Emeren Group Ltd (SOL) Earnings Call Transcript & Summary

Think, we're live here. Hello, everyone. Thanks for joining us on the day 3 of the 26th Annual Crédit Suisse Annual Energy Summit. With us, we have ReneSola Power Management team with us. Yumin Liu is CEO; Ke Chen, the CFO; and John Ewen, who is the CEO of North Americas for ReneSola Power. I'm the host, Maheep Mandloi from Crédit Suisse. I'm part of the Alternative Energy team over here. ReneSola is a developer of community solar and commercial solar projects in the U.S. and across the world. They have completed data and megawatts of projects, have around 200 megawatts in operations and 700 -- more than 700 in the pipeline. And with that, I'll hand over to Yumin for introductory remarks, just talk about the company. Yumin, many of the investors might be new to the story, so if you can just talk about anything in detail about where you're headed and what you're doing here in different markets. And after that, we have a list of forum questions. And just before that, if anyone on the audience have any questions, fee free to e-mail that to me at [email protected], and we'll be happy to ask your questions. With that, Yumin, over to you.

Great. Thank you. Hello, everyone, and thank you, Maheep. For the people who are not familiar with ReneSola Power, let me give you about a couple of minute introduction about the company. The ReneSola Power has been in the market for the last 16 years since 2005, and very quickly got listed in New York Stock Exchange in 2008. But back then, in the early years, we were a pure manufacturing company. And we were definitely one of the top 3 or top 5 module manufacturers. Since 2012, the company started, just no exception from others, doing the downstream project development. As Maheep mentioned that we're focusing on smaller deals, commercial rooftops, the community solar programs in the U.S. and the smaller solar farms like megawatt in Poland, 0.5 megawatt in Hungary and the commercial rooftops in U.K. and 5 megawatts in U.K., all bands of small ones, up to about 20-, 30-megawatt small utility-scale prices. In 2017, literally about 3.5 years ago, the company decided to separate the upstream and downstream businesses. And here, ReneSola Power represents the downstream business, which has nothing to do with the upstream, and we are a pure downstream product developer. Also as Maheep just introduced that our company, we cover 7 to 8 countries in Europe and U.S. and China. So we are very diversified in about 10 countries in the world doing those projects development, while we are also holding about 200 megawatts of the solar farms selectively in U.S., Europe and China. Talking about our focus. Since the late or end of 2019, the new management team on board, we set up our strategy is just focus, focus and focus. We, deeply speaking, only develop projects in those about 9 to 10 countries. Every country, we have a local team. We have 7 markets or 7 countries. We have projects in Europe, but we have 8 offices in Europe, and we have 3 offices in U.S. and several offices in China. By the end of last year, we have accumulated high-quality price portfolio, up to 1,000 megawatts, and we definitely grow the company in those core regions or territories. And the company -- in the whole solar downstream value chain, we go from the scratch of the solar development in different formats, in different countries, for sure. And all the way to the EPC and also to the sales or monetization of the projects. That's just the brief introduction of our company, and we continue our aggressive growth in different countries. Especially, we are pretty heavy in Europe. One last note to be added. In China, we do have maintained about 150 megawatts commercial rooftops assets on our balance sheet, as a light IPP model, but we have not done any new deals in the last 18 months because of the long delayed government subsidies, about 2, 3, 4 years. But after solar achieved its great priority status, the potential in China has presented great opportunities with attractive returns. Usually one of the best market presenting highest returns among all those 19 countries, we are talking about. So we are rebuilding our development business in China. Going beyond and effectively and efficiently use our China -- current China team to contribute to our investors from the China market. Okay. And also joining me today, definitely is our -- Ke Chen our CFO; and also John is our U.S. CEO. So feel free to have any questions, and we hope we can address those. Thank you.

Sounds perfect. That's nice introduction, Yumin. I guess like one high-level question first. Like generally, the other companies we cover, most of the companies which investors look at are either utility scale, large developers or residential solar companies. And you guys are in a different market and the community or commercial solar market. So maybe if you could just talk about how much visibility you have in demand in this market? And then U.S. and Europe, how fast do you think this is growing, or even in China? And on top of that, like, what drove you towards this market rather than the other 2 utility or residential markets?

