Canadian Solar inc (CSIQ) Q3 2021 Earnings Call Transcript

Image source: The Motley Fool.

Canadian Solar inc (CSIQ -3.08%)
Q3 2021 Earnings Call
Nov 18, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Third Quarter 2021 Earnings Conference Call. My name is Michelle and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Isabel Zhang, IR Director at Canadian Solar. Please go ahead.

Isabel Zhang -- Investor Relations

Thank you, Operator. And welcome everyone to Canadian Solar's third quarter 2021 conference call. Please note that we have provided slides to accompany today's conference call, which are available on Canadian Solar's Investor Relations website, within the events and presentation section.

Joining us today are Dr. Shawn Qu, Chairman and CEO, Yan Zhuang, President of Canadian Solar's majority-owned subsidiary, CSI Solar. Dr. Huifeng Chang, Senior VP and CFO. And Ismael Guerrero Corporate VP and President of Canadian Solar's wholly owned subsidiary Global Energy. 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 respectively review the highlights of the CSI solar and Global Energy businesses, followed by Huifeng who 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, may I remind our 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 the protection of 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 the applicable law. A more detailed discussion of the 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 a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information for 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.

Shawn Qu -- President, Chairman and Chief Executive Officer

Thank you, Isabel. Good morning and good evening, everyone. During the third quarter of 2021, we delivered 3.9 gigawatt of module shipments and sold Our largest battery storage project today, which has the 1.4-gigawatt hour Crimson Project located in Riverside County, California. One of the largest battery storage projects in the world. We accomplished 34% year-over-year revenue growth, with gross margin well ahead of guidance. And our strongest net profit performance since the start of COVID. Overall, we are pleased with our ability to navigate an extremely challenging market, while continuing to focus on long-term investments and R&D innovation.

You will hear Yan, Ismael, and Huifeng walks through a more detailed review of our performance in a few minutes. But first, I will like to highlight three key messages on the global energy outlook, our strategic priorities, and CSI Solar high volt IPO.

Please turn to Slide 3. First after many years, we are starting to see real action across the world to appropriate at a price, the cost of carbon and curtail investments in fossil fuels. For example, the European Union's Emissions Trading System, one of the most of the mature markets in the world, saw carbon prices exceed EUR60 per ton for the first time in its history. Now it remains at nearly 6 times of its 2010 through 2018 average. In response, we're witnessing more actions that call for greater clean energy deployment. It is no coincidence that we are experiencing a number of energy crisis across the world, most notably in Europe, China, and part of U.S. These events reflect broader trend of declining investment in traditional energy, insufficient investment growth, in clean energy and continued growth in economic development. I see three moving parts in this equation. However, we don't want to increase the supply of fossil fuel-based energy. We also don't want to lower our living standards. Therefore, the only solution is to accelerate the adoption of reliable, low cost, and clean renewable energy including solar and battery storage.

Please turn to Slide 4. So, the long-term growth outlook for solar and battery storage is strongest ever. Solar TVs cumulative installations will cross 1 terawatt next year and is set to reach 3.2 terawatts by 2030. Factoring for any storage, cumulative installations will cross 100 gigawatt hours next year and it's set to reach 1 terawatt hours by 2030. At the same time, clean energy PPAs are also going up, reversing a long-term trend of aggressive PPA billion. The market is certainly adjusting and in a good way.

Meanwhile, we are encouraged by the upbeat narrative and government policies in supporting the turning [Phonetic] energy transition. China has announced a series of decarbonization policies for the 14th -- 14th five year plan, demonstrating the country's commitment to fight climate change. We expect more policies to come. We're also hopeful that President Biden's build back better plan will pass Congress and set America of the right path toward decarbonization. These are responsible government policy that will support long-term sustainable development.

Turning to Slide 5. All of these macro trend actions serve as tailwinds for our business for years to come. All preparations to capture these opportunities started many years ago. Today, our global pipeline of solar and battery storage assets increases the visibility of our future world. We're also expanding and deepening our sales channels, focusing on providing total energy, total clean energy system solution. At the same time, we're making tactical manufacturing capacity expansion decisions, limiting investment in a certain stage of supply chain to navigates through the short-term supply chain volatility. And we're investing significantly in technologies and R&D to maintain our leadership position in clean energy.

