Earnings Call Transcript - CSIQ Q2 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Second Quarter of 2021 Earnings Conference Call. My name is Rachel, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. I would like to turn the call over to Isabel Zhang, IR Director at Canadian Solar. Please go ahead.

Isabel Zhang, IR Director

Thank you, operator. And welcome everyone to Canadian Solar's Second Quarter 2021 Conference Call. Please note that we have provided slides to accompany today's conference call, which is available on Canadian Solar's Investor Relations website, within the Events and Presentation section. Joining us today are Dr. Shawn Qu, Chairman, and CEO, Yan Zhuang, President of Canadian Solar's majority-owned subsidiary, CSI Solar, Dr. Huifeng Chang, Senior VP, and CFO. And Ismael Guerrero, former VP and President of the Energy Business. Ultimate executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will go over some key messages for the Quarter. Yan and Ismael will respectively review the highlights of the CSI Solar and Global Energy Businesses. Followed by Huifeng, who will go through the Financial results. Shawn will conclude the prepared remarks with a business outlook. After which, we will have time for questions. Before we begin, may I remind listeners that management's prepared remarks today, as well as their answers to questions, will contain forward-looking statements that are subject to risks and uncertainties. The Company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Any projections of the Company's future performance represent management's estimate as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of the risks and uncertainties can be found in the Company's Annual Report on Form 20-F filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirements of SEC Regulation G regarding Generally Accepted Accounting Principles or GAAP. Some financial information presented during the call will be provided on both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the Company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. And now I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Shawn Qu, Chairman and CEO

Thank you, Isabel. Hi, everyone. Welcome and thanks for joining us today. During the Second Quarter of 2021, we delivered record module shipments and record revenue. We also delivered a gross margin well ahead of our guidance. We are focused on profitability and improved the performance of our CSI Solar Business division, which helped us deliver a net income of $11 million and diluted earning per share of $0.18. Before I turn to Yan, Ismael, and Huifeng will go over a more detailed review of our performance. I would like to highlight three key messages. Please turn to Slide 3. The first point, I'm pleased that our CSI solar business has turned a corner in the margin trajectory, delivering Canadian Solar group gross margin of 13%, which is well ahead of our guidance. We expect Q3 margins to be better than Q2, back to the mid-teen range. We're focused on the factors under our control and especially on profitability, even if it meant that we had to forgo certain short-term opportunities. We expect profitability at CSI Solar to continue to improve through the year. Demand remains strong, and Canadian Solar's leadership position gives us a competitive advantage to capture profitable growth opportunities. We'll continue to gain market share this year and believe that any demand for shelves due to supply chain constraints will set the stage for an even stronger 2022 and beyond. Let's turn to Slide 4—the second point. Global efforts towards a clean energy transition are generating a surge in demand for battery storage capacity to support a more reliable power grid. We made big progress in Q2 by delivering our first battery storage shipments, approximately 300-megawatt hours or around $17 million in revenue. At the same time, we continue to grow our global energy total pipeline of storage projects, reaching 19-gigawatt hours in Q2, of which 1.5 gigawatt-hours is under construction. Storage represents another major long-term growth opportunity for us. We are well-positioned with bankable solutions, strong customer demand, and expect meaningful growth. The third point, please turn to Slide 5. We recently published our latest ESG Sustainability Report. Our team has been analyzing, understanding, and improving our ESG practices. We have set up structures to incorporate the environmental, social, and governance factors in all our major business decisions. For example, one of these decisions is the expansion of our upstream manufacturing capacity. We decided to construct this facility in Qinghai as this province is nearly fully powered by renewable energy. Almost 90% of its installed power capacity is solar, wind, or hydropower—resulting in a lower carbon footprint for our solar modules. Based on our estimates, greenhouse gas emissions associated with our existing module is 1.1 years. This means our modules become carbon-neutral assets that can last for 30-40 years or even longer. We are now making further efforts to bring the module greenhouse gas payback time even lower. This is just one of the many examples that underscore Canadian Solar's commitment to sustainability and ESG improvement. Now, let me turn it over to Yan, who will talk about the performance of our CSI solar business in more depth. Yan, please go ahead.

