Q3 2025 Canadian Solar Inc Earnings Call
Speaker #1: Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's third quarter 2025 earnings conference call. My name is Chuck, and I will be your operator for today.
Speaker #1: participants are in a listen-only At this time, I'll mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.
Speaker #1: I would now like to turn the Thank you
Speaker #1: Head of Investor Relations at Canadian Solar Inc. conference: Over to Wina Huang, Solar. Please go.
Speaker #1: ahead.
Speaker #2: 2025 conference call. Please operator, and welcome everyone to Canadian Solar's third quarter accompanied with slides, which are available on Canadian Solar's Investor note that today's conference call is presentation section.
Speaker #2: Joining us Relations website, within the events and today are Dr. Shawn Chu, Solar Subsidiary CSI Yan Zhuang, President of Canadian Solar; Ismael Guerrero, Corporate VP and President of Canadian All company executives will participate in the Solar Subsidiary Recurrent Energy; and Xinbo Zhu, Senior Q&A session after management's formal Shawn will go over some key messages for the quarter.
Speaker #2: Yan and Ismael will provide highlights for CSI Solar and Recurrent Energy, respectively, along with their results. Shawn will conclude the prepared remarks with the business outlook, after which Xinbo will go through the financials. We will then have time for questions.
Speaker #2: listeners that management's prepared remarks Before we begin, I would like to remind today as well as their answers to remarks. On this call, uncertainties.
Speaker #2: The company claims that it is subject to risks and protections under the Safe Harbor for forward-looking statements that is contained in the 1995 Act. Actual results may differ from management's current projections of the company's future performance. Questions will contain forward-looking statements today.
Speaker #2: The company claims that are subject to risks and protection under the Safe Harbor for forward-looking statements that is contained in the Actual results may differ from management's current projections of the company's future performance 1995.
Speaker #2: expectations. future unless otherwise required Any Private Securities Litigation Reform Act of represent management's estimates as of detailed discussion of risks and uncertainties can be on Form 20F, filed with found in the company's annual report will be presented within the requirements of generally accepted accounting principles or CAP.
Speaker #2: information presented during the call will be provided on both a GAAP and non-GAAP non-GAAP information, management intends to basis. By disclosing certain the Securities and Exchange provide investors with additional operating performance and to establish uses non-GAAP measures to better assess SEC Regulation G regarding Some financial should not be viewed by investors as a Chairman and CEO, Dr. operational goals.
Speaker #2: GAAP, the company's performance, and non-GAAP information underlying trends. Management.
Speaker #3: joining our third quarter And now, I would like to turn
Speaker #3: to slide
Speaker #3: modules, in line with our guidance range. In For of 2.7 ahead. US dollars, three. reached 1.5 billion
Speaker #3: taking effect, and market of 7 cents per operating expenses paid-in-kind of our turn to slide most challenging phase of stabilized following the downturn. Our the solar environment presents both challenges and opportunities.
Speaker #3: anniversary celebration Solar's 24th birthday, I year, during the reflected on how we have grown innovation, business with technology diversification. and global Today's shifting geopolitical substitute for data prepared in accordance with landscape allows us model evolution, differentiate of Canadian This resilient complex macro and ourselves through our combination of strategy our US manufacturing strong progress in investments.
Speaker #3: to once again Phase one of our solar cell factory execution. Most expected to begin production in the first quarter of notably, we are making phase one of our lithium battery energy storage factory in in Indiana is Kentucky is on track to start 2026 year-end.
Speaker #3: These factories will strengthen our US supply chain, support and reinforce our long-term commitment to the American market. At the same US business adjustments to our to comply with the One Big Beautiful Bill Act.
Speaker #3: and remain confident we will be able to successfully position ourselves to continue servicing our U.S. customers. The rise of AI-driven fueling electricity demand.
Speaker #3: As unprecedented global I have emphasized in my public speeches over the past two years, the most flexible and data centers is powering data centers is solar plus storage.
