Canadian Solar Divests Stake in Brazil's Pirapora II Project

Solar module manufacturer, Canadian Solar Inc. CSIQ has announced the divestment of 80% stake of its Pirapora II solar energy project to EDF EN do Brasil – the Brazilian subsidiary of renewable energy market leader, EDF Energies Nouvelles. Financial terms of the transaction have been kept under wraps.

Details of the Project

Construction for the 115 megawatt-peak (MWp) Pirapora II project will start in fall this year, while commercial operations will begin in 2018. It has a 20-year power purchase agreement, evident of its robust top-line.

Upon completion, the project will be capable of generating 231,992 MWh per year, which in turn will aid in achieving the Brazilian government's goal of drawing 23% of total energy from non-hydro renewable sources by 2030.

In order to support the local market, Canadian Solar will be supplying the modules required for this project from its 380 MWp modules factory in Brazil.

Previous Deals

EDF EN do Brasil had previously acquired 80% of Canadian Solar's 191.5 MWp Pirapora I solar project, located in Minas Gerais, Brazil in October last year. This project was one of Canadian Solar's three current projects (Pirapora I, II and III) in the country totaling 399 MWp with awarded long-term power purchase agreements PPA. Currently both Pirapora I and II are under construction.

Further, Pirapora I project and two wind projects are currently under construction by EDF Energies.

The Pirapora II solar project along with the Pirapora I project are among the two of three projects being jointly partnered with the EDF Group carrying long-term PPAs, both totaling 306.5 MWp.

Our View

Canadian Solar caters to a geographically-diverse customer base spread across key markets in the U.S., China, Japan, U.K., Canada, Brazil, India, Mexico, South Africa and Middle East. The company has a significant presence in Japan and intends to complete sales of about 70 megawatts MW of utility-scale solar power plants in China by mid 2017.

With the Trump administration recently having walked out of the Paris Agreement, other nations especially China and India, will gain increased opportunities in the leading clean energy space. This indicates that companies in 195 nations including Brazil which still support the Paris Accord will get a boost in the growing and competitive green economy.

Being a vertically integrated manufacturer, Canadian Solar already enjoys a distinct advantage over peers. Naturally the current situation will prompt the company to expand its operations in the growing solar energy market, outside of U.S.; as in this case in Brazil.

Price Movement

In the last six months, Canadian Solar has underperformed the Zacks categorized Solar industry. The company's shares increased 3.8%, while the industry gained 6.5%.

The underperformance can primarily be attributed to the market dislocation that the solar industry is experiencing as a whole, apart from facing steep competition from both established companies and new entrants in the market.

Stocks to Consider

Canadian Solar currently carries a Zacks Rank #4 (Sell).

Better-ranked players from the Oils-Energy space include Canadian Natural Resources Limited CNQ, Enbridge Energy, L.P. EEP and SolarEdge Technologies, Inc. SEDG. All the three companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Canadian Natural Resources reported a positive earnings surprise 30.77% in first-quarter 2017. Its 2017 estimates have risen by 39.36% to $1.31 per share in the last 60 days.

Enbridge Energy reported a positive earnings surprise 128.57% in first-quarter 2017. Its 2017 estimates have risen by 50% to 75 cents per share in the last 60 days.

SolarEdge Technologies reported a positive earnings surprise 39.13% in first-quarter 2017. Its 2017 estimates have risen by 14.43% to $1.11 per share in the last 60 days.

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