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Behind Trina Solar’s Key Performance Drivers

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Key performance drivers

Government incentives such as ITCs (investment tax credits) in the United States and feed-in-tariffs in China, environment regulations, seasonal changes in energy demand, and cost factors are among the biggest performance drivers impacting Trina Solar (TSL).

RPS (renewable portfolio standards) and net metering systems are also crucial factors. RPS provides an incentive in the form of SREC (Solar Renewable Energy Certificates) to generate solar power.

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Trina Solar’s cost factors

Trina Solar’s cost performance mainly depends on the price of its key raw material, polysilicon, which is used in the manufacturing of solar (TAN) modules. According to the company’s latest annual filings, the polysilicon prices increased from $13.69 per kilogram in December 2015 to an average of $15.50 per kilogram in March 2016. As the polysilicon market is highly concentrated, any further increase in polysilicon prices could have a negative impact on Trina Solar’s profit margins. This could also impact SunEdison (SUNEQ), Canadian Solar (CSIQ), and SunPower (SPWR).

Other major costs include toll manufacturing costs, overhead, and direct labor costs. According to company filings, Trina Solar has been able to meet nearly all of its solar cell needs through in-house manufacturing since 2010. However, in 2015, the company sourced some of its ingot and wafer requirements through toll services from strategic partners.

The weather impact

Of course, seasonal variation in weather conditions can impact Trina Solar’s revenue and shipments targets. Adverse weather conditions and extreme winters, for example, can delay the commencement of operations and negatively affect the company’s operating results. Seasonal variations in demand linked to construction cycles could also result in a wide variation of company’s financial results.

In the next part of this series, we’ll analyze Trina Solar’s business strategy.

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