Canadian Solar Inc. (CSIQ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's First Quarter 2025 Earnings Call. My name is Sherry and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Wina Huang, Head of Investor Relations at Canadian Solar. Please go ahead.

Thank you, operator, and welcome, everyone, to Canadian Solar's First Quarter 2025 Conference Call. Please note that today's conference call is accompanied with slides, which are available on Canadian Solar's Investor Relations website within the Events and Presentations section. Joining us today are Dr. Shawn Qu, Chairman and CEO; Yan Zhuang, President of Canadian Solar subsidiary, CSI Solar; Ismael Guerrero, Corporate VP and President of Canadian Solar subsidiary, Recurrent Energy; and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will go over some key messages for the quarter; Yan and Ismael will review business highlights for CSI Solar and Recurrent Energy, respectively; and Xinbo will go through the financial results. Shawn will conclude the prepared remarks with the business outlook, after which we will have time for questions. Before we begin, I would like to remind listeners that management's prepared remarks today as well as their answers to questions will contain forward-looking statements that are subject to risks and uncertainties. The company claims protection under the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of risks and uncertainties can be found in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP. Some financial information presented during the call will be provided on both a GAAP and non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to enable further analysis of the company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. And now I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Thank you, Wina, and thank you all for joining our first quarter earnings call. Please turn to Slide 3. We began the year with a solid performance. Module shipments reached 6.9 gigawatts, slightly above our guidance. Revenue totaled $1.2 billion, at the high end of our range while gross margin of 11.7% modestly exceeded expectations. Profitability was impacted by lower contributions from storage, duties and tariffs, Recurrent's ongoing transformation and intercompany eliminations. This resulted in a net loss to shareholders of $34 million or $0.69 per diluted share. 2025 will face many of the same challenges that defined 2024. While near-term headwinds remain, we are confident in the long-term opportunities and will continue to invest in them. Please turn to Slide 4. In the near term, we are tackling challenges that test us both operationally and financially. Structural overcapacity across the solar supply chain has prolonged the market downturn putting pressure on module pricing in most global markets. In addition to fierce competition, tariffs and shifting policies are raising costs and squeezing margins. To navigate these challenges, we are maintaining a profit-focused approach to our modules business, carefully managing volumes in less profitable markets, leveraging blended supply chain strategies and offering bundled sales. Storage continues to be a key differentiator and profit driver. We are also rigorously managing operating expenses and capital expenditures to support our bottom line and cash flow. Recently, we held an internal town hall meeting where I posed a question on behalf of the broader renewable energy sectors. Does this industry still have a bright future? My answer is a resounding yes. Global electricity demand is growing at its fastest pace in years and the rise of AI and other energy intensive applications is widening the energy gap. Solar power; clean, affordable and easy to deploy; can quickly meet this demand especially when paired with storage. Canadian Solar has a proven track record of navigating policy shifts and market cycles, demonstrating our technological leadership and resilience in challenging times. While our operating environment continue to evolve, our 1 constant is our commitment to R&D and leadership through innovation. Please turn to Slide 5. Over the past 2 months, we have announced several new products showcasing our leadership across both solar and energy storage technologies. In solar, we completed our first deployment of Canadian Solar's innovative anti-hail technology in Australia. This technology protects solar panels from severe weather reflecting our dedications to delivering durable, high-performance solutions in even the most demanding environment. We also introduced our new N-type high power TOPCon Gen 2 modules for utility scale and C&I system. Built on our latest TOPCon cell technology, these modules deliver a maximum power output of up to 660 watts and a conversion efficiency of up to 24.4%. By advancing our solar technology, we help customers lower their levelized cost of energy and improve project economics reinforcing solar as one of the most cost-effective energy generation options. On the storage front, we achieved key milestones in both utility scale and residential offerings. At Intersolar in Munich, we officially launched our SolBank 3.0 Plus enhancements for the lithium-ion phosphate battery cell manufacturing process, elevate its performance beyond the already successful SolBank 3.0. This solution offers a 25-year lifespan, near 0 degradation for the first 4 years and up to 12,000 cycles at 95% round trip efficiency. SolBank 3.0 Plus can significantly reduce our customers' operational cost by boosting overall lifetime energy throughput by over 13%. We are also proud that our residential energy storage solution, EP Cube, received the prestigious 2025 iF Design Award and Gold at the 2025 MUSE Design Awards. EP Cube combines an aesthetically pleasing design important to homeowners with functional advantages like easy installation and flexible capacity options. It continues to gain strong traction in global markets. With that, I will now turn the call over to Yan, who will provide more details on our CSI Solar business. Yan, please go ahead.

