Key Takeaways:

• ReneSola’s revenue rose 86% in the third quarter, as the company transitions from solar plant builder to the more stable business of power plant operator
• The company holds big hopes for Europe, where it recently added three new solar farms as it starts to build a regional business as an independent power producer

By Doug Young

ReneSola Ltd. (NYSE:SOL) has become a sort of solar chameleon these days, constantly changing its appearance.

It began more than a decade ago as a maker of solar panels at a time when Beijing was aggressively promoting and supporting development of that sector. When that field became too crowded and competitive, it shifted its focus in the last two years to become a builder of solar farms.

Even after its stock declines this year, ReneSola now trades at quite a high price-to-earnings (P/E) ratio of 46, which is ahead of the two peers we just mentioned. But such P/E ratios may have less meaning in the current environment where solar company profits are quite volatile.

In addition to de-emphasizing solar farm construction in favor of solar services and power production, ReneSola is also shaking up its geographic mix by moving aggressively into Europe and away from its home China market. The former focus looks driven by Europe’s recent power shortages caused by the war in Ukraine. Meantime, the latter appears driven by inefficiencies in the China solar market.

From a strategic perspective, ReneSola is truly trying to follow the sun to the latest hot spots in the vast solar food chain that ranges from polysilicon makers like Daqo, which provide the main basic ingredient used to power solar cells, to solar power plant operators like the one that ReneSola is now trying to become.

Reflecting the growing role of power production to its business mix, ReneSola reported that revenue from that portion of its business more than doubled to nearly $11 million in the third quarter, helping to fuel an 86% increase in the company’s overall revenue to $28.9 million for the period. The other big engine behind the strong profit growth was EPC services, which rose from almost nothing a year earlier to about $11 million in the latest quarter.

While those two businesses grew, revenue from the company’s project development business, which only a couple of years ago was meant to become its main breadwinner, shrunk to just $6.3 million in the latest quarter from $10 million a year earlier. “Easy come, easy go,” as they say.

Geographic shift

Apart from its moves into solar farm operations and construction services, the other big story for ReneSola these days is its geographic shift. The company’s young IPP business was previously focused in China, and China was still its biggest IPP market at the end of September with 165 MW of production capacity.

But ReneSola signaled last year that high costs and low returns were leading it to reconsider its China focus for its IPP business. In its latest report it said it has modified its China strategy to one of “develop – build – own or sell” from a previous strategy of “develop – build – own as IPP.” As it shifts that strategy, the company said it is now looking to sell some of its China-owned solar power plants.

Additionally, the company has decided to hold on to and operate two projects with a combined 110 MW of capacity that it built in Hungary and Poland and originally planned to sell.

ReneSola pointed out that the IPP business will provide a more stable cash flow than simply building and selling solar farms, which should help to stabilize its revenue and profits that currently vary widely from quarter to quarter. While that’s true, the buildup is also taking a toll on the company’s cash, which dropped by nearly a half to $123 million at the end of September from $207.9 million just three months earlier.

The rapid buildup of power-producing assets also caused ReneSola’s debt-to-asset ratio to rise to 12.8% at the end of September from 8.3% just three months earlier. While neither figure is particularly high, and the current level is quite manageable, investors will need to watch both the company’s cash and debt levels as it moves more aggressively into the IPP business.

The bottom line seems to be that just a couple of years after making a major change to its original business model, ReneSola is once again a company in transition, which always involves a high degree of execution risk. What’s more, the end game from this latest move will essentially see it become a power producer, which is a stable but not exactly high growth business.