Amid the flurry of financial news out of the solar space this week, one of the biggest stunners has to be ReneSola's (NYSE: SOL ) announcement that it's moving into module manufacturing. The solar wafer maker, having acquired a small Chinese cell and module manufacturing concern, aspires to hit one gigawatt of module capacity in three years, at a cost of close to $1 per watt, no less.
One gigawatt is Suntech Power's (NYSE: STP ) current PV cell capacity. The over-$16 billion thin-film behemoth First Solar (Nasdaq: FSLR ) has just 1.2 gigawatts of capacity operating or announced. Total U.S. market demand last year came in at around 360 megawatts. In short, this is a hugely ambitious expansion plan.
Around this time last year, when ReneSola was in wafer wonderland, maybe someone would have given a hoot. As it stands, investors seem to be unimpressed at best.
Jesse Pichel of Piper Jaffray (NYSE: PJC ) raised a concern on yesterday's earnings conference call that this move might tick off the firm's customers, which include Q-Cells, Suntech, and Canadian Solar (Nasdaq: CSIQ ) . After all, ReneSola would suddenly be in competition with its own customers.
First, ReneSola's CEO responded that the company's initial capacity would be small, which didn't really address the issue at all. When pressed further, he pointed to JA Solar's (Nasdaq: JASO ) and Suntech's internal wafer sourcing capabilities. Neither firm actually produces wafers, however. JA Solar has a close relationship with JingLong Group, while the latter firm's got equity stakes in several wafer makers.
While the company claims that it can keep things copacetic with these customers, I feel like this is an invitation to some serious strain on ReneSola's relationships down the road. The firm must feel that the benefits of vertical integration outweigh any potential customer friction.
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