Sold on Solar

Jeff Roy on Canadian Solar’s IPO in Japan

“We see the cost of developing solar continuing to decline, which will support the reduction of feed-in-tariffs in the future.”

Jeff Roy has been part of one of the largest solar power companies in the world since 2008. Besides forming Canadian Solar Inc.’s portfolio of Canadian assets — the first assets of the Canadian Solar Energy Group — he was involved in the development and construction of projects in Canada totalling more than 600 megawatts (MW).

It was when marketing of solar power in Japan began to grow, and the Canadian market started to slow down, that the company moved him and his family to Tokyo in 2015. He now leads Japan operations for the energy business as general manager, and is seeing the company through its initial public offering.

Tell me about Canadian Solar Inc.

Our presence in Japan began modestly in 2009, but has grown to become a core and valuable aspect of our business globally. Our initial focus was on sales and distribution of Canadian Solar electric photovoltaic (PV) modules and residential systems. In 2012, we established a project development team in Japan and we have since become one of the predominant developers of solar power projects here.

We are also growing our presence in the financial markets in Japan. As a sponsor, we have issued four domestic project bonds, raising more than ¥27.5 billion. One of our most recent accomplishments was the listing of Canadian Solar Infrastructure Fund (TYO 9284) on the Tokyo Stock Exchange. More than ¥33 billion was raised through the listing and these funds were used for the acquisition of 72.7 MW of projects from Canadian Solar.

Why did you decide to undertake an IPO?

Canadian Solar is a fully integrated solar company that manufactures solar cells and modules, and is a downstream developer of projects. The natural next step is to move further downstream into solar asset management, which is why we had been monitoring the development of the listed infrastructure market in Japan.

In late 2015, there were some positive regulatory changes approved that made it much more appealing and led to the first fund being successfully listed in mid-2016. This is when we initiated the process to pursue our own listing.

Our pipeline continues to evolve and we aim to construct close to 100 MW a year for the foreseeable future. Creating this partnership with a listed fund provides us with some certainty as we construct and develop our pipeline, and provides the fund with opportunities for future growth. We have cemented this alignment with a 15-per-cent investment into the fund itself.

Listed infrastructure funds are tax pass-through vehicles, which makes them structurally superior to other holding options. The cost of capital that can be raised through the fund is also competitive, which provides a reasonable exit price for Canadian Solar.

What major trends are we seeing in solar power?

Globally, we are seeing the obligation to set the rate for the PV electricity shift from the regulators to the private sector through competitive auctions. Japan is moving in that direction and ran their first auction in November of last year.

Canadian Solar participated in the auction and was awarded a 17.87 MWp (15.4 MWac) project in Hiroshima. This project will enter into a 20-year power purchase agreement with Chugoku utility at a rate of ¥17.97 (US $0.16) per kWh. A total of 141.3 MWac were initially awarded at an average price of ¥19.6 (US $0.18) per kWh.

The Japanese government plans to run other auctions in July and late this year, and we aim to participate in those auctions.

We see the cost of developing solar continuing to decline, which will support the reduction of feed-in-tariffs in the future.

What are the growth potential and opportunities in Japan?

The Japanese Ministry of Economy, Trade and Industry’s current target for solar penetration is 64 gigawatts by 2030 and renewable penetration of 24 per cent.

To date, the market has installed approximately 40 gigawatts, so there is still plenty of new capacity that needs to be installed. We also feel that a 24 per cent renewable target is too conservative.