Thank you, Shawn. Please turn to Slide 6. In the first quarter of 2025, module shipments increased by 9.4% year-over-year to 6.9 gigawatts. We slightly exceeded our module shipment guidance driven by incremental shipments to China as the industry rush to complete installations ahead of new policies taking effect on June 1. Storage deliveries aligned with guidance totaling 849 megawatt hours. Revenue reached $1.2 billion and our gross margin declined by 640 basis points quarter-over-quarter to 13.4%, primarily due to lower energy storage shipments. While costs rose slightly, partly from nonrefundable VAT change in China effective last December and slightly higher manufacturing costs in Southeast Asia under our blended supply chain strategy, average selling prices improved with a higher share of shipments to North America. With shipping costs declining sequentially due to softening global shipping rates and our rigorous management of operating expenses, we achieved operating income of $2 million. Now turning to e-STORAGE. Please refer to Page 7. In the first quarter, we recognized revenue from 849 megawatt hours of shipped solutions. The softer performance was due to contract timing, and we expect a much stronger second quarter. Understandably, the ongoing U.S.-China tariff negotiations remain top of mind for all stakeholders. While we cannot predict final outcomes, it is critical to recognize that these U.S. energy storage projects essentially for grid resilience and energy dispatchability took years of planning and significant investment. While clarity may take some time, the industry will work together to advance these projects. Like all market participants, we're navigating this uncertainty. For e-STORAGE, the U.S. accounts for upwards of 1/3 of our energy storage business expected for this year. We are actively engaging with customers to mitigate risks and ensure smooth project execution. Notably, we are well positioned with our global blended manufacturing strategy. Beyond our planned Kentucky storage facility, we have cell manufacturing capabilities and supplier partnerships that will allow us to offer customers flexible options starting in 2026. Demand for storage is stronger than ever not just in the U.S. but globally. As of March 31, our record pipeline of 91 gigawatt hours, including $3.2 billion in contracted backlog, highlights the structural growth potential of energy storage worldwide. For example, we recently secured another major project in Latin America. Please turn to Slide 8. Colbun, a leading Chilean power generation company, selected e-STORAGE to supply a 912-megawatt hour battery energy storage system for their Diego de Almagro Sur project in Chile's Atacama region. Like many in e-STORAGE's global track record now exceeding 11 gigawatt hours, this project highlights the value of energy storage. It strengthens grid reliability, optimizes renewable energy use and ensures secure continuous power for industrial demand. Now let me hand the call over to Ismael, who will provide an overview of Recurrent Energy, Canadian Solar's global project development business. Ismael, please go ahead.

Thank you, Yan. Please turn to Slide 9. In the first quarter, we generated $125 million in revenue. Gross margin was 18.6% driven by project sales in Latin America. Due to the operating costs of our platform and the ongoing scaling of our IPP portfolio, we posted an operating loss of $12 million for the quarter. Regarding our business transformation, we remain focused on execution. Currently, we have 1.2 gigawatts peak of solar and 1.4 gigawatt hours of energy storage projects under construction in Europe and the U.S. In January, our 35 megawatts peak Montalto project in Lazio, Italy reached commercial operation. The PV project was contracted with Axpo with an attractively priced PPA. In addition, Montalto is also one of the first colocated PV and BESS projects in the Italian market. The BESS portion won a 15 years fixed capacity payment in a public auction and it is now under construction. In the U.S., we secured tax equity and project finance for Fort Duncan, a 200-megawatt hours merchant storage project in ERCOT, Texas. This is a testament to the strength of our projects and financing teams as well as the strong support from our capital partners in enabling innovative solutions to drive impact. Construction for Fort Duncan is complete and under commissioning as we speak. In line with our global growth strategy, we secured a $450 million multicurrency credit facility, which includes an accordion feature that allows for potential upsizing. This corporate facility provides flexible and scalable financing with disbursements in U.S. dollars, euros, British sterling and Australian dollars; supporting our strategy to expand our IPP portfolio across diverse markets and geographies. Given the uncertain policy environment in the U.S., we are proactively implementing safeguards for all major IPP projects, including safe harboring equipment. While the long-term effects of tariffs remain to be seen, we expect very limited impact given recent progress in trade negotiations. Now please turn to Slide 10 for an update on our pipeline. As of March 31, 2025 we have secured interconnections for 9 gigawatts of solar and 16 gigawatt hours of storage globally excluding projects already in operation. Our total project pipeline now stands at 27 gigawatts of solar and 76 gigawatt hours of energy storage. While we continue to expand our pipeline, the availability of easy to develop land with relatively cheap interconnections is becoming increasingly scarce. We are now prioritizing our core markets, the U.S. and Europe, while in other regions we focus primarily on low cost greenfield development. Now let me hand the call over to Xinbo, who will go through our financial results in more detail. Xinbo, please go ahead.

