Semiconductor and solar technology provider MEMC Electronic Materials Inc. (WFR) recently announced that its subsidiary SunEdison has entered into an agreement with Standard Bank Group Ltd. and Futuregrowth Asset Management for a project financing of $314.0 million.
The fund will be used to develop two Greenfield solar projects in Limpopo Province, South Africa. The two projects at Witkop Solar Park and Soutpan Solar Park will generate 58 megawatt (MW) of solar power. SunEdison will collaborate with Chint Solar (China-based electrical appliance maker), the Public Investment Corporation (Africa's largest investment firm) and the Kurisani Youth Development Trust for the purpose.
The construction of Witkop and Soutpan Solar Parks is expected to commence in January 2013 and they are likely to be operational by early 2014. The power generated from the solar parks will be directly purchased by South African utility company, Eskom, through a 20-year power purchase agreement.
South Africa has increased focus on solar power over the years to reduce coal consumption. Current trends indicate that similar ventures are in the offing. This could be a vast opportunity for SunEdison.
SunEdison currently has 116.8 MW of solar projects under construction. Moreover, a 13.6 MW project is ready for sale in Spain. As per recently concluded third quarter 2012 results, SunEdison has a project pipeline of approximately 2.9 gigawatts (GW), slightly down from 3.0 GW as of fiscal 2011.
MEMC is trying to leverage the solid increase in solar energy usage and is hopeful that its investments will eventually pay off. But the ramp in project sales could take some time, which will continue to pressure margins.
Apart from this, MEMC will have to deal with the increasing debt situation. Hence, we believe that it will be hard for MEMC to significantly improve its earnings in the near to intermediate term.
However, we see MEMC's solar initiatives as a key driver for the long term. Its tie up with key players such as Flextronics International Ltd. (FLEX) and Jusung Engineering Co. Ltd. are intended to make its solar ventures more cost efficient and profitable. Currently, MEMC has a Zacks Rank #3 (Hold).