Speaker #3: In cost-effective solution for contrast, traditional energy sources such as natural gas and nuclear power require cycles and have limited long construction scalability. We are now working closely with multiple data center customers to develop deeply integrated solutions.
Speaker #3: This requires advanced system engineering where our technical expertise provides a strong competitive advantage. I'm also pleased to significant progress we have made in our emerging business segments.
Speaker #3: storage is on track to become share the Residential energy profitable in 2025. We have seen strong growth for our residential energy storage product in Japan, Italy, and the US, and we are expanding into new markets like Germany Australia.
Speaker #3: This marks a and major milestone for our energy storage strategy and demonstrates how we are successfully broadening our revenue base beyond utility-scale applications. Recurrent, our solar and energy storage project developer and operator will continue to balance the growth of our operational project fleet to generate recurring cash flow and selective sales of project asset ownership to manage near-term cash flow.
Speaker #3: Given the current market conditions, I have asked our team to tip the balance a little bit more toward sales of project assets in order to accelerate cash reduce recycling and debt.
Speaker #3: With that, I will now turn the call over to Yan, who will provide more details on our CSI Solar business. Yan, please go ahead.
Speaker #2: Thank you, Sean. Please turn to slide five. In the third quarter of 2025, module shipments totaled 5.1 gigawatts. In line with the expectations, earlier deliveries to two energy storage projects shifted volumes from the fourth quarter into the third.
Speaker #2: This led to our 2.7 gigawatt-hours of storage largest quarter to date. billion dollars and With gross margin decreased by 730 basis points to 15%.
Speaker #2: The sequential decline was driven by margin change in both the solar and storage businesses. In solar, incremental upstream price increases and underutilization raised unit costs.
Speaker #2: While module pricing in most global markets remained low, in storage, second-half margins reflect contract signed at more normalized levels. And the volatile tariff environment drove incremental cost increases.
Speaker #2: Without last quarter's impairments, and the benefiting from internal cost controls, operating expenses decreased sequentially from 15.3% of revenue to 12.3%, and we delivered 39 million dollars of operating income.
Speaker #2: Please turn to slide six. For an update on our e-storage business, in the third quarter, we recognized revenue on 2.7 gigawatt-hours of storage solutions.
Speaker #2: Our deliveries reached countries across North America and Europe, the Asia Pacific, and Latin America. As of October 31st, our contracted backlog, including long-term service agreements increased to 3.1 billion dollars, supported by newly signed projects in North America and Europe.
Speaker #2: We continue to build momentum in our established markets while entering new ones. In Canada, we signed supply and 20-year long-term service agreements with APA Power for the Elara and Hadley projects, together they total more than 2.1 gigawatt-hours and are among the largest energy storage facilities under development in Ontario.
Speaker #2: Also in Ontario, we contracted to deliver a fully integrated energy storage solution and turnkey PC services for the 1.6 gigawatt-hour Skyview 2. Energy storage projects—this marks our largest Sobank delivery to date.
Speaker #2: Once completed, Skyview 2 will be one of the largest battery storage facilities in the nation. As a proud Canadian company, we're honored to help drive our country's clean energy transition.
Speaker #2: Across the Atlantic, we just signed a best supply agreement and 20-year long-term service agreement in Germany with Kion Energy. A leading storage developer, as demand expands across both our existing and newly entered markets, we expect to continue scaling our backlog and diversifying its global footprint.
Speaker #2: In addition to our established utility-scale storage solutions, we continue to expand our offerings and strengthen our capability in both CNI and residential storage. Notably, the residential storage segment is spending momentum, have turned profitable this year.
Speaker #2: Building on the strong growth we have already achieved in Japan, Italy, and the UK, we will be launching our new three-phase solution to drive further expansion in markets such as Germany.
Speaker #2: We also plan to enter Australia in the first half of next year. In the US, we have successfully introduced the second generation of our residential energy storage solution, which better caters to the needs of the market and is demonstrating strong initial performance.
Speaker #2: In the CNI storage segment, where we see promising market growth potential, we continue to refine and diversify our portfolio to better serve emerging opportunities.