Thank you, Ismael. Please turn to Slide 11. In the first quarter, we shipped 6.9 gigawatts of modules, slightly above guidance and delivered 849 megawatt hours of energy storage solutions, in line with expectations. Revenue reached $1.2 billion at the high end of our forecast. Gross margin of 11.7% exceeded guidance. The 260 basis point sequential decline was primarily due to lower energy storage shipments while the 730 basis point year-over-year decline was driven by lower module ASP. Operating expenses decreased 4% year-over-year driven by lower shipping costs. Last quarter's results included nonrecurring impairment charge related to certain manufacturing and solar assets making the year-over-year comparison more reflective of our ongoing operational performance. Net interest expense in the first quarter was $28 million compared to $9 million in the fourth quarter of 2024 and less than $1 million in the first quarter of 2024. The current quarter reflects a more normalized interest expense as prior comparative periods benefited from nonrecurring interest income items. Net foreign exchange loss was $14 million primarily due to dollar weakness amid tariff related pressures. Total net loss was $34 million or $0.69 per diluted share. This result included a positive HLBV impact of $26 million or $0.38 per share from tax equity arrangements tied to certain U.S. operating projects. Now let's turn to cash flow and the balance sheet. Please turn to Slide 12. Net cash flow used in operating activities during the first quarter of 2025 was $264 million. This outflow was primarily driven by increased inventories and project assets. Total assets grew to $13.9 billion, driven by investments in project assets and solar power systems positioning us for longer-term value creation. In the first quarter, we allocated $256 million in capital expenditures primarily towards U.S. manufacturing initiatives. Our full year 2025 CapEx outlook remains unchanged at around $1.2 billion. We ended the quarter with a cash balance of $2.0 billion and total debt of $5.7 billion reflecting borrowings for capacity expansion, working capital and the project and operational assets development. Now let me turn the call back to Shawn, who will conclude with our guidance and business outlook. Shawn, please go ahead.

Thank you, Xinbo. Please turn to Slide 13. For the second quarter of 2025, we anticipate CSI Solar's module shipment will range between 7.5 gigawatts to 8 gigawatts including approximately 500 megawatts allocated to our own projects. We also expect to deliver between 2.4 gigawatts and 2.6 gigawatts of energy storage solutions during this period. We project total second quarter revenue to be in the range of $1.9 billion to $2.1 billion with gross margin expected to be between 23% and 25%. The anticipated margin improvement reflects strong energy storage shipments and includes a sizable margin contribution from the deconsolidation of a U.S. project. This deconsolidation would release previously eliminated intercompany gross margin on CSI Solar components installed within the project. We continue to operate in an environment marked by global pricing volatility and evolving policy uncertainty, which limits our margin visibility. Based on our recent assessment of market and geopolitical developments, we are updating our full year guidance as follows. For the full year of 2025, we update module volume guidance to 25 gigawatts to 30 gigawatts, including approximately 1 gigawatt to our own projects. For energy storage shipments, we provide conditional guidance between 7 gigawatt hours to 9 gigawatt hours, including approximately 1 gigawatt hour allocated to our own projects. The reduced module volumes primarily reflect our strategic reduction of exposure to less profitable markets while the expected storage adjustments relate to U.S. volumes affected by trade negotiations. As a result of these volume adjustments, we now expect full year revenue to be between $6.1 billion and $7.1 billion. With that, I would now like to open the floor for questions. Operator?

[Operator Instructions] Our first question is from Colin Rusch with Oppenheimer & Company.

There's a lot of variables here and, Shawn, obviously you've gone through a variety of policy shifts. One element that I'd love to get a bit more detail on is around the FEOC provisions that were released in the budget. I guess as you guys look at kind of how that might evolve and get solidified in the budget, how does that impact your plans for U.S. capacity investment? And how should we think about some of those elements impacting the variability in your guidance?