Okay. Let me clarify some points before I turn to the U.S. or some other key details to John. As I mentioned, we were a developer on the commercial rooftops, community solar or smaller scale utilities. But since last year, we have started our new size or even selective bigger utility-scale projects. So in our portfolio, we do have several projects in the range of 50, 70, 100 megawatts. So we don't claim ourselves as always a community solar or a C&I developer. Another one is we don't do residential, okay? The -- also since about the -- over half a year ago, the company has set up our strategic -- one strategic initiative, which is storage. So we claim ourselves or define ourselves as 2 sectors or 3 sectors: community solar programs continues, utility scale solar will become another new growth point of the company and another strategic focus will be storage. So John, would you cover some points on the growth in the U.S.?

Sure. So I mean, just to keep it simple, we focus on, primarily, community solar, which we can describe as, for us, ground mount, megawatt or more in markets where there's a community solar program. And for the moment, that is Minnesota, New York and Maine actively for us, while we're looking at other states, including Pennsylvania, as an example of an up and coming or potentially up and coming state on the community side. And these are programs where a single site physically services, multiple residential and commercial off-takers. Oftentimes, we are not directly involved in soliciting the off-takers. So for us, it's a relatively small, but still megawatt-scale project that has the economies of scale of that construction, at that scale, but has the potential for offtake at the resi or commercial level. Those markets where we've been focused for 3 to 5 years. And we recently acquired a utility-scale operator in both storage, stand-alone -- or both in solar, solar plus storage and potentially stand-alone storage, and that's an entity based in California with projects all over the country. And so for us, we see the expansion of community as a growth area and the continued and expanding utility-scale business and utility plus storage scale business around the country. So those are the quick comments.

That's helpful, Yumin and John. And maybe just a follow-up on that. So if you could talk about your return thresholds in general, like what you see across your projects or across the different segments. And yes, let's first take that, and then I just had a question on battery storage market after that.

Sure. I'll say, just in general, community, it's not fair to treat the whole solar sector on a megawatt basis because clearly, a megawatt of solar in community is very different than a megawatt of solar in utilities. So it is important to say that there's a factor, if not an order of magnitude, different sometimes between the return levels and thresholds and risk tolerance in the different markets. But without speaking, specifics, community is usually a more robust return profile with a shorter time window from greenfield to fully develop. That said, utility has -- once a project gets going, there's a lot of inertia. And the gain is, I'd say it's very competitive, but it's also, in some respects, less competitive because the barriers are slightly higher. The capital needed is larger. The return profiles might be lower, but the dollar volumes are bigger. So they really are 2 totally different markets, even though, obviously, they share the common ground of solar. So that's the qualitative commentary between the 2.

Yes. Let me add a comment on that one. I totally with what John just mentioned, that in Europe, we see the same stories that as we were doing or even we have been doing those, 1 megawatt -- hyper megawatt deals in Poland and Hungary. Those are pretty high profitable, high-return projects. We absolutely continue those development in the 2 countries. But at the same time, even in those 2 countries, we are developing bigger projects, okay? Return threshold will be different, but still very attractive in across the board in Europe. Okay? But definitely, country to country, the return scenarios will be different. But we see both sectors, small- or middle- to large-sized utility literally provide us just either too lax to allow the company to spend more solid and firm.

Got it.

Maheep, let me add about China. Talking about doing new projects in China. Going forward, we don't need a subsidy in China. And we're also focus on high growth area with China, the one's that drive delta, which is Shanghai, Jiangsu, Zhejiang area. So all this area has high tariff in terms of electricity. And all the projects, we were confident that those projects will have more than 10% IRR. So...

Got it. I guess the second part of my question was on battery storage. I think this is a new direction you guys are going in with stand-alone batteries. I presume it's front of the meter or behind the meter, if you could clarify that. And who are these customers or end customers you're targeting over here? Are these same customers are buying solar from you today? Or there is some difference on that side?

