Solar PV Development:

Lessons Learnt from Other Countries

Dr.-Ing. Insan Boy General Manager
Canadian Solar South East Asia Pte Ltd

June, 5th 2014

Safe Harbor Statement

!

This presentation has been prepared by Canadian Solar Inc. (the Company) solely to facilitate the
understanding of the Companys business model and growth strategy. The information contained in this
presentation has not been independently verified. No representation, warranty or undertaking, express
or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or
correctness of the information or the opinions contained herein. None of the Company or any of its
affiliates, advisers or representatives will be liable (in negligence or otherwise) for any loss howsoever
arising from any use of this presentation or its contents or otherwise arising in connection with the
presentation.

This presentation contains forward-looking statements and management may make additional forwardlooking statements in response to your questions. Such written and oral disclosures are made pursuant
to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These forward
looking statements include descriptions regarding the intent, belief or current expectations of the
Company or its officers with respect to its future performance, consolidated results of operations and
financial condition. These statements can be recognized by the use of words such as expects,
plans, will, estimates, projects, or words of similar meaning. Such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties. Actual results may differ
materially from expectations implied by these forward-looking statements as a result of various factors
and assumptions. Although we believe our expectations expressed in such forward looking statements
are reasonable, we cannot assure you that they will be realized, and therefore we refer you to a more
detailed discussion of the risks and uncertainties contained in the Companys annual report on 20F
form as well as other documents filed with the Securities & Exchange Commission. In addition, these
forward looking statements are made as of the current date, and the Company does not undertake to
revise forward-looking statements to reflect future events or circumstances, unless otherwise required
by law.
2

Company description
A rapidly growing solar total solution
provider with one of the largest global
project development pipelines
n Founded
n Listed
n Over

Global
Footprint
Operational

footprint

in Ontario, 2001

on NASDAQ (CSIQ) in 2006

7,000 employees globally

n Presence

in 20 countries / territories

n One

of the worlds largest solar module

suppliers

n Proven

project development track record

Module manufacturing business highlights

n

2013 shipments at 1.9 GW, #3 rank

Industry leading cost structure

Strong bankable brand with global reach

Sales office

Manufacturing facility

Total Solutions contracted / late stage projects

Total solar energy solutions business highlights

n

Development and construction of utility-scale

solar plants

EPC services

Rooftop solar system kits

Leading PV module manufacturer

Canadian Solar manufacturing capacity

2.6 GWDC

total module
manufacturing
capacity including
2.1 GW in China

3rd largest
module manufacturer
globally

(MWs)

Capacity as of Jan 31, 2014

3,000

2,600

2,400

2,500

2,100

2,000

1,600

1,500

1,300

1,500

228

200

216

0
2010

2011
Wafer

2012
Cell

Module

in module shipments
from 2012 2013

(MW)

Bankable brand
established reputation
for high quality
products

Targeting to increase to
3.0 GW in 2014

31-Jan-14

Total shipments in module and total solutions businesses

competitive cost
structure

2,600 MW

200

22% YoY growth

$0.53/W
module cost

China,
2,070 MW
80%

1,500

800

1,000
500

Canada,
530 MW
20%

1,894

2007

83

167

2007

2008

13E

R: 69
CAG

.7%

1,543
1,323

804
297

2009

2010

2011

2012

2013E

Q4 2013 module manufacturing cost

Polysilicon/Wafer

$0.22/W

(1)

Cell

$0.14/W

(1)

Module

Total

$0.17/W

$0.53/W

Source: Company information

(1) Includes purchased wafers and cells.

Levered to strong, positive demand growth globally

Global PV module demand

Key themes

(GW)

48.1
08-14E
CAGR

Decline in Europe more than

offset by growth in Asia and
U.S.