Finally, I would like to update you on the CSI Solar, power vault IPO in China. Please turn to Slide 6. We are on the third round of Q&A feedback with Shanghai Stock -- Stock Exchange and continue to make progress. We continue to communicate proactively and transparently with officials at the Shanghai Stock Exchange. At this point, we think it is more realistic for target completion early next year, rather than this year, subject to customary market and regulatory risks.

With that, let me turn over the call to Ismael for an overview of our Global Energy business. Ismael, please go ahead.

Ismael Guerrero Arias -- Corporate Vice President and President of the Energy business

Thanks, Shawn. Please turn to Slide 7. I am proud to report that in Q3, Global Energy closed 350 megawatts or 1.4 gigawatts hours in battery storage project teams. Delivered a total of $140 million in revenue and nearly 44% gross margin. Most of the profit this quarter was driven by our landmark Crimson's stand-alone battery storage project in California, demonstrating the value creation potential of battery storage projects.

Note that we completed the sale reconstruction, and therefore, our gross profit is a better metric of our performance than the revenue.

As we continue to hold 20% ownership in this project, it will allow us to capture its long-term value-creation. [Indecipherable] battery storage team is also providing the full integrated battery storage system, EPC and long-term maintenance service. Construction started several weeks ago, and we expect the project to reach commercial operation by December of 2022, with a significantly shorter lead time than most solar projects. We're very proud of our teams for having developed one of the largest stand-alones back-end storage products in the world. And for contributing to California's grid reliability and safety when supporting its decarbonization goals. Besides Crimson, we now have a total of 2.9 gigawatt hours of batteries projects -- storage projects under construction, and almost 500 megawatts are working backlog.

We are also expanding our storage project pipeline in Latin America and other parts of the world. For example, we won Colombia's very first utility scale battery storage project of 45 megawatts and 45 megawatts power. Columbia has the third largest population in Latin America, after Brazil and Mexico, with very strong renewable energy growth fundamentals. Following our first [Indecipherable] project win, we recently won another project in Colombia, a 52-megawatt solar plant in the nearby location. Elsewhere, we are also developing new battery storage projects [Indecipherable]. Recently, we have been winning in public auctions, while also exploring opportunities to create value by developing merchant batteries products projects. These projects represent our entry in to new Latin America markets on our ability to diversify our pipeline globally. Positioning global energy for long-term growth.

Slide 8, please. medium term, we are doing all we can to reduce the impact of replacement cost inflation. For instance, in some markets, we have signed PPS index to inflation significantly hedging our position. In other markets, we've been negotiating significantly high-growth PPAs for new projects and off takers have been willing to accept higher prices. We are also proactively delaying equipment orders for projects where we can. Overall, the impact in 2021 is limited, but we've seen there will be some impact in 2022.

Turning to Slide 9. That said, we still anticipate a strong 2022. We continue to grow our global pipeline of projects, which now stand at 24-gigawatts for solar projects, including China Energy and 21-gigawatt hours of battery storage project. Meanwhile, we continue to execute on our long-term strategy to expand the base of recovering cash flows. While our Brazilian infrastructure fund is slightly delayed due to the cost inflation impact, we are making significant progress on our Italian investment vehicle. The first batch of projects will be 164 megawatts and will be hitting the virtual road with investors in the next few months. Our operations and maintenance teams are also bringing new project contracts. With our global on and portfolio now at 5 gigawatts of solar of which half is already operational, an 860 megawatts hours of projects across nine countries.

Now, let me pass it on to Yan who will talk about Canadian Solar CSI Solar business. Yan, please go ahead.

Yan Zhuang -- President, CSI Solar

Thank you. Ismael. Please turn to Slide 10. In Q3, we delivered 3.9 gigawatts of shipments and $1.1 billion revenue. Gross margin improved sequentially by 200 basis points to 15.1%. Driven by continued price increases and partially offset by higher costs. The margin was also helped by an anti-dumping and countervailing duty reversal benefit as the solo tariff for the last revision was reduced to zero in the remand decision.

