Wary Of Low Profit Margins, ReneSola Refuses Orders From China, India

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Falling preferential tariffs in India and rising competition in China has finally led to solar photovoltaic manufacturers rethinking their strategies in these two major markets.

Chinese module manufacturer ReneSola refused some orders from China and India due to low profit margins, the company revealed during its Q2 2014 results conference call. The results posted by the company are certainly an interesting read.

Module shipments in Q2 2014 were just under 500 MW, a decline of 4.3% compared to the previous quarter but 15% higher than the shipments during the same period in 2013. Wafer shipments, at 200 MW, were 5.6% higher than those in Q1 2014 but 52% lower year-on-year. Cumulative shipment of modules and wafers declined by 1.7% and 17.8% compared to Q1 2014 and Q2 2013 respectively.

While the net revenues were down 6.7% quarter-on-quarter basis it was marginally up year-on-year basis. Gross profit, on the other hand, witnessed a significant jump. Company posted a gross profit of $56.9 million, up 29.3% compared to Q1 2014 and up 87% compared to Q2 2013. Gross margin, at 14.7%, was the highest in last three quarters.

The huge spike in gross margin and profits is an indication of the fact that the company is cherry picking its orders and not relying on the quantity of shipments, something echoed by the management in the recent press conference as well.

Rapidly falling costs in India have resulted in a substantial decline in preferential tariffs of the last few years. From a per MW cost of $2.77 million in 2011 the capital cost has fallen to $1.13 million this year. The preferential tariffs available to the project developers has fallen from $0.24 per kWh to $0.11 per kWh. Project developers in India have offered to set up projects at tariffs even lower than $0.11 per kWh, thus raising questions about the profitability of such projects. To add to this, the Indian government is contemplating levying anti-dumping duties on solar PV modules imported from countries such as the US and China.

In China the company has to compete with larger companies including Yingli Solar, which recently achieved a major milestone of shipping a cumulative 10 GW of solar PV modules worldwide. Yingli Solar was the most preferred solar PV module brand in 2013. The company was also the third-biggest Chinese brand in Germany (one of the largest solar power markets) behind Lenovo and Huawei.

ReneSola hopes to ship 530 MW to 550 MW solar PV modules during Q3 2014 and increase its gross margin to 15-17%.

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