer longer terms based on the risk rating of the end user.”
DLL will provide third-party funding, King explained. DLL “is bringing the money to the table. It will qualify the borrowers. We are administering, managing, and making this fund available to Canadian Solar partners that meet the loan criteria.”
Unlike many third-party ownership funds, this one does not come with an announced maximum. “It will allow us to finance up to $15 million per project,” King said. “If there are enough good projects, DLL and other institutional investors can profitably place all the money they can bring to bear,” King said. “One of the reasons for the boom in Germany in the past few years is that the return on solar investments was in the double digits, so banks were willing to put money in. But if returns fall below their required rate, DLL will make less money available.”
The financing program “is being developed exclusively for our markets in the U.S.,” King said. “It enables us to service what we’re calling the middle market, projects as small as 200 kilowatts and up to five or six megawatts.”
By bringing more financing to the commercial-scale middle market, King believes, Canadian Solar can drive down system costs. That will be essential, he said, “if we as an industry are going to eventually survive without federal or state subsidies.”
“One thing that will allow costs to continue to drop is more standardization,” King said. “In Europe, all it takes is a two-page agreement to finance a project. In the United States, it probably takes one or two trees to write a project’s finance agreement.” Standardization will, King believes, streamline project development, reducing solar soft costs and increasing growth.
The extended term loan program, King said, will allow Canadian Solar’s integrator-partners as long as 120 days to pay for their modules. “Some smaller systems can be fully constructed in 120 days, so, in essence, this is another form of construction finance. It can go to the residential marketplace, it can be the middle marketplace, which is commercial, or it could even apply to the utility-scale market.”
Many small to mid-size integrators “don’t have the balance sheet, the cash on hand, to be able to build a two-megawatt project, even just modules, without getting extended terms from the manufacturer. The best terms they can get is 30 or 60 days, and that, unfortunately, does not enable them to get a $6 million or $7 million project built.” The Canadian Solar extended terms will allow this, King said.
Through both programs, we can “spend the money we have available, leverage the cash we have in the bank, and see us through these difficult times, while at the same time expanding our product offerings to the marketplace.”
"Providing financing, from our own balance sheet or from third parties," King said, is to his company’s advantage. “All kinds of projects are being proposed. Some make sense, some don’t. The one thing they have in common is none have financing. For every five or six that don’t make sense, one does. And that’s the one that I hope my team is smart enough to find. We’re no different than Trina and a lot of other companies that are looking at these projects. I just hope our team is faster and smarter.”
Canadian Solar does not want to be “simply a provider of modules,” King said. “We hope that these financing packages, residential financing, commercial financing, and inventory financing, will bring a virtual vertically integrated company to the U.S. marketplace. If we only manufacture and sell modules, we’re just dealing in what will ultimately become a commodity market.”