Please turn to Slide 11, the operational environment remains very challenging, driven by three key factors. First, the global logistics bottleneck is continuing to increase our transportation costs, while delaying shipping schedules. We have signed several long-term contracts we've shipping companies to mitigate the impact, but with averaged shipping costs at 5 times the historical average, the impact remains significant. Second, material costs are moving up again across the board. Polysilicon, glass, EVA, encapsulant, steel, aluminum, etc. And not just for Solar, but for battery materials as well, with leasing carbonate prices at 4 times where they were at the beginning of the year. We're mitigating the cost increase with continued ASP increases. With solar module prices up, by nearly 25% year-over-year. And third,, power curtailment has not only affected our capacity utilization rates at certain factors, but also significantly affected the utilization of energy in terms of upstream manufacturing capacity, leading to the resumption of input price increases since September.

So, the operating environment is not great and the power shortages in China are affecting the execution of our margin improvement plan. However, we continue to take proactive measures to improve the situation. For example, we have walked away from low priced volume in order to protect margins and have been raising prices more aggressively on new contracts.

Our market positioning and brand is now more important than ever, as we further expand and deepen ourselves channel partnerships as a clean energy brand providing total system solutions. We're also optimizing our capacity expansion and utilization to ensure we are operating in line with market realities. As Chang mentioned, we're limiting investment in certain stages of the supply chain to avoid falling into the overcapacity track. For example, we see significant overcapacity in cell manufacturing, and thus we do not have immediate plans to expand cell capacity. Nevertheless, we do expect to continue expanding our module capacity to benefit from cell overcapacity. And we continue to develop ourselves channels, particularly in the distributed generation segments.

Importantly, turning to the next slide please, we're investing in the next-generation solo technologies such as N-type picture junction or top count programs. As you know, we already invested in an SGT pilot line earlier this year and will be delivering SGT modules in the coming weeks. The champion cell, during mass production not R&D testing has generated close to 25% efficiency, while average efficiency is reaching 24.5%. We're also currently deploying a 200-megawatt Topcon pilot line utilizing existing mono perc capacity.

Please turn to Slide 13. In terms of battery storage, we're well on track to complete 860 megawatt an hour of storage shipments this year for the Mustang and slate projects. In fact, Mustang 300-megawatt hours project is commissioning, as we speak, the slate project will be completed before the end of the year. Our combined contracted and forecast pipeline continues to increase. Although some of the earlier stage pipeline has dropped somewhat due to the current supply challenges. That being said, we're making significant progress on our in-house R&D and product development for stationary battery storage product. And hope to give you more updates very soon.

Now, let me turn it over to Huifeng, who will go through the financial results in greater detail. Huifeng, please go ahead.

Huifeng Chang -- Senior Vice President and Chief Financial Officer

Thank you, Yan. Please turn to Slide 14. In Q3, we delivered $1.23 billion in revenue. Gross margin was 18.6% well ahead of our guidance of 14% to 16 %. Q3 benefited significantly from the Crimson battery storage project sale, as well as higher module pricing. As a Yan mentioned, we also had a $12 million benefit from the [Indecipherable] but without the true up benefit, the gross margin would still stand at 17.6% well ahead of the guidance. Selling and distribution expenses increased by 21% quarter-over-quarter, mainly due to higher transportation costs, which accounted for three quarters of the sequential increase. To give you a sense of the magnitude, two years ago, transportation costs accounted for approximately 50% of selling and distribution expenses. Today, it accounts for 80 %. The total amount is more than three times from two years ago.

General and administrative expenses also increased by 21% mainly due to the project loss contingency. Our underlying opex cost increase is very low even after adjusting for transportation costs. In this tough operating environment, we continue to manage cost very carefully while maintaining our investment on future technology and a cost savvy operational efficiency. Other operating income increased during this quarter due to a combination of factors, including the sale of 75 megawatt of solar power systems in China. Total operating expenses were up 11% and accounted for 14% of revenues. This was above our targeted long-term opex [Phonetic] level.