12.6

36.3

26.9

28.0

0.2

15.0

7.7

6.6

2.1
3.7
3.8

2.0

2008
China

2009
Japan

3.3

2.9
0.2
2.3

2010
US

2011
Germany

14.0

2.1

1.6
1.3
2.0

8.0

165.5%

8.0

3.5

2012
Italy

India

2013E

Long-term growth in Asia

driven by energy security, fuel
substitution and environmental
factors

81.2%

7.0

3.3

7.2
0.9
1.0
0.5

5.0

7.6
7.5

69.1%

3.5

1.0

9.0

8.0

Grid parity in certain markets to

drive future growth

14.2%
6.2%

1.0
1.5

7.1

5.4

10.3

2.0
0.8
2.8

176.7%

China, Japan and U.S. to

account for 62% of estimated
2014 demand Canadian
Solar generated 91% of sales
from Asia and Americas in Q3
2013

2014E

Rest of World

Source: Global PV module demand assumptions from January 6, 2014 Deutsche Bank research report, Bloomberg New Energy Finance
Note:
(1) China portion of 2014E demand adjusted from 12 GW to 14 GW based on National Energy Administration guidelines issued January 15, 2014

China is poised to lead growth in demand for solar energy

Increase in 2014 PV installation target

Jan 2014

2014 target increased from 12 GW to 14 GW

8 GW to come from distributed generation and 6 GW to come from ground mount projects

Clarity and certainty on FiT regime

Aug 2013

Regional tariffs ranging between RMB 0.9-1.0 per kWh fixed for 20 years based on installation

RMB 0.42 per kWh added to benchmark price for distributed projects

Guaranteed funding by doubling of renewable energy surcharge to RMB 0.015 per kWh

State Council developing detailed guidelines

Jul 2013

Increased targeted 2015 solar installations in China to 35 GW up from previous target of 21 GW

20 year FiT period

Streamlined disbursement mechanism with monthly payment schedule

Accelerated excess capacity consolidation

State Council announces policies as part of new environmental policy for China

Jun 2013

n Highlighted

multi-year growth outlook for domestic solar development

Source: PRC government announcements, company information, news releases

6
6

Positive developments driving growth in the US and Japan

Japan

United States

Demand growth

(GW)

0.2

n Second

Market update

14E
008

R
CAG

2%
: 81.

7.0

8.0

(GW)

2008

14E

R: 69
CAG

8.0

.1%
5.0
3.3

2008

1.0

2009

2010

1.3
2011

2.1

2012

2013E

2014E

largest PV market globally in 2013 at 7.0 GW

n Attractive
n Only

0.5

FiT of JPY 36 ($0.38) / kWh (excluding tax)

5% of approved 1 MW+ utility-scale projects built to

date
13.5 GW approved through Jul 2013

0.3

0.4

0.9

2008

2009

2010

n Demand

2013

1.6
2011

2012

2013E

2014E

to increase to 8.0 GW in 2014 up 60% from

n Continued

federal and state government support for

solar build-out

n Small-scale

solar to continue to grow driven by

numerous incentive programs (e.g. net energy metering)

Permitting / approvals process improving - expected to

accelerate of utility-scale build-out in 2014
2013 shipments
CSIQ position

n Shipped

in 2013

ROW
73%

1.88 to
1.90 GW

Japan
27%

a record 508 MW

Key customers / partners

Estimated 7% market
share
n Largest

foreign PV module
brand in Japan

n 329

n Completed

81 MW of
projects in US in 2013

n Key

module supplier to
local utility companies and
private solar developers

n 174

MW project pipeline

MW project pipeline

Source: PV module demand assumptions from January 6, 2014 Deutsche Bank research report, Bloomberg New Energy Finance, company information.

Project development business with diversified pipeline

Priority markets for utility-scale project development

4.5 GWDC

total project
development pipeline

1.3 GWDC

total contracted /
late-stage project
pipeline(1)

Canada

USA
China

Japan

> 3.2 GWDC

total early-mid stage

development
pipeline(2)

C$1.7 billion

Short term
Mid term
Long term

revenue expected for

Monitoring
Canadian project
pipeline over next
12-18 months
477 MWDC
Canada pipeline

(1)

164 MWDC
U.S. pipeline

(1)

290 MWDC

China pipeline

(1)

329 MWDC

Japan pipeline (1)

Canadian Solar has a globally diversified pipeline of contracted / late stage projects
Source: Company information as of January 31, 2014
Note:
(1)
Late-stage project and EPC contract pipeline;: nearly all projects have an energy off-take agreement and are expected to be built within the
next 2 years
(2)
Early to mid-stage of development: includes projects under assessment for co-development and acquisition, as well as projects being selfdeveloped where the land has been identified or secured, and an energy off-take agreement is in place or there is a reasonable probability that
it can be secured