So I can answer and then I'm sure there's other opinions on the panel as well. But basically, storage is becoming, in certain markets, not just a nice to have, but a must have. So in the context of solar plus storage in utility markets, for example, in California, there are rarely RFPs that do not include a storage piece or at least you're well aware that you'd be handicapped not to have a storage component to your solar offering. The stand-alone storage piece is earlier in our -- basically in our development. However, it is absolutely true that we are starting to see more stand-alone storage RFPs, which means we are more than welcome to enter those RFPs. And we work with -- honestly, we work with consulting partners to help us form those bids and to form the understanding, all the while, our internal capabilities are ramping up quickly on the understanding there. And it's important to note that storage is a tool, just like anything else connected to the grid. And the customers in the case of the stand-alone storage, yes, it's in front of the meter. It's AC coupled, which means it can push and pull power from the grid. And usually, the offtaker, especially in a stand-alone storage opportunity, the offtaker is the utility who uses the storage to their advantage to solve issues, move power or regulate the quality of power on the grid. There are investors that are starting to see storage as a stand-alone business, just like gas turbines were 20 years ago. So it's a slightly different pool of both investor and, potentially, offtaker, but it's basically the same discussion. Not all financial -- long-term investors look to stand-alone storage, but not all solar -- and not all solar investors are investing in storage, but it's starting to -- it's definitely starting to coalesce or combined into just one general offering to the grid that contains multiple components.

Okay. No, that's interesting. So on the risk side for storage, is it mostly -- the offtakers are mostly from PPAs? Or are you taking any merchant risk? Are you saying investors comfortable with merchant risk as well?

So I didn't know how deep to get into the revenue side of the storage piece. But yes, we can bid into RFPs where we're simply paid a certain amount to build the battery, just a one-off dollar per unit per month fee, and then it's up to the buyer of that unit to maximize their revenue off that. And usually, it's the utility using it to their needs. There are investors that see the storage, just like I mentioned with the gas -- just like the gas turbine analogy. There are investors that see the opportunity to have a merchant storage facility, although, we have not directly interacted with a particular project that has seen that -- there are specialists in batteries that we are approaching, that we are looking at carefully. But for us, specifically, we have not had a direct ancillary services merchant development on our storage, stand-alone storage piece.

Got it. And then just one last thing on -- sticking on batteries for a sec here. Any preferences for technologies for you guys, either for solar or batteries as you build these projects in different regions?

I mean the quick answer is whatever is bankable at the time, right? So we really do -- and we mean that seriously, like the dominant chemistry, the dominant battery management system, the dominant energy management system or whatever it might be, we are technically agnostic. So we're not looking to break the barriers of technology because it's equipment -- it's long-run equipment. It's getting connected to the grid, and it's got to be insured and banked. And so the dominant chemistry right now happens in some form of lithium and from 1 of the 5 big suppliers with maybe 1 of the top 2 or 3 integrators.

Got it. And on the solar side, is it bifacial mono modules, which rule the roost right now for you guys? Or are you seeing any differences right now?

Yes, certainly. Yes, for sure, bifacial. And the real answer there is with our projects very often, at least in the U.S., we are not packaging as is -- take it as is development projects. We do often work with our financial investors for them to deploy the equipment that they are willing to underwrite or that their bankers. The banks backing them are willing to underwrite in the design. So oftentimes, our layouts will change a little bit based on the investor preference at the time of construction. That also captures market dynamics if there's a discounted sector of the panel market. They might take advantage of that if there's a technology. Some of these projects are developed years in advance of their construction. So by definition, things are going to change by the time we get to put them on shelf or on the ground. And many times, we include the investors in that discussion. But yes, bifacial track panels are what tend to be put in place today.

Got it. Got it. That's helpful. And just on the -- maybe just switching to like the growth here or different funding sources. So you are targeting a 20% growth in 2021. I presume a mix of U.S., Europe and China. But like how do you see that growth going forward? And how do you think about capital needs or capital -- how do you plan to recycle capital? And you recently issued equity. So do you expect more of those in the future for growth here? And also a high level, what's the strategy? Has it built -- operate transfer or do you want to hold on to these assets?

Ke do you want to address this one?