The net foreign exchange loss in the third quarter was $14 million higher than usual, the FX loss was mainly due to the strength of the U.S. dollar relative to a basket of currencies, including the Brazilian Real and Euro, the losses were partially offset by our hedging programs. The income tax benefit was $3 million, resulting from the utilization of net operating losses.

Net income, attributable to Canadian Solar shareholders was $35 million or $0.52 per diluted share. Our basic and the diluted EPS stands at $0.06 and the $0.52 respectively. We increased our issue to share base by 1.1 million and the 2.6 million shares during Q3 and year-to-date with our ATM, at the money equity offering program. In addition, our diluted EPS is adjusted before 6.3 million shares to count for the additional shares had our convertible bond being fully converted into equity.

Slide 15, please. Now, turning to cash-flow and the balance sheet, our working capital days increased the moderately, as two more days were affected the by longer logistics cycles. We now expect a full-year 2021 capex to be around $500 million below our previous guidance as we adjust capacity expansion and the utilization plans in light of latest market conditions. Of that amount, we deployed approximately $420 million year-to-date, including $60 million in the third quarter. We ended the period with a healthy cash balance at $1.4 billion, giving us significant financial flexibility. Total debt increased the modestly to $2.3 billion from $2.2 billion, mainly driven by an increase in non-recourse borrowings, while net debt to EBITDA, excluding rescued cash remained stable at 3.7 times.

Now, let me pass back to Shawn, who will conclude with our guidance and the business outlook, Shawn?

Shawn Qu -- President, Chairman and Chief Executive Officer

Thanks, Huifeng. Let's turn to page 16. For the fourth quarter of 2021, we expect total module shipments to be in the range of 3.7 gigawatt to 3.9 gigawatt, including approximately 250 megawatt of module shipments to our old project. Total revenue is expected to be in a range of $1.5 billion to $1.6 billion. The updated shipment revenue guidance reflects deliberate decision to protect module ASP and profitability in the fourth quarter.

Q4 gross margin is expected to be reaching 14% to 16 %. Please note that this does not include any benefit from the potential reference of previously incurred section 201 tariffs, our module shipped to the U.S. As a reminder, the U.S. Court of International Trade recently ruled to reinstate the exclusion of bifacial solar module from section 201 tariff. The CIP also reduced the section 201 tariff rate from 18% to 15%. We're still evaluating the magnitude of the potential benefit; therefore, it is not included in today's guidance.

For the full-year of 2021, factory storage shipment accounted for CSI Solar expected to be in a range of 840 megawatt hour to 860 megawatt hour. Project sales in Global Energy are expected to be in a range of 1.5 gigawatt to 2.1 gigawatt, reflecting the timing of certain projects sales which are already in the advanced negotiations, [Indecipherable] occur in December or Q1 next year.

We are also introducing guidance for the next year. For the full-year of 2022, we expect module shipments to be in the range of 20 gigawatt to 22 gigawatt, reflecting approximately 45% growth from 2021. We expect factory storage shipment to be in the range of 1.4 gigawatt hours to 1.5 gigawatt hours, reflecting 17% year-over-year growth. And the total project sales will be in a range of 2.4 gigawatts to 2.9 gigawatts, reflecting 15% year-over-year growth. Revenue for the full-year 2022 is expected to be in the range of $6.5 billion to $7.0 billion, up 30% year-over-year.

To sum up, we believe the challenges facing the industry are temporary and the long-term fundamental remain positive. Canadian Solar is positioned to benefit from both market and company's specific catalysts in each of our business segments.

With that, I would like to open the call to questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions]. The first question comes from the line of Philip Shen from Roth Capital Partners. Please ask your question.

Philip Shen -- Roth Capital Partners -- Analyst

Hi, everyone. Thank you for taking my questions. The first one is on the 2022 guidance. Thank you for sharing that outlook so early. Specifically, was interested in understanding how you expect margins to trend by quarter. I know you haven't given it officially, but given your outlook for how input costs could trend and your ability to increase both pricing on the module side with ASPs as well as PPAs on the project side, how do you think we could see margins trend by quarter as we go through '22? Thanks.

