Strategy Note /
China

ReneSola: Recent changes might help overcome financial hurdles

  • Profitability increased, with a slow recovery trend amid the pandemic in the second quarter of 2020

  • Benefiting from 3 key improvements, it has attracted more investments and continued to expand into the global market

  • The company encounters multiple risk factors, including financial institutions' indictments, Covid-19 related threats

EqualOcean
30 March 2021
Published byEqualOcean

Altering its business strategy, the solar panel maker turned profitable yet again in the second quarter of 2020.

Solar Panels

Image credit: Public access

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ReneSola (SOL:NYSE) has signed a Memorandum of Understanding with Eiffel Investment Group – an asset management firm that managed EUR 3 billion, as of January 6, 2021. This agreement might have accelerated ReneSola's projects in Europe. The two have also agreed to launch a 1 GW joint venture, in which the solar project developer will hold 51% shares.

Founded in 2005, ReneSola is a company specializing in producing monocrystalline and polycrystalline silicon pieces. In 2008, the firm went public on the New York Stock Exchange (NYSE)

Financial analysis 

ReneSola's profitability has fluctuated during recent years. It was majorly affected by global policies, business strategies of major players in the field and, of course, the COVID-19 pandemic. The company showed negative net profit – with a lack of government support partly to blame – back in 2016. For instance, the National Development and Reform Commission (NDRC) reduced feed-in tariffs (FITs) for utility-scale solar plants, which lowered the selling prices in the solar industry. Moreover, the US former president Donald Trump also paid less attention to renewable energy development, further escalating pressure on its financial condition. 

The turning point came after 2017. That was when the firm quit the manufacturing businesses as it came with overcapacity and lower profits. This cutoff vastly improved ReneSola's net profits. By giving up the market pie in the manufacturing sector, the solar project developer has shown a rising annual gross profit since 2017. 

However, the adverse impacts of COVID-19 dragged down the company's profitability in the first quarter of 2020. There was a decrease of 348.44% in gross margin compared with the previous quarter. The subsequent increase was due to module sales in Minnesota and small-scale projects in Hungary. 

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A turnaround attempt

Founded in 2005, ReneSola did not make considerable profits in its first ten years. More recently, it even had negative earnings in four consecutive years, from 2012 to 2016. 

What are measures for this company to overturn its unfavorable position in the solar industry? The first change is the firm's nature. In 2006, ReneSola Singapore's participation brought more capital and turned the firm into a wholly foreign-owned enterprise, expanding more opportunities in global trades. Furthermore, ReneSola Singapore has added another USD 490 million to the solar project developer, with a total of 180 million shares of the firm by the first quarter of 2020. 

Secondly, ReneSola altered its main businesses. Since the firm did not generate positive profits in the first few years, it has kept finding new ways to earn profits. The first way is to produce silicon pieces and battery pieces in products such as inverters, mortars, and illuminators. After it exited the manufacturing business, the company's gross profits started rising and eventually it transformed into a project developer in 2019. It is noticeable that the DG project in China, a distributed generation solar power project built on rooftops, generates a steady flow of revenue for ReneSola. Although rooftop projects brought more leasing payables, the leasing fee will be offset by its increasing number of projects in the long-term.

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Last but not least, ReneSola renewed its top management. By the end of 2019, the firm transferred its headquarters from Shanghai to Connecticut, as ReneSola was optimistic about the American market. With its new headquarters, Yumin Liu and Ke Chen joined the company as the new CEP and CFO. Before joining ReneSola, Yumin had worked in Enron, United Technologies and Heidrick & Struggles, Additionally, Yumin aimed to improve ReneSola's global competitiveness; in his first financial statement, he even compared the firm with four American photovoltaic firms – Vivant, Sunrun, Sonova and SunPower.

Favourable interim results 

These changes not only increased the company's operating income, but also demonstrated advantages in the following three aspects...

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