High-quality product portfolio

Product portfolio

International environmental & quality management standards

Commercial and utility-scale

MaxPower
CS6X-P

ELPS
CS6P-MM

CS6P-M

ISO 9001:2008 Quality Management System

QC080000:2005 HSPM Hazardous Substance

Process Management

CS6P-P
n

ISO 14001 Environment Management System

ISO TS16949:2009 First PV manufacturer to adopt ISO TS16949

for PV quality control

Residential

ELPS
CS6V-MM

OHSAS 18001 Occupational Health and Safety

International testing standards

CS6V-M

* Four busbar modules

Source: Company information

CS5A-M

All-black
CS5A-M

ELPS
CS6A-MM

IEC 61215 & IEC 61730, UL 1703 & UL 790 & CEC

CE conformity, MCS (EN45011)

REACH Compliance

IEC 61215
IEC 61730
IEC 61701: Salt Mist
Corrosion
ce
Ammonia Resistan
e
PID fre
REACH Compliant

Bankable product with insurance backed warranty

Product workmanship and power output
performance.
n

2-year guarantee for workmanship

10-year performance warranty

.backed by an investment grade insurance policy

Decline of no more than 10% per annum

n

Insurance policy matches Canadian Solars standard

warranty terms

Coverage starts immediately and lasts for 25 years

Covers worldwide modules sales from all CSI

subsidiaries to most countries

The policy is non-cancelable and allows third party

bankruptcy rights (satisfying investors/ lenders
requirements)

Insurance purchased underwritten by:

25-year performance warranty

First year, guarantee of no less than 97% output
Second year through 24th year, decline of no more
than 0.7% per annum
By end of year 25 the actual power output will be no
less than 80% of the module's labeled power output

Value from liner power output warranty - % of name plate rate

International Insurance Company of Hannover

Limited AM Best Rating: A XV. www.interhannover.com
RSUI Indemnity Company AM Best Rating: A XII.
www.rsui.com

100%
95%
90%
85%
80%
75%
70%

10

15

20

25

Years
Source: Company information

10

PV Project: Key Development Process

11

Malaysia
First quota release 150MW in 2012 to Q2/2014 is fully awarded
n
FiT Rate RM 0.98/kWh (DR 8%) with local module content incentive RM 3 cents/kWh
n
Total installed PV capacity as of Jan 2014 is ~118 MW
n
Highly subsidized electricity rates ~ RM 0.40/kWh (USD 13 cents) Challenge for captive
consumption
n
The new quota (~237MW) was released on 2 May 2014 for 2014 to 2017:
n

Schedule of Available RE Quota (MW) based on Commercial Operational Year (2014-2017)

Year
Solar PV for Individuals 4kW to 12kW
Solar PV for Non-Individuals <425kW
Solar PV for Non-Individuals >425kW
Solar PV for Community
Total (237MW)

2014 (H2)
10MW
10MW
15MW
5MW
40MW

2015
15MW
20MW
34MW
7MW
76MW

2016
15MW
20MW
33MW
7MW
75MW

2017
15MW
24MW
7MW
46MW

For FiT ground-mounted projects max project size is limited to 2MW

n
FiT degression rate at 10%, new FiT rates range from ~RM1/kWh (USD 31 cents) for
<4kW size to ~RM0.68/kWh (USD 20 cents) 1MW size and above
n
Local content incentive (FiT bonus) RM0.05/kWh (USD 1.5 cents), incl. 10% sales tax
exemption.
n
Malaysia is developing the framework and policy for utility-scale ground-mounted projects
under IPP model (direct PPA negotiation with TNB) for projects >10MW
n
1MDB (State Own) announces plans to develop a 50MW project in Kedah state at PPA
rate of RM 0.46/kWh (USD 14 cents)
n

12

Malaysia
High competency & experience of solar PV developers/EPC companies in Malaysia is
developing along the success of > 110MW total installation as of today
n
Limited local EPC companies executed large-scale solar farms (Cyparks 8MW)
n
Authorities are very consequent: number of PPAs were revoked due to project sponsors/
investors inability to secure financing and in some cases - land rights issues
n
Despite the success, project financing is still an issue: local Malaysian banks are still
reluctant to finance solar PV projects, viewing them as high risk projects
n
Local interest rates are can be as high ~7.5%, which makes the project a challenge
n
Public funding for national FiT programme from an additional 1.6% tax on consumers
electricity tariffs is this sustainable?
n