Colin, it's a good question, but also a tough question. Now the new draft of the FEOC was only released 2 days ago by the House Ways and Means Committee and it's only the first draft. We believe it will not look like this at the final reconciliation bill. So it's hard to comment at this moment because in the next 2, 3 years we believe there will be change and we will also push our opinion and our suggestions through the relevant representatives and senators and also to the administration. So I will not comment now because it's only 2 days-old draft and only the first draft from the House Ways and Means, Colin?

Perfect. Appreciate that answer. And then just shifting gears to the balance sheet. As you move through this year, we've seen some of the long-term debt increase assuming that the bulk of that is around projects. How should we think about target ratios for you guys from a cash flow perspective and a leverage perspective?

Yes. Xinbo, do you want to answer this question?

From a recurring perspective, we are still in the transition of -- from the project development to IPP. So we are continuing to build our projects and add nonrecourse debt. So the leverage of Recurrent will increase a little bit. For CSI Solar, we will maintain a similar leverage ratio to balance the growth and our capital structure.

Our next question is from Philip Shen with ROTH Capital Partners.

In terms of the 2025 guidance, you lowered your module shipments by 15% and battery shipments I think by 30%, but the revenue guide only came down 10%. Can you walk us through again or just walk us through how revenue is able to be down only 10%? Do you expect pricing to go higher? Sorry if I missed some of your explanation.

Maybe Wina, you are in the best position to answer this question.

So as Shawn mentioned, we are maintaining a profit first strategy, which means that the volumes be reduced for modules in a less profitable market whereas for storage, this is our best estimate given the ongoing trade negotiations. So this is still very fluid. As you can see, it's a pretty wide revenue guidance range.

Okay. And as it relates to the draft house bill, I know, Shawn, you talked about the FEOC rules and how that might need to be -- or you expect it to be changed ahead. They also have new rules as it relates to the ITC and PTC if they were to pass. Now they're looking to get placement service requirements instead of construction starts to secure the ITC and PTC. How would you expect that to impact your installations over the next 2 years? Do you think there would be modest limited impacts on the Recurrent business or do you think there might be some challenges with that new language?

Philip, this is also a very good question. The FEOC is important and the ITC schedule is also very important. So we are paying lots of attention to the draft from the Way and Means Committee and, as I said, I expect this to change. It looks like it's still far from the final law. However, the ITC does mean a lot to developers and also to manufacturers and Canadians are both developers and manufacturers. So indeed, ITC will have a significant meaningful impact if it is scaled back. Our calculation shows 1 year of ITC credit means several hundred millions of dollars to Canadian Solar alone not to mention the whole industry. So it's very important and we will put in our suggestion and our opinion. But on the other hand, Philip, if you remember, there has been talking of ITC phaseout several times in the past 10, 15 years. And I believe ITC was first introduced during President Bush time and then every President afterwards and also the House and Senate extended this ITC. But we also have been preparing for ITC phaseout just for Recurrent. But I remember Recurrent had like safe harbor solar modules and other equipment several times in the past 15 years and every time ITC got extended. So the ITC seems to have good longevity so we'll see how it looks like this time. But the industry and also Recurrent plus Canadian Solar, we are prepared to go through another round. I believe the solar project and I believe the storage project, the price is very economic these days and also the electricity demand is high. So whatever the ITC is, I think the industry will eventually adjust and then continue to grow, Philip.

Okay. I had a follow-up question on the Q2 margin guide. And you gave some detail around the strength is due to storage and I think the deconsolidation of U.S. projects. Can you share a little more color there? What is the expectation for storage margins these days? Historically, I think you guys have talked about 20%-ish, but is it closer to mid-20%s or even higher? And just provide a little bit more detail on the deconsolidation.

To provide comments, in other words, explain the consolidation of solar project. Yan?

So on the storage side, the Q2 storage shipment happened in Q1 so it was before this tariff war and so was pretty healthy. And also volume-wise, Q2 is going to be much higher. So the guidance is 2.4 gigawatt hour to 2.6 gigawatt hour so it's much higher than Q1.

Let me comment the deconsolidation. We have a storage project with fixed rate total agreement covering about 80% of the project lifetime. According to accounting standard when the projects reach COD, the majority of the risks and controls are transferred to the counterpart. So according to accounting standard, we need to deconsolidate this project from our balance sheet and release the intercompany profit eliminated in earlier quarters and it's a onetime event contributing about 5% to 6% of gross margin in next quarter.

Okay. And would you expect this strength -- what kind of gross margins could we see in Q3 and Q4?

No, we are not guiding this.

Our next question is from Brian Lee with Goldman Sachs.