Speaker #2: Though smaller in scale, these segments have proven to be profitable, and we expect them to contribute more meaningfully next year. With that, I will handle the call.
Speaker #2: hand the call over to Ismail, I will who will provide an update on recurrent energy. Canadian Solar's global project development business. Ismail, please go ahead.
Speaker #3: You, Yan. Please turn to slide seven. In the third quarter, we generated $102 million in revenue. We monetized over 500 megawatts of projects, including two high-margin sales.
Speaker #3: The battery storage project in Italy and a hybrid project in Australia. Gross margin was 46.1%. The sequential increase of 137 basis points. Primarily driven by the contribution of more profitable project sales.
Speaker #3: During the quarter, we closed 825 million dollars in construction financing and tax equity for the 600 megawatt-hours desert bloom storage and 150 megawatt solar projects.
Speaker #3: Both parts of our multi-project partnership with Arizona Public Service. These assets are under construction and are expected to begin operations in the first half of 2026.
Speaker #3: In the US, in addition to what we have in construction, we have already safe harbored one and a half gigawatt peak of solar and two and a half gigawatt-hours of battery storage projects.
Speaker #3: By the summer of next year, we expect to have safe harbored at least three gigawatt peak of solar and seven gigawatt-hours of battery storage projects.
Speaker #3: Giving us significant visibility over our execution pipeline for the next four years. Until our IPP business scales further, near-term profitability will continue to depend primarily on global project sales.
Speaker #3: As maintaining financial discipline remains our top priority, we will balance the growth of our operating portfolio and project assets with selective project ownership sales to prudently manage cash flow and debt levels.
Speaker #3: Looking ahead to 2026, we expect to increase the level of project ownership sales to enhance cash recycling and reduce leverage. Now for an update on our pipeline, please turn to slide eight.
Speaker #3: As of September 30th, we have interconnection rights for approximately eight gigawatts of solar and 15 gigawatt-hours of storage globally, excluding operating projects. Our total development pipeline now includes 25 gigawatts of solar and 81 gigawatt-hours of storage capacity.
Speaker #3: The reduction in solar pipeline reflects a natural rebalancing. Some projects progress into more advanced stages while others were removed. At our current scale, our focus is increasingly on executing our high-quality pipeline rather than expanding it.
Speaker #3: For example, in the UK, we recently received government approval for our Tilbridge solar and battery storage projects in Lincolnshire, UK. These projects are planned to be an 800 megawatt PV plus 1,000 megawatt-hour best project.
Speaker #3: Making it the largest co-located project in the UK to date. We are proud that Tilbridge will connect to the grid through a substation that was previously used by a decommissioned coal plant.
Speaker #3: Continuing to support the UK's decarbonization goals while providing reliable and sustainable energy to the communities it will serve. Over time, energy storage continues to emerge as a key growth driver.
Speaker #3: Not only are battery energy storage systems becoming increasingly cost-effective, but they are also profoundly reshaping energy markets. From green stabilization and peak shaving to enabling renewables to integrate at scale.
Speaker #3: Notably, data centers are now placing ever greater demands on power infrastructure. Requiring round-the-clock reliability and often clean energy integration. In response, the opportunity set for longer duration, higher specification best is expanding rapidly.
Speaker #3: We have started to dip our toes into the data centers business through regional JVs with data center experts laying mainly in Spain and the US.
Speaker #3: We see significant synergies with our core expertise as land acquisitions interconnection processes permitting and community engagement are four of our core competencies that are crucial to the successful and timely deployment of data centers.
Speaker #3: Furthermore, powering data centers with clean and reliable electrons is one of the key bottlenecks to data center development. Where we have significant expertise to bring to the table.
Speaker #3: In Spain, we already have 112 megawatts of projects with interconnections and land secured in Barcelona, Bilbao, and Madrid. Plus an additional 40 megawatts with interconnections in Madrid waiting to secure land.
Speaker #3: Finally, our operations and management are on in business also continues to grow healthily. This quarter, we earned two internationally recognized certifications from TÜV Rheinland.