13

Philippines
n
n
n
n
n
n
n
n
n
n

n
n

Limited Market 50MW quota of PPA issued until 2015

Latest directive is to complete construction prior to PPA, project not bankable!
Current FiT rate in the Philippines (2012) is 9.68 pesos/kWh (0.23 USD)
New FiT quota for 2015 is rumored to be 500MW with a rate of 8.06 pesos (0.18 USD)
Local content incentive is not available
Electricity price: the most expensive in SE Asia USD 23 cents/kWh
Metro Manila recently increased the price to USD 31 cents/kWh
Due to the limited opportunities for PPAs under the FiT the focus is currently on nonFiT utility and commercial rooftop projects (self-consumption model is feasible)
There are few local EPC companies in the Philippines capable of MW scale projects.
For commercial rooftop: Solar leasing model - PPA model similar to the installation on
the ADB HQ in Metro Manila 15 year commitment to purchase the electricity being
produced, typically for a few cents less than the local utility
While the PPA model is attractive to some building owners, many find the required
unlimited access to their rooftop and the tenor of the contract unappealing, preferring
instead to own the system.
With net-metering having been approved by the DoE all that remains is for the local
utilities to install smart meters, although this still requires approval by Meralco
Project Financing (bankability) is still a big issue!

14

Philippines

NO.

PROJECT NAME

RE DEVELOPER

DECLARED
CAPACITY
(MW)

TARGET
COMMISSION

Currimao Solar PV Power Mirae Energy

Project

20

August 2014
(subject to FiT)

Ormoc Solar PV Power

Project

Phil Solar FarmLeyte Inc.

30

2018

Rodriguez Solar PV
Project

ATN Philippines
Solar Energy

30

Construction
ready. Possible
complete in 2015

*San Carlos City PV

Power Project

San Carlos Solar

22

Completed.

Digos City PV Power

Project

Enfinity

10

Total

112

Possibly only 14MW complete and inaugurated by President Aquino in May 2014
Debate as to whether they have secured all permits for the FiT to be awarded
15

Singapore
n
n
n
n
n
n
n

n
n

n
n

Singapore has no FiT policy nor RE roadmap.

Electricity rates: USD 0.21/kWh (residential) to USD 0.12- 0.19/kWh (industrial)
Solar market is very small, only ~22MW installed so far.
Private commercial projects: 10 to 15MW
Solar leasing: ~10MW installed by HDB, and ~5MW under private projects
Private Commercial Buildings (BCA Green Mark)
Public/Govt Buildings: Schools, Institutions, Hospitals, starting to implement
solar.
Solar Leasing for HDB, commercial buildings require investors
Single largest commercial installation to date: 1.2MWp rooftop project at Sheng
Shiong (own financing)
PUB: Floating PV on reservoirs 100kWp trial with further 2MW under leasing
Most govt projects are mainly tender based:
awarded on lowest price
Paperwork intensive and resource-consuming process even for very small
system size

16

What is Project Finance?

Debt
Service

Lenders

Non
recourse

Assignment
Pledge &
Collateral
Limited
recourse

Project Company
(Borrower)
Off-taker

Sponsors

Cash

Contracts
& Assets

Financing of a project in which a lender looks to the predictable project cash

flows generated as the primary source of funds to repay the loan and the project
assets as collateral for the loan
17

17

Project Finance Characteristics

n

Project Finance
Long term financing of capital-intensive infrastructure and industrial projects based upon the
projected cash flows of the project rather than the balance sheets of the project sponsors

Separate Entity (Parent) and SPV Status

Risk of the transaction is generally measured by the creditworthiness of the project itself rather
than that of its owners (Sponsors)

Project Finance debt is often termed as limited-recourse

That means the financial institutions cannot go to the parent level to get their money back. The
money has to be generated at the SPV level. Typically these loans are secured by the project
assets and the core project contracts

Timing of Cash Flow

The cash flows from the project comes only after the project is fully complete (takes more than a
single financial year for completion) and are usually the sole means of repayment of the borrowed
funds

Long Gestation
From inception of an idea to Financial Close, a Project Finance deal can take years to negotiate.
Generally much shorter for solar projects

Identifying Risks
The success of the project depends a lot on identifying risks, allocating them appropriately and
ensuring that the responsible parties are adequately incentivized to manage their risks efficiently

18

18

Solar Project Finance Contractual Structure

Insurers

Off-taker
PPA

Insurances

Debt

Loan Agreement

Owner
Builds

Financiers

Solar Park
(SPV /
Borrower)