This is Tyler Bisset on for Brian. You guys lowered storage volume expectations due to the trade negotiations. Can you provide some details on what sort of tariff assumptions are embedded in your guidance? I know there were some recent negotiations so just want to confirm what's embedded there. And similarly, you mentioned offering some flexible sourcing capabilities. So can you provide some more details on kind of the pricing differentials of leveraging different sources versus your existing products?

Yes. Yan, do you want to handle this question, the energy storage new guidance?

Yes. I think the 7-gigawatt hour to 9 gigawatt hour actually covered the different uncertainties already. So that included the sunny days exemption and also the uncertainties after that. So it can be as low as 7-gigawatt hour or as high as 9 gigawatt hour. So that's our assumption.

And any sort of details on just like pricing differential from different sourcing capabilities?

Okay. And actually for the storage contracts, most of the -- we all have a change of law protection. Some of them are like capped pricing and the others with shared on tariff. So even with the different uncertainties, I think the 7-gigawatt hour to 9-gigawatt hour, we continue to have a healthy margin.

Brian, just to add 1 comment. The sourcing flexibility will only help us in 2026. The sourcing, we are seeing sourcing flexibility with our suppliers start to build and ramp up their capacities outside China, but most of this will only help us in 2026. So in 2025 we have to deliver all the storage projects from China. So the impact does have -- the tariff does have an impact and because of that, some of customers asking to push their project delivery to next year when we have this non-China battery cell option ready. So that accounts for most of the change on the guidance.

Super helpful color. And then you discussed some pull forward of demand in China given some policy changes there. Do you have any sort of expectation for shipment growth next year in China?

Yan, do you want to answer this question, shipment growth in China?

Yes. So we're still waiting for policy clarification at provincial level, which is the action point, right? So before that, the investment decisions in China are mostly on hold. So however, from our understanding about the market dynamics, we think it will have a few months of adjustment in China. But after that, once the clarification -- once we have the policy clarification, it will not be a disaster. The demand will start to pick up, but however, I think second half will be weak. Next year we don't really know because there's a lot of uncertainty. We're still waiting for the policy clarification. However, we believe the healthy demand for storage is going to come because in the past, most of the storage demand in China was kind of mandatory on solar. But since this policy change, the policy 133, I think we will have a free trade market. The trading market will actually bring in a real demand for storage. So we anticipate a healthy growth on high quality storage projects coming up next year.

Our next question is from Alan Lau with Jefferies.

A follow-up question on the 6% margin contribution from deconsolidation of this project. So I would like to know there's a fixed rate agreement covering the project life so based on the accounting standard, we will have to record the profit. But would like to know is this a one-off -- just to confirm is it a one-off impact on Q2 or like how does it amortize over the quarter?

From an accounting perspective, yes, it's a one-off impact on Q2 this year.

Okay. That's clear. So Q3 onwards, unless you have other projects that are deconsolidated otherwise this is only one-off on Q2, right?

Correct.

And then next question is also a follow-up on U.S. policies because there's a lot of turbulence in the past 1 week. Would like to check on your view because the language is actually saying that at least for the next 2 years if a FEOC is not having the majority stake, then we'll be still able to get 45x. Just to reconfirm our company, CSIQ, is actually Canadian owned and also to your understanding, it's not an FEOC or what do you think about it?

Canadian Solar itself is Canadian owned and also traded on NASDAQ. So there are common shareholders from the U.S. stock market. Now Canadian Solar holds about 65% of CSI Solar, which is trading on Shanghai Stock -- which is organized under the Chinese corporate law and is trading on Shanghai Stock Exchange. And then CSI Solar invested into the facilities in U.S., including the module factory in Mesquite, also the cell factory in Jeffersonville, Indiana and an energy storage factory in Shelbyville, Kentucky. So if the current language in the new draft stay as it, then all these 3 facilities will be impacted. We'll have to change the ownership structure in order to comply with the new laws. But on the other hand, as you see that CSIQ, which is a Canadian company, still holds 65% and is the controlling shareholder for CSI Solar. So I suppose that it will be much easier for us to change the structure and maybe to invite some third-party investors in order to make all 3 entities complying with the new rules. But I also mentioned, when I answered the previous question from Philip Shen, that what released by the House Way and Means Committee 2 days ago was only the first draft. We expect it to go through many changes before it become the law. So there's a question of how fast the reconciliation will go through. Some says July for the August recess and some says September so we'll see. We are not expert in how the legislator bodies work. However, we are sending our comments and opinions through all channels. So I hope the final bills will consider all this and I hope the final bill will truly help to make manufacturing back to -- get manufacturing go back to China rather than otherwise and that's my hope.

