Yingli’s 200 MW US Module Supply Deal Encouraging, But Margins Could Be Impacted

Yingli Green Energy (NYSE:YGE), one of China’s largest solar panel manufacturers, has won a contract to supply 200 MW of photovoltaic (PV) modules to the Centinela Solar Energy Facility Project located in Southern California. The plant is expected to commence operations in mid 2014. The supply contract will be Yingli’s largest to date. ^[1] However, the company could suffer from weaker pricing and margins due to an oversupply of solar panels in the global market and anti-dumping and countervailing duties faced in the U.S.

How Yingli Will Benefit From The Deal

We believe that winning a project of this size will help Yingli further its reach in the U.S. utility scale solar market, which has been growing rapidly as several states have set targets for renewable energy to meet a certain percentage of power generation. In Q2 alone, project developers built about 477 MW of utility scale solar projects, up by 71% since last year. About 3.4 GW of projects remain in the pipeline. ^[2]

Yingli took a bold step earlier this year by expanding its annual manufacturing capacity from 1,700 MW to 2,450 MW. Considering the large size of the contract, it will help the firm improve its capacity utilization levels for next year and allow for better cost absorption given the relatively high fixed costs involved in manufacturing PV products.

Pricing And Margins Could Be A Concern

Although the financial details of the deal were not disclosed, module prices for this contract could be a cause for concern given the weak pricing power that solar firms currently have due to the oversupply of solar panels in the global market. For instance, Yingli has seen the average price for its panels drop from about $1.43 per watt last year to about $0.95 in Q1 of this year and prices are expected to fall further.

Yingli’s modules face anti-dumping duties (about 15.42%) and countervailing duties (about 15.24%) in the United States. These duties apply only to solar products that house PV cells manufactured in China. Given that Yingli has invested significantly in its Chinese manufacturing operations, it may not be viable for the firm to source cells from abroad to circumvent these tariffs. Considering the weak bargaining power that PV manufacturers currently have, the tariffs could have an impact on the company’s margins.

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1. Yingli Solar Press Release [↩]
2. Yingli gets contract for 170MW solar project in California, Recharge News [↩]