Equity

Sponsors/
Equity

Land S&P /
Lease

Land
19

Management
Agreement

Project
Manager

Solar
Park

O&M
Agreement

O&M
Operator

EPC Contract

EPC
Contractor
19

Risk Methodology
n Risk identification and allocation is a key component of project finance. A project may
be subject to a number of technical, environmental, economic and political risks
n Financial institutions and project sponsors may conclude that the risks inherent in
project development and operation are unacceptable (non-financeable).
n To cope with these risks, project sponsors in the solar industry are generally completed
by a number of specialist companies operating in a contractual network with each other
that allocates risk in a way that allows financing to take place.
n Several long-term contracts such as construction, land, off-take and interconnection
agreements, along with a variety of joint-ownership structures, are used to align
incentives and deter opportunistic behaviour by any party involved in the project.
n The financing of these projects must also be distributed among multiple parties, so as
to distribute the risk associated with the project while simultaneously ensuring profits
for each party involved.
n A riskier or more expensive project may require limited recourse financing secured by a
surety from sponsors.
20

20

Methods of
Identification

Risks

Risk Identification

21

Technical Risk

Financial Risk

Demand / Commercial Risk

Legal Risk

Political Risk

Technical Due Diligence

(including radiation
report)

Financial Model Review

Legal Due Diligence

Environmental Report

Insurance Due Diligence

Public Consultation

21

Risk Identification: Technical Risk

Risk

Mitigation

Site

Sub-soil and site suitability test

Known and proven technology

Output, degradation, availability etc guarantee >> LDs if
underperformance
Bankable modules
Plant life is longer than funding life 25 years for modules
Appropriate monitoring by sponsors and lenders

Performance

Radiation

Independent Engineers PVsyst calculation using databases with

years of radiation data
Also part of demand risk but usually independent engineer is also
responsible for preparation of the radiation report

Delay/Interruption

Date-certain completion date >> LDs if delay

Delay in start-up / Business interruption insurance
Engagement of experience operator

Safety

All risk insurance

22

22

Risk Identification: Financial Risk

Risk

Mitigation

Cost overrun/ cash

deficiency

Fixed lump sum turnkey contract price

Adequate contingency
Experienced and bankable contractor
Single point of contact principle
Standby facility
Sponsor support

Operational costs

Technical support agreement

O&M Agreement with fixed O&M fees and charges

Long term offtake agreement and assumptions agreed by the

independent engineers

Interest rate/ Foreign

exchange fluctuation

Hedging derivatives
interest-rate swaps
Cross-currency swaps

Insolvency of
counterparties

Credit Rating
Bond

Inflation

23

23

Risk Identification: Demand / Commercial

Risk
Risk

Mitigation

Long term off-take agreements and independent expert reports

Insufficiency of demand
capacity

Long term off-take agreements and Independent expert reports

Security of tariff payment

Creditworthy and reliable off-taker

Inaccuracy of forecast

24

24

Risk Profile

$mm

Testing &
Commissioning

Construction Period
1800 -

Operational Period

1600 1400 1200 1000800 600 -

Risk

0-

Month
25

10

15

20

25

30

35

40

45

50

55

60

>>>>>>>>>>>>>>>>>>>>

25

Uses and Sources of Funds

Milestone for
Completion

Commercial
Operation Date

Capex / EPC

EPC Works
Project Loan & Equity

Testing &
Commissioning

Loan & Equity Monthly Drawdown

EPC Warranty

Last drawdown

Loan Availability Period

Loan Repayment
PPA / OMA

Revenues minus Opex

Construction Period

26

Operational Period

26

Consequence of Delay in Completion

Scheduled Commercial
Operation Date

EPC

Delay
No
Commissioning

Default
Termination/ Replacement
Cost Overrun

Project Loan
First Repayment Delay

Loan Availability Period

PPA / OMA

Not allowed to drawdown

Default rate
Event of default

-
-
-

no revenues no loan repayment

completion default
termination of project agreement

Default
LDs per day with cap
Termination

Construction Period
27

27

How to Minimize the Risk?

Scheduled Commercial
Operation Date

EPC

Performance bonds
LDs
Replacement cost

Cost overrun support

Cash deficiency support
LDs from supplier/contractor
Delay in start-up insurance

Remedy period
Step-in by Lenders
LDs from supplier/contractor
Delay in start-up insurance

Project Loan

PPA / OMA

Construction Period

28

28

Thank You!

29