That's go back to U.S., sorry.

Yes. This is about U.S. What I have been talking about U.S. is about a House Way and Means draft of the new requirement and also I answered your question on FEOC.

So next question is because I saw a news mentioning Canadian Solar is actually having a commitment in Ethiopia. So would like to know what's your plan there in terms of modules or is there any plan for cells?

Yes, that's not true. Our business development people have traveled around the world. So they traveled to Ethiopia, but we haven't made any committed decision to any activities in Ethiopia yet.

I see. So there's some probably due diligence, but not up to the stage of getting commitment yet.

Right. We are developing and exploring options. But no, we haven't committed anything.

I see. So my last question is about guidance. Would like to know like the guidance -- actually module guidance has came down. Would like to know the difference versus last time is that mainly the U.S. volume?

Yan, you should answer this question?

Okay. So the U.S. annual volume sales so we don't have a new update on that.

So the shipment to U.S. is pretty much still what we guided before and this volume reduction reflects the reduction of unprofitable sales to other markets.

Our next question is from Praneeth Satish with Wells Fargo.

Just going back to the FEOC draft legislation, I guess the question here is on your Indiana, Kentucky facilities. Does it make sense to put those on pause? You maintained your CapEx guidance $1.2 billion. But until you get final clarity on the rules, is there a chance that maybe some of that CapEx comes down, you ship the projects out or are you confident that the draft language will change with the future revisions or do you see a path here that even if it doesn't change through ownership changes, bringing in third-party investors that you can comply with the rules?

The Jeffersonville, Indiana factory, as you mentioned, is in the middle of the building construction and also the equipment. We're already shipped most of the Phase 1 equipment and those Phase 1 equipment, which is about 2 gigawatt of solar cell capacity, those equipment stay in a warehouse in Indiana right now waiting for the building to complete. So I think Phase 1 of about 2 gigawatts. The Jeffersonville facility, we have announced a proposal and plan to reach 5 gigawatt and we cut into Phase 1 and Phase 2. So we are quite conservative when it comes to actually spending money. So at this moment Phase 1, as I said, equipment are almost there. So I think we will complete the Phase 1 well and the Phase 2 decision will probably be made in the summer or after summer, the final decision. And so I think this budget reconciliation will come to a conclusion, final form either before summer or after summer. So in a way that we are not spending a lot of money on the Jeffersonville other than what we already committed and so the schedule is in parallel with the schedule of this budget reconciliation process. So if somehow we think the final language will be reasonable -- final language of the FEOC will be reasonable. But also, as you said, we are ready to change the capital structure. Once the policy is clear, the language is clear, the legal explanation is clear; then we will make our existing capacity to meet with whatever the new language. But we don't want to completely stop. So we are still continuing with design -- some final detailed design of the factory and also certain civil construction work. Because the IRA itself only have a few years of shelf time, right? Even the previous original IRA already contains a phase-down after 2030 and I think by 2035, right, all the ITC and also the advanced manufacturing [ acquired ] ITC, the so-called 45X will stop. So that's only final time. So only a finite amount of time -- limited amount of time. So if we delay too much, the project will become uneconomic. So we'll balance this. We're spending some money to keep the construction and design work going. And however, for most of the equipment other than what we already shipped in, we will probably only be able to make decision, let's say, in August or September. I hope by that time, this budget reconciliation is already completed.

Okay. That's helpful. And maybe 1 more on the Recurrent business here. So at least in the U.S., PPA prices are going up and we're seeing on the gas side for CCGT costs and prices are going up a lot with data center demand. So is that giving you more headroom on the solar and storage side to increase PPA prices and absorb a lot of the cost increases that we're seeing from all the trade and policy uncertainty? And then are you any more inclined for long-term ownership of assets versus monetization in the current environment?

Ismael, this is a question for you.

Thanks for the question. We see the market in a similar way as you do. We are experiencing the same things you are referring to. In general with the capital we have, we have limited capability to hold a certain amount of projects. We are continuously assessing every time a project reaches the LTV status whether we should sell it or we should keep it in operation. So how many projects we keep in operation is a decision taken based on the amount of money we have available and the status of the project and which are better to hold and better to sell. But the market remains very attractive. This is what we are seeing both in the U.S. and Europe.

This concludes our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Thank you. And thank you for joining us today and for your continued support. If you have any questions or would like to set up a call, please contact our Investor Relations team. Take care and have a great day.

This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.