Speaker #3: ISO 9001:2015 and ISO 45001:2018. These certifications affirm that our power services meet globally recognized standards for quality and workplace safety. Today, requirement has over 14 gigawatts of solar and storage projects under O&M country contracts across 11 countries.
Speaker #3: Now. I will hand the call to Xinbo to review our financial results. Xinbo, please go ahead.
Speaker #2: Ismael, please turn to slide nine. Thank you. In the third quarter, we delivered 5.1 gigawatts of solar modules and 2.7 gigawatt-hours of energy storage systems.
Speaker #2: With contributions from accelerated storage shipments, total revenue reached 1.5 billion dollars. Gross margin was 17.2%. A sequential decline primarily reflected the absence of one-time benefits recorded in the second quarter.
Speaker #2: And the normalizing margins in both solar and storage manufacturing businesses. Operating expenses decreased sequentially to $222 million, reflecting lower shipping costs from reduced module volumes and ongoing internal cost reductions.
Speaker #2: Net interest expense declined to 29 million dollars. Driven by higher interest income. We recorded a net foreign exchange loss of 17 million dollars primarily of Chinese yuan.
Speaker #2: Net income driven by the appreciation was 9 million dollars. Or a net loss attributable to shareholders of seven cents per diluted share. This result included a positive 35 million impact, equivalent dollars HLBB to 51 cents per per share.
Speaker #2: From tax equity arrangements tied to certain US projects. The 20 cents per diluted share preferred dividend impact brought the total diluted loss per share to shareholders to seven cents.
Speaker #2: Please turn to slide 10. For cash flow and the balance sheet. Net cash used in operating activities was 11.12 million dollars. Compared with an inflow of 189 million dollars in the second quarter.
Speaker #2: The difference was primarily driven by change in working capital notably a decrease in inventories during the prior quarter. Total assets grew to 15.2 billion dollars.
Speaker #2: With project assets rising to 1.9 billion dollars. Solar power and battery energy storage systems remained steady at 2 billion dollars. As we paced construction activity to manage leverage at the group level.
Speaker #2: Capital expenditures totaled 265 million dollars. Primarily related to US manufacturing investments. And the existing capacity expansions. These implies a larger capex outlay in the fourth quarter and we extract to end the year slightly below our full year guidance of 1.2 billion dollars.
Speaker #2: Looking ahead to 2026. We continue to refine capex plans amid an uncertain policy environment. But currently expect spending to remain at levels similar to this year.
Speaker #2: Most investments will continue to target the US market. Total debt increased incrementally to 6.4 billion dollars. Mainly due to new borrowings tied to project development assets.
Speaker #2: We closed the quarter with a cash position of 2.2 billion dollars. Now let me turn the call back to Sean. We will conclude with our guidance and business outlook.
Speaker #2: Sean, please go ahead.
Speaker #3: Thank you, Xinbo. Please turn to slide 11. For the fourth quarter of 2025, we expect module shipments to be in the range of 4.6 to 4.8 gigawatts as we continue to maintain disciplined volume management.
Speaker #3: For our energy storage business, we expect shipments between 2.1 to 2.3 gigawatt hours which include approximately 600 megawatt hours delivered to our own projects.
Speaker #3: This guidance reflects the shift of certain volumes from the fourth quarter into the third. With recurrent delivering its largest quarter of project sales this year, we project we project fourth quarter revenue to range between 1.3 to 1.5 billion dollars.
Speaker #3: We expect gross margin to be between 14 to 16%. For the full year of 2026, we project total module shipments of 25 to 30 gigawatts.
Speaker #3: Including approximately one gigawatt to our own projects. Energy storage shipments are expected to range between 14 to 17 gigawatt hours. We will continue to focus on profitable solar growth in our storage business.
Speaker #3: While we will continue to develop solar and energy storage projects, financial prudence remains our top priority. Accordingly, recurrent energy will increase project ownership's sales in 2026 to recycle more capital and manage the overall debt level.
