For today's solar manufacturers, it's just as important to have strong downstream demand as it is to have low-cost manufacturing. That's why a number of deals signed in the past week are such a strong sign from solar companies hoping to see operations continue to improve in 2014.
Especially in China, where losses have been mounting and facilities have been running below capacity, it's important to win large-scale projects. Here are some of the biggest deals signed by solar companies just in the past few days.
- ReneSola (NYSE:SOL) signed a contract to supply 420 MW, or about a quarter's worth of shipments, with a project developer in Japan. This has been a high-margin market for solar manufacturers recently, so it could help both sales and margins over the next two years, when shipments are scheduled.
- Yesterday, Canadian Solar (NASDAQ:CSIQ) signed a supply agreement for four projects in North Carolina totaling 25.3 MW. It also completed a 30 MW project in Western China that was developed by its subsidiary CSI Solar Power.
- Yingli Green Energy (NYSE:YGE) signed an agreement to form a joint ventur with Shuozhou Coal Power to develop solar projects in China. The companies have already worked together to build 20 MW of utility scale projects.
- Hanwha SolarOne (NASDAQ:HQCL) signed a memorandum of understanding to supply OneRoof Energy with 50 MW of modules and work together to identify ways to more efficiently install residential solar systems in the future. It will also supply 11.5 MW to Ikaros Solar for projects in the United Kingdom.
Big supply contracts are becoming the norm in the solar industry, and these are just a few examples of how manufacturers are taking advantage. It's also projected that the first half of this year will be strong for solar installers, so locking up contracts early will ensure they're not left searching for demand.
Most importantly, this should lead to better financials. We've seen module sale prices tick higher in the last three quarters, and ReneSola is expecting an increase again in Q1 of 2014 to $0.68 per watt. That's from a low of $0.61 per watt a year ago, so if manufacturers can increase utilization and increase their sale price per watt, there is tremendous operational upside.
Foolish bottom line
Canadian Solar has already turned improving demand for projects into a profitable quarter, and ReneSola, Yingli Green Energy, and Hanwha SolarOne will need to as well to continue moving higher. 2014 will be a turning point for solar manufacturers, and winning projects like these is one key piece to winning long term.
Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.