Shawn Qu -- President, Chairman and Chief Executive Officer

Hi, Philip. This is Shawn speaking. We believe now those are forecasts that the feedstock pricing has been quite volatile this year. Now, for 2022, we believe that the overall trend for the key material especially polysilicon, should be down rather than up. That's because the capacity of polysilicon is getting higher every quarter and should be up a lot over the course of the next to four quarters to five quarters. And also considering the recently, announced the US [Indecipherable], which will help the customers in US and also help us because of the explosion of the bi-facial modules from the Section 201 but also the reduction of the Section 201 for other modules. Considering all these factors, I would think that the module -- the overall margin for us should get better next year, which means if we 40 forecast 14 to 16% margins for the fourth quarter, we are forecasting the module -- the Canadian Solar's margin be stabilized and going up slightly over the four quarters next year. Now, that would be my expectation.

Philip Shen -- Roth Capital Partners -- Analyst

Great. Thank you, Shawn. You mentioned the section 201 bi-facial exemption being reinstated. And so, you talked about how you could see a refund. And I know you said you're assessing the magnitude. But given that the -- all the bi-facial product that's coming in as it earlier this week is now without the I guess, 18% tariff, you have some benefit there. And then there could be benefits for recent imports as well. So I was wondering if you might be able to give us a sense of what the size back could be? And then also for Q3, I think the gross margin had a positive impact from the [Indecipherable] from a prior period being refunded or at least being reduced I think, to 0 %. So, can you quantify what the impact was for Q3 and then also what you expect for Q4 as I guess you might continue to get that refund? Thanks.

Shawn Qu -- President, Chairman and Chief Executive Officer

Yeah, the EDCBD benefit in Q3 is $12 million. Now, moving forward, as you said, without 18% duty, it will help. The exception of 18% duty for the bifacial will help our US customer also helped us. And moving forward, I think we'll see more of this benefit next year rather than in Q4, because as you know the shipping and logistic time is pretty long these days. So, the stock we are shipping today will probably only be able to clear customer in Q1.

Philip Shen -- Roth Capital Partners -- Analyst

Great, thank you. One last one for me. How do you guys expect opex to trend in Q4, maybe by line item and then in Q3 I think you also had this $23 million operating income benefit. What was the driver of that? Thanks.

Huifeng Chang -- Senior Vice President and Chief Financial Officer

This is Huifeng. Let me answer this question. The opex was up about 11% quarter-over-quarter, mainly due to the higher transportation costs as I explained on the call earlier. And going into Q4, I think all these cost factors will be pretty much similar to Q3. So that is the overall picture, but I think a lot of them will be compensated with the higher ASP.

Philip Shen -- Roth Capital Partners -- Analyst

Okay. Thank you, Huifeng. Thank you, Shawn. I'll pass it on.

Shawn Qu -- President, Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from Colin Rusch from Oppenheimer. Please ask your question.

Colin Rusch -- Oppenheimer -- Analyst

Thanks so much, guys. Can we I get an update on how your PPA pricing is holding for the products that you've already fully developed and signed deals with relative to clearing price in the market for sales of projects? Just trying to get a sense of how those spreads are changing and your ability to digest some of the higher costs that they're coming through the supply chain?

Shawn Qu -- President, Chairman and Chief Executive Officer

Hi, Ismael -- Ismael will handle this question.

Ismael Guerrero Arias -- Corporate Vice President and President of the Energy business

Thank you, Shawn. Hi Colin thanks for the question. We don't have to fear many projects to be a [Indecipherable] that are not index to inflation, like most of the PPA we signed this year in Brazil and they are all our PPA, are index to inflation. So, there is no changing the market there. In the rest of the countries, all the PPAs that we have signed, had all the others closed before. So, we don't see a big deal for us on any change in the market conditions this year. What we're seeing in the market truly depends from market-to-market. But what we are seeing for instance, in Europe, there is a significant increase on the market PPAs and what we have been doing is all the contracts we have under negotiations have been basically renegotiated them. We didn't sign some PPAs that were basically very close to be finalized on price is being renegotiated. Does this reply your question or?