Speaker #3: With that, I would now like to open the floor for questions. Operator.
Speaker #2: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone.
Speaker #2: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star, then two.
Speaker #2: And our first question for today will come from Colin Roach with Oppenheimer. Please go ahead.
Speaker #2: ahead. Thanks so much, guys, and
Speaker #4: congratulations on all the project or progress. You know, on the project sales, can you talk a little bit about the strategy of timing and leverage that you guys are going to deploy in these sales?
Speaker #4: You know, you obviously have a great land position, nice interconnection queues. And certainly, potentially can leverage some of those positions into data center deals.
Speaker #4: And also, you know, you potentially can monetize these things earlier in the process and generate a little bit better returns in select areas. So I just want to get a better sense of where you're coming out in terms of timing and kind of relationships that are going to come out of some of these sales.
Speaker #3: Yeah, Colin, we are still working on the 2020 2026 AOP so I don't have the quarter by quarter recurring project sales number in my hand right now.
Speaker #3: We target to get that down by February. So when we talk in March, in the March earning call, I'll give you more details. However, we have enough CODs operational project to sell.
Speaker #3: So we don't have to sell the project early. When I say 'sell the project early,' I assume you mean selling at NTP or even before NTP.
Speaker #3: But before NTP, you don't get the value, right? You leave too much money on the table. So if we can sell after COD, we can not only get value of the project development, but also the project especially recurrent financing.
Speaker #3: is also an equity financing deal in Because Canadian Solar the US market. And there's a value there. So we do have enough project you know, we have a budget like roughly how many projects we will, you know, how many megawatts of project ownership we will sell each we have year.
Speaker #3: enough COD project to sell. And that's a US, but we also sell project in other markets for example, in Latin, But for next year, I guess in Australia.
Speaker #3: Now, Ismael, you have anything to
Speaker #4: Just say it, Sean. Thank you, Colin. Nice to talk to you. Colin, we have a very, very strong
Speaker #4: pipeline and very mature. So we are seeing good opportunities to sell with good margins. And we are likely going to take them. That's the.
Speaker #4: the overall underlying add? That's
Speaker #4: reasons. Okay, perfect, guys.
Speaker #2: And then, you know, thinking about the battery manufacturing and the supply chain, can you talk a little bit about the maturity of your relationships with suppliers to deliver input materials into the US?
Speaker #2: You know, obviously, supply chain is in China and, you know, 70% of the the vast majority is still in Asia. shifting things into North America is a And so pretty substantial effort.
Speaker #2: I just want to get a sense of, you know, how easily that's coming along for you guys and thinking about as you start to ramp up that capacity.
Speaker #3: Yeah, actually, there are a lot of supply chains, outside China these lots of suppliers days. So we have good selection, good choice for both solar and for energy will, as you know, storage.
Speaker #3: The OBBBA has some material and non-material requirements for both storage and solar. There's also the domestic content booster for both energy storage and solar.
Speaker #3: assistance level for And we have calculated that. So just pay those by those percentage right? requirement, we think we will be able to meet those 10% booster for 2026, requirements. no problem.
Speaker #3: assistance level for And we have calculated that. So just pay those by those percentage right? requirement, we think we will be able to meet those 10% booster for 2026, requirements.
Speaker #3: 2027, the number will go up 5% or so. I think it's roughly 5% each year and we should be able to manage that stack.
Speaker #3: So we'll be able the OBBBA requirement and to meet if we make both also if we do, sell and module in US, we'll be able to meet the domestic well.
Speaker #3: start As I said, we will production of our own solar cell in US by March. So throughout Q2, we'll ramp up. So by second half of next year, we should have reasonable volumes already.
Speaker #3: And those volumes come with the domestic will go, you know, will content. The 10% domestic content boost. And for solar and for to start energy storage, our plan is the battery cell and pack manufacturing in US at the same time.
Speaker #3: So I said in the in my speech that we expect to So in 2027, we will have, we'll be able to start production in December.