Yes, for sure. Again, we are very confident about the growth in 2021, like you mentioned, at least 20% because we operate -- like we mentioned here, we operate 3 market here: U.S.; Europe; and China. And this is the best market for solar industry right now. As you know, the policy is very favorable. Biden -- President Biden coming here and return to Paris climate agreement. You have a target 2030 to carbon emission neutral. China also have carbon-neutral policy by 2060. So all these 3 markets have best policy for us, and we are positioned very well in these 3 markets. And again, we are excited about this opportunity here as we -- last year, we were talking about we are going to buy -- end of 2020, we will have 1 gigawatt pipeline. Certainly, we will grow that pipeline in 2021. And the demand is there. So we are confident we can increase the pipeline, first of all, for solar-only pipeline. Then -- and U.S., we mentioned here, last year, we acquired a team for small utility project. So that position us in different states here in United States. Again, John mentioned Minnesota, New York, Maine, that's our traditional community solar market. But with this team, we are expanding to California, Pennsylvania, Illinois and Texas, those markets. And also, again, we are entering to small utility-scale market. So all these are growing market for us in the U.S. And secondly, solar product storage, like we just discussed here. And we believe, again, the storage will be the future. And again, President Biden even talking about tax credit for storage in store. So that's we're excited about it as well. Solar product storage is our growth area. And also maybe storage only is also we're looking at. Again, Europe, we announced we're going to form this joint venture with Eiffel. So this joint venture will allow us -- again, Eiffel will provide the funding. We will provide the knowhow and the projects. So this will definitely help us to go very fast. And certainly, we'll go -- just Europe alone, we're going to have 1 gigawatt in the next 1 or 2 years, alone. So we're confident about that market as well. Certainly, China, here, we see the opportunity in the strong economic growth area near Shanghai delta area, so we can build a lot, rooftop. And right now, we are targeting 100 megawatts to build, and we hold those projects on balance sheet. So that's -- again, that's all the area we -- the direction we're going to go. And again, we raised almost $300 million in this year. I think that's a good -- I mean that's have -- we have enough capital growth, as a company, today as net cash position. So we probably have the best balance sheet in the whole solar industry, and we will use a strong balance sheet to grow our business.

Got it. And just to summarize, you have opportunity to obviously look for assets to hold or to sell. But in Europe, it's -- with the joint venture, it's mostly providing the expertise and the joint venture partner will provide all the funding.

Yes. They provide funding. We provide the knowhow and the projects.

Got you. That makes sense. And then maybe if you can just talk more in details about the joint ventures in Europe. Think you have in different regions, you have Eiffel, you have Vodasun, and Novergy. How are they different? And do you expect similar joint ventures in other regions also to accelerate growth in the future, either in China and in U.S. as well?

Yes. The -- let me cover this one first. We do have developed a we call win-win partnership with partners, not only in U.K., Germany, Spain and also with Eiffel in France. The -- we try to not only aggressively go into attack each territory with a local -- strong local presence. But also, we team up with those experienced local developers by putting this win-win structure. So we can quickly get a sizable portfolio to meet our growth demand. The -- we have those partnerships, at least like 4 or 5 different partnerships in Europe, existing, and most of them we have, they have made announcement. And some others, even we have those -- the co-development agreement with the development partners. At the same time, we are absolutely, as Ke mentioned, we raised almost $300 million just in January. And we also raised some more capital last year. So the point is we are seriously looking at the partnership opportunities or even including M&A opportunities, okay? To quickly grow our pipeline. I mean we're absolutely looking at the bottom line profitability for the company, but another focus is a quality growth, okay? So in the quality market, we hope we can go aggressively the quality growth of the pipeline, and that is why we continuously build up those win-win partnerships.

Got it. And then these -- the M&A opportunities, which you're talking about, are you looking for like fully-built projects portfolios? Or is it more on the development side where you kind of come in and add your expertise and expand the IRRs or grow the returns on those projects?

Actually, any kind, as long as we see it statistically fit into our growth, okay? As John mentioned earlier, that late last year, end of last year, we acquired this -- the team with portfolios in California. We are considering similar things, acquiring teams, portfolios or even the whole platforms in different territories, okay? The -- we -- one of our secret recipe is to be announced. It has the -- when we do a market, we have to be local. We localize everything, not only have a local team, but also build up the local understandings, local network, local branding and local partnerships, okay? And in that whole story, local story, forming some win-win partnerships or acquiring a local capable platform is definitely our strong initiative.

Got it. All right. That makes sense. And I think towards the end of our allotted time over here for half an hour over here, but I would like to -- there are definitely more questions here, but would love to catch up with you guys again, hopefully, in person the next time on the ski slopes. But thanks a lot for your time today, Yumin, Ke and John, and hope you have a productive day of meetings today. And see you again soon.

Thank you very much.

Thanks so much.

Have a great day.

And thanks, everyone, for joining the fireside chat this morning, and please feel free to reach out to us if there are any questions. Have a good day.

Thank you. Bye-bye.

Thank you. Bye-bye.