Colin Rusch -- Oppenheimer -- Analyst

Yeah, I have some more nuance to it. I guess, the second question embedded in there is clearing price for projects or are you seeing things clear at 5% on levered returns? Is it getting down below 5% or is it closer to 6 %? What's the sense of pricing on where buyers are right now?

Ismael Guerrero Arias -- Corporate Vice President and President of the Energy business

It really depends on market-to-market and on the PPA contracts that you have signed, as you know. But looking general, I would say 6% is a reasonable function and its what people do. It's basically looking for in most of the countries.

Colin Rusch -- Oppenheimer -- Analyst

Okay, great. And then in these changing gears on the power dynamics in China. Shawn as you look at the activity around that, are you seeing signs of real activity that can help boost power -- power production and are you seeing the government getting involved? Can you just give us an update on what's happening on the ground to mitigate that and what you're watching for to just get a bit more hopeful on our capacity coming back online?

Yan Zhuang -- President, CSI Solar

This is Yan. First of all, I think care, given the macro level, the high level of carbon-neutral effort, I think controlling carbon emission from the carbon-based energy consumption, it will continue. However, in the past few months, the very harsh restriction on power control was kind of a temporary. We are already observing relaxation on that. So that's why we see some improvement on the supply chain already. But I'm not saying that we will completely disappear, it will continue, but it will be in a more rational manner into next year.

Colin Rusch -- Oppenheimer -- Analyst

Okay. Thanks a lot, guys.

Operator

[Operator Instructions] Your next question comes from Brian Lee from Goldman Sachs. Please ask your question.

Brian Lee -- Goldman Sachs -- Analyst

Hey guys. Thanks for taking the questions. Maybe just first one is a follow-up to Phil's question. That $23 million operating income benefit you saw on opex line away from -- what is that? And does that repeat?

Huifeng Chang -- Senior Vice President and Chief Financial Officer

Sorry, Brian, can you highlight exactly where the number is? [Speech Overlap]

Shawn Qu -- President, Chairman and Chief Executive Officer

No. Hi, Brian. This is Shawn. That operating benefit is from selling of some of the solar power plant assets in China. And it will not repeat. It's a one-time item.

Huifeng Chang -- Senior Vice President and Chief Financial Officer

Yeah. That's 75-megawatt solar power plant we sold in Western China.

Brian Lee -- Goldman Sachs -- Analyst

Okay. Why does that show up as a contract expense I guess as opposed to just -- why is it not booked as traditional revenue and margin?

Shawn Qu -- President, Chairman and Chief Executive Officer

Because that asset book is recorded as a project on hold. So, if it's project on hold, then if we decide to offload the project, it is recorded as operating benefit, or other income rather than into the revenue line.

Brian Lee -- Goldman Sachs -- Analyst

Got it. Okay. Understood. Makes sense. And then maybe two more quick ones from me. I don't know if you mentioned this. I appreciate the early '22 guidance and all the different capacity forecast here. What are you thinking about the capex budget for 2022?

Shawn Qu -- President, Chairman and Chief Executive Officer

That's too far away. We haven't finished that yet.

Brian Lee -- Goldman Sachs -- Analyst

Do you think it will be in excess of the $500 million for this year given your capacity is growing more on a year-on-year basis?

Shawn Qu -- President, Chairman and Chief Executive Officer

While at this moment, we believe it's more or less the same as 2021. However, as I said, we're still quite a few mindsets into China 2022 or finalize it in the [Indecipherable] to come.

Brian Lee -- Goldman Sachs -- Analyst

Okay understood. Makes sense. And then last one from me and I'll pass it on. If I look at your slide deck, the guidance Slide 16, again, appreciate all the detail. You got modules up 45% in '22, battery storage 70 %, project sales up 50 %, but then revenues up 30% in the guidance. So just trying to understand what sort of ASP assumptions are you making while in environment right now where panel pricing is up 25 %, like you said, Shawn. Are you assuming ASP degradation into 2022 or are the batteries or project sales coming in at lower prices? Just wondering why that volume growth, which is pretty robust across all three product types for you, isn't kind of translating into similar level of revenue growth? Thank you.