Speaker #3: the energy storage project, which also meet the domestic boost requirement. Domestic content requirement to let our customers to enjoy the 10% ITC
Speaker #3: boost.
Speaker #2: Okay, thanks so much, guys. I'll pass it
Speaker #2: on.
Speaker #1: The next question will come from Philip Shin with Roth Capital Partners. Please go ahead.
Speaker #5: Hi, everyone. Thank you for taking my questions. First one is on margins. I think your A-share subsidy reported a 7% gross margin in Q3, but you guys reported a 17% gross margin today.
Speaker #5: So was wondering if you could help us bridge that gap.
Speaker #5: Thanks. I don't think we
Speaker #3: reported 7, do we?
Speaker #3: Okay. No. 17.
Speaker #5: 17.
Speaker #5: Oh. Well, 70%
Speaker #3: is for CSIQ together,
Speaker #3: CSIQ, right? That's out of 15. And CSI Solar have a different back, you know, different mix.
Speaker #5: Yeah, Ismael Arias just commented that the project sales in Q3 were with a 46% gross margin.
Speaker #4: Okay, so is the project business that
Speaker #4: really supported and offset the manufacturing 7% gross margin? Is that margin. right?
Speaker #3: Manufacturing solar may be low, but solar plus the energy storage, 15% for all the manufacturing.
Speaker #4: But all the is over 15%. Now, if it's only a module, it's low, it's below 10 because there are where we don't get much more, you know, margin.
Speaker #4: Okay, thank you, Sean and team. Moving on to the next question. As it relates to your 2026 guide, you gave us some color you continue to talk about the ramping of there, which is great.
Speaker #4: US manufacturing. But can you give us color on how you're able to do still substantial fiat risk? As it relates to either ownership or just meeting the OBBBA fiat And requirements, could be challenging.
Speaker #4: Thanks.
Speaker #3: Yeah,
Speaker #3: Philip, I answered this question in the last earning call. Philip, we believe we can meet the requirement, the OBBBA requirement. By doing certain adjustment.
Speaker #4: Okay. And then as it relates, thank you, Sean. As it CVD reserve, or you know, with the auction case, there could relates to the 80 be meaningful retroactive duties and was wondering can you quantify how much exposure that might be?
Speaker #4: And as a result, do you think you might need to reserve for that situation on the balance sheet? Thanks.
Speaker #3: I would say also could not be, right? So the court process is still moving along. And there will be a You're saying it could be?
Speaker #3: decision. If it goes to the appeal court, and we have discussed this with our external lawyers and the also the audit to book firms, we don't think we need
Speaker #4: Really
Speaker #1: question will come from Brian Lee with Great.
Speaker #1: Goldman Sachs. Please go
Speaker #1: Goldman Sachs. Please go ahead. Hey, guys.
Speaker #6: Thanks for taking the questions. Maybe just a follow-up to Phil's question. I know you guys are wanting to see the 80 CVD process through litigation and the cases still pretty early on, but in the event that to you did have accrue a liability or reserve the some amount of funds for a potential negative decision, can you help to kind of quantify the range?
Speaker #6: Back to the envelope math suggests it could be well over a billion dollars if we, you, I guess, you know, estimate your U.S. shipments over the past couple of years.
Speaker #6: I guess first, is that the right way to think about it? And then second, how would you, again, just playing devil's advocate, hypothetically, if you had to do that, what would be your sort of funding strategy to finance that amount, just given the cash burn and the high degree of net debt you have right
Speaker #6: now?
Speaker #3: Ben, I guess you're also talking about the auction case. And as I said, when question, we don't think I answered Philip's reserve. Therefore, there's that we have to make no no, I just, I don't have to do any backup envelope at this moment.
Speaker #3: what my lawyer told me. This is This is what my auditing firm told me. So I don't want to speculate here. Why don't you ask the petitioner much money they can get?
Speaker #3: Or how to speculate how much money they will be able to get for US
Speaker #3: government? Yeah, no, I mean, I
Speaker #1: think there are published research around potential value of the claim here. I don't know how accurate they are, but I do think there is a published number, which again, counts into the billions of dollars.
Speaker #1: But yeah, I'll take that offline. I guess maybe just bigger picture question. You know, we're all just trying to gather more detail. You know, we know there's no finite answer, but it'd just be helpful if you could elaborate, let's say, you know, on the fiat question as well.
Speaker #1: You know, you're obviously telling your customers the actions you contemplate taking to make sure your fiat compliant. Is there any insight into those conversations you can provide to give the financial community the same level of confidence around what steps you may be taking to make sure that your US manufacturing investments are going to be justified?
Speaker #3: Well, OBBA has very simple and clear rules which says a big picture, it requires 75% non-from the FPOC. And no more than 25% from the from FPOC.
Speaker #3: If there's two partners, right? If there's only one plus one partner, if there are two partners, two shareholders from the FPOC countries, then the two together should take no more than 40%.
Speaker #3: So they are very clear rules there. make adjustment to meet the OBBBA, so I think it's quite clear it's something like a five-year grade five student will know.
Speaker #3: As long as you are structured yet, with this percentage numbers, then you are OBBA compliant. What else do I have to tell you?
Speaker #1: Okay. No, that's helpful is on the asset sales. It sounds like that's definitely going color. And the last question for me, I'll pass it on, to ramp up in Which is a bit of a reverse from the past couple of '26.
Speaker #1: years as you've been moving toward this IPP model. It sounds like it's focused on cash generation and deleveraging. Can you quantify kind of what volume, megawatts, megawatt hours you anticipate monetizing through asset sales as opposed to keeping on the balance sheet for '26?
Speaker #1: And what kind of deleveraging potential that might result you.
Speaker #3: Well, as I said, we're continuing to build IPP portfolio. However, given the current market condition, we are going to tip the balance a little bit to be a little bit more cautious.
Speaker #3: And also, as I said, when I answered Colin's question, I haven't brought my new let my board approve my 2026 AOP yet. Any operation plan yet.
Speaker #3: So I will give you more details in March because typically our board approves the AOP in February. So what I can say now is that given the current market situation, we are going to be a little bit more cautious.
Speaker #3: said that we have And I also enough operational projects and high-quality projects which we can cash in. But see, every year we always, we always sell some project.
Speaker #3: And Ismael mentioned that he sold some high-gross margin projects in Q3, that helped to boost our gross margin in Q3, right? Overall gross margin.
Speaker #3: So I don't have the number yet, but I will let you know what I can let you know now is that we will be a little bit more cautious.
Speaker #3: So we are going to recycle more
Speaker #3: cash.
Speaker #1: Okay. Understood. Thank you,
Speaker #1: on.
Speaker #1: on. I'll pass it you.
Speaker #2: Thank Sean.
Speaker #4: Lau with Jefferies. Please go ahead.
Speaker #5: Thanks, management, for taking my question. This is Alan from Jefferies. I would like to know there's a lot of questions on US policies already.
Speaker #5: So we'd like to have a more overview on the market demand on 2026. What do you think the US installation on solar and energy storage separately?
Speaker #5: Thank you.
Speaker #3: Okay. I will let ask Yan to share his thought.
Speaker #6: So So you're asking for the installation demand in the US as in 2026, right, on both storage
Speaker #6: and solar? Yes. Yeah. I think so the demand is there, right? Also, the OBBB compliant the Safe Harbor actually made the storage pipelines there.
Speaker #6: So I think for 2026, the storage project will be there. And the solar as well, the Safe Harbor also helped to actually preserve a lot of demand.
Speaker #6: But on the solar side, I think the sell is a sell supply. It can be a bottleneck for the total demand. So although we have a good solution, but does not mean everybody has that.
Speaker #6: So I think I hope US will be continuing to maintain the similar level compared to this year. That's what I hope. But I do not see any significant growth.
Speaker #6: storage, I think next year But energy US will continue to be strong. That's my view. Sean, if you.