Yan Zhuang -- President, CSI Solar

This is Yan. Actually, we're still feeling certain uncertainties for next year first of all. We still believe there are multiple number of driving forces for next year. So, as you see, the inflation may not end yet and we're still observing the output the real output for silicon next year is going to be taking time from first half into next second half. So, the real capacity, is going to be released, will be out in the second half. So that we're still seeing a rather tight balance between supply and demand. I'm talking about silicon module shipment for next year. So, although we're also observing the adjustments from downstream I'm talking about the PPA uptick in prices and the expectation of returns are also becoming more tolerating. So, all themes together, we're seeing next year is very rational balancing. That's why we're providing the very rational forecast. So in terms of ASP, I would say is rather stable. It may go down, but it's not going to be a dramatic drop. So, in particularly the first half, we're seeing quite tight balance.

Huifeng Chang -- Senior Vice President and Chief Financial Officer

Brian, this is Huifeng. Let me also add. On the EG side, even though the gigawatt we projected for next year 2022 higher -- significantly higher than 2021. But because the nature of the business is higher gigawatt doesn't mean necessarily mean higher revenue. So, there is this factor in the total equation that's why you see a much higher volume, but not necessarily much higher revenue.

Brian Lee -- Goldman Sachs -- Analyst

Okay. Yeah, I will take that offline. Thanks, guys.

Operator

[Operator Instructions]. We will take our final question from JB Lowe of Citi. Please ask your question.

JB Lowe -- Citi -- Analyst

Good morning, everyone. My question is on -- essentially on polysilicon and whether you guys have -- well, first I wanted to ask about what impact you guys are seeing if any, from the W.R.O instituted by the Customs Bureau here in the States over the summer and how that's been affecting your polysilicon buying patterns, if at all. And whether or not you guys are looking for I guess alternative polysilicon to buy outside of China and how that would kind of work with your cost base? Thanks.

Shawn Qu -- President, Chairman and Chief Executive Officer

Hi J.B. this is Shawn speaking. We are buying polysilicon both inside China and outside China, where stable and long-term suppliers, both inside and outside China. And indeed, we are buying significantly of China. Moving forward, I think we'll continue to buy polysilicon both inside China and outside China. And now of course, in all of our purchasing activities, we have strict policy to prevent any forced labor or any actions violating the commonly accepted labor practice.

JB Lowe -- Citi -- Analyst

Okay, great. Other question was just on -- did you guys see any COVID-related slowdowns in your Southeast Asia manufacturing facilities? And have those -- and if so have those been abated in any sense?

Shawn Qu -- President, Chairman and Chief Executive Officer

We see COVID related -- yeah, we do see some COVID related slowdown in manufacturing in Southeastern Asia. But we also see some slowdown seems to be due to other reasons. For example, double RO and it [Indecipherable] is affecting especially the productions at some of the other solar companies.

Huifeng Chang -- Senior Vice President and Chief Financial Officer

Yeah. I think the impact from other factors are bigger than the impact of the COVID.

JB Lowe -- Citi -- Analyst

Okay, interesting. Alright. That will be it from me thanks guys.

Operator

There are no further questions from the line at this time. I would now like to hand the call back to Canadian Solar's Chairman and CEO, Dr. Shawn Qu for closing comments.

Shawn Qu -- President, Chairman and Chief Executive Officer

Thank you. And thanks everyone for joining us today, and for everyone's continued support. And if you have any questions or would like to setup a call, you know that you can contact our Investor Relations team at any time. I hope you have a wonderful Thanksgiving holiday next week with your family, and have a nice day.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Isabel Zhang -- Investor Relations

Shawn Qu -- President, Chairman and Chief Executive Officer

Ismael Guerrero Arias -- Corporate Vice President and President of the Energy business

Yan Zhuang -- President, CSI Solar

Huifeng Chang -- Senior Vice President and Chief Financial Officer

Philip Shen -- Roth Capital Partners -- Analyst

Colin Rusch -- Oppenheimer -- Analyst

Brian Lee -- Goldman Sachs -- Analyst

JB Lowe -- Citi -- Analyst

More CSIQ analysis

All earnings call transcripts