Speaker #5: Yes. Thanks, Yan. So I think investors focus are concentrated overwhelmingly concentrated on ESS. So we'd like to know what type of flow rate are you looking at?
Speaker #5: Is it like 20, 30 percent growth or 50% or even in China, I think people are talking about even more aggressive growth rates? And then we think that growth, how much do you think it's coming from AIDC demand?
Speaker #6: Hello. So you're talking about the growth globally or US, China?
Speaker #5: It's mainly US. Mainly
Speaker #5: US. Mainly US. Okay.
Speaker #6: I think the data center work yeah, worldwide, you're talking about data center worldwide more than half of the data centers built in the US, but I think we see a very strong future demand in our portfolio on data center-related storage.
Speaker #6: But I think in terms of starting installation construction, next year is not yet. It's not yet. It's going to be you got to wait for a little longer time.
Speaker #6: So for next year, the storage growth will still be coming from the Safe Harbor projects. So this is a regular storage those regular storage projects.
Speaker #6: Solar, as I said, I'm expecting flat. That's my hope. But storage, you're talking about growth rate? I don't have the number, but you can check the industry reports.
Speaker #6: They are very, they're very a lot. The industry reports, on average, I think there's a growth. I don't know. It's like 20% growth? Yeah.
Speaker #6: I remember I saw some reports,
Speaker #6: number. I see.
Speaker #5: So for demand ESS demand related to AIDC, you think can probably after 2026, right? And then what type of installation you think will be more relevant?
Speaker #5: Is it like two to four hours of system that is for clipping the peak demand or you are seeing even longer hours acting as some off-grid solution or like the main power supply for the AIDC?
Speaker #5: What type of backlog do you see or request from clients are you seeing?
Speaker #6: I think for regular storage, conventional storage projects, you're talking about mostly in the US, it's actually load shift, peak shift. So it's rather like three, four hours around four hours.
Speaker #6: But for data centers to begin with, I think my knowledge, okay, it's more like two to three hours is mainly for smoothing out the load.
Speaker #6: That's what I our study shows.
Speaker #5: I see. So it's.
Speaker #6: No. Of course, longer of course, longer term, for longer term, the storage project for data centers will progress into longer and longer period of storage.
Speaker #6: But the cost is also going up. So the challenge is how do we control cost while increasing the length, the duration? But to begin with, the most important application for data center storage is smooth out the load, smooth out the curve.
Speaker #6: So that's the most important starting
Speaker #6: point. I see.
Speaker #5: So just to confirm, it's more like there are some rules in ERCO, maybe like the Senate Bill 6, etc., requiring more stability on the load.
Speaker #5: So the demand you are seeing at least for now. As it starts to cope with that request on the grid, right, instead of having long duration ESS for supplying as the main power supply of the AIDC, right?
Speaker #5: Is this understanding correct?
Speaker #6: Well, I think, as I said, right, for longer term, it will progress, right? But to begin with, I told you, it's more like smoothing out the load.
Speaker #6: So to stabilizing the supply. And so that's my
Speaker #5: That's good. That's good. And then finally, we'd like to ask on how much of the 14 to 17 gigawatt hours of shipment is going to be in the
Speaker #5: US? Actually, we
Speaker #6: have well diversified our portfolio, our backlog. US. Out of the So I would say total guided volume next around two-thirds will be outside of the year.
Speaker #5: I see. I see. That's pretty diversified. Thanks a
Speaker #5: lot. For answering that question. Yeah.
Speaker #6: But also, a small in China, and mostly it's between it's outside of China, outside of the US. So that's the kind of distribution.
Speaker #5: I see. That's very good. That's very good. I'll pass on. Thanks a lot for having that level of clarity on the question. Thank you.
Speaker #5: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.
Speaker #7: Well, thank you very much. And for everyone to come to our call. And also, thanks for your continued support. And if you have any questions or would like to sign up a call, please contact our investor relation team.
Speaker #7: Take care and have a great day.
Speaker #5: The conference is now concluded. Thank you for attending today's presentation. You may now