Yan Zhuang, President, CSI Solar

Thanks, Shawn. In Q2, we delivered 3.7 gigawatts of module shipments and $1.18 billion in revenues, both record quarterly highs. The gross margin improved by 340 basis points to 14.1%, which was above our expectations. I'm pleased by our team's strong execution in challenging market circumstances and thank them for their relentless efforts. Please turn to Slide 6. As Shawn said, we remained focused on factors within our control, navigating the current supply chain environment. A big part of this is executing on the margin improvement roadmap we previously laid out. First, we continued to raise prices on our solar modules in Q2, which are now 15% to 20% higher than the lowest point last year. We believe module pricing is likely to remain strong for the rest of the year as well. We also expanded our market presence in China, which was our top market by shipment volume during the Quarter. This helped us mitigate some of the pressure from higher shipping costs and uncertainty over foreign exchange moves. We're also starting to benefit from our investment in state-of-the-art capacity and upstream integration. And we continue to focus on the higher value distributed generation segment, which accounted for more than 50% of our Q2 shipments. Taken together, these factors have allowed us to deliver a notable improvement on last Quarter's performance. We also adjusted our procurement strategy, given the turn of events from a deflationary to an inflationary market environment. We have tactically and proactively built inventory from raw materials to finished goods to take advantage of more favorable costs and continued ASP increases. This is proving to be critical in our supply chain and margin management. At the same time, we're also holding more inventory due to the global logistic bottleneck. More inventory is waiting to be shipped or is in transit. Overall, larger shipment volume also requires inventory, so our turnover days have not moved up much. Longer-term, we are executing on our capacity expansion and vertical integration strategy to better control our costs and ensure greater supply chain stability. Slide 7, please. Importantly, we continue to focus on strengthening our long-term competitive positioning, even as we navigate a dynamic near-term supply chain environment. On the module side, we unveiled our new heterojunction module product during the SNEC Exhibition in Shanghai, and we're now making final certification and production preparations, aiming to start deliveries in October. Battery storage and system integration. Shawn mentioned that we delivered our first batch of 300 megawatt-hour battery storage shipments last Quarter. On the next slide, you can see pictures of our Mustang solar plus battery storage project located in Kings County, California. As a reminder, this was a 100-megawatt solar project developed and built by a third party a few years ago, which Canadian Solar sold back in 2019. Last year we signed a 300 megawatt-hour battery storage retrofit contract, and last Quarter, in Q2, we delivered on the battery shipments. Old equipment has been installed, and the team is finalizing the project for commissioning this month, turning to slide 9. This is the slate solar plus battery storage project of 300 megawatts plus 561-megawatt hours, which is currently under construction. We have been delivering the battery shipments from the current Quarter and expect to complete the project before year-end 2021. This adds to our confidence that our battery storage shipping volume will reach 861-megawatt hours by 2021. Overall, our team continues to do a great job in a challenging market. We continue to leverage our competitive advantage, strong brand, bankability, and well-established global market channels while expanding our technological moat to bring additional value to our customers. With that, let me pass it onto Ismael, who will talk about Canadian Solar's global energy business. Ismael, please go ahead.

Ismael Guerrero, Former VP and President of Energy Business

Thanks, Yan. This Quarter, we closed over 300 megawatts in project sales, generating another $281 million in revenue. This is in line with our forecast. We are having a very solid year from a project execution standpoint and experiencing significant growth. Please turn to Slide 10. One of the key trends we've seen over the past several Quarters is the large increase in demand for solar and battery storage projects, both from existing and new investors who have a low cost of capital and ambitious climate mandates. We believe this is a sign that the capital pool for clean energy infrastructure assets is broadening and deepening as 'big money' is now coming into the clean energy sector. We are strongly positioned to benefit as we supply the market with quality solar and battery storage projects, which are becoming increasingly scarce assets. Strong underlying demand, large capital availability, and low cost of capital in our business means that we can capture more of the value creation from the project while exiting earlier, thereby reducing our capital needs. Meanwhile, PPAs are starting to move up across various markets, which is helping to offset the impact of high-grade equipment costs. Moving to Slide 11. All-in-all, the structural market forces have been very strong, and we tend to develop projects fast enough. Our total pipeline currently stands at 22 gigawatts for solar and 19-gigawatt hours for battery storage, which is both significant increases compared to this time last year, which were 15 gigawatts and 5-gigawatt hours, respectively. In Japan, we recently won 86 megawatts in the latest solar auction. This accounted for approximately 0.25 of the total volume auctioned and solidified our position as the number one solar developer in Japan. Thanks to our strong market presence and execution, we are now negotiating new PPAs in Japan and see attractive opportunities for growth once the market is fully transitioned away from subsidies and feed-in tariffs. That said, we still have a meaningful portfolio of projects under construction or development which have secured high feed-in-tariffs with nearly 50% of our total portfolio of over 400 megawatts contracted at more than $0.20 per kilowatt-hour. In the EMEA region, or Europe, Middle East, and Africa, we also signed several new PPAs and have been meaningfully growing our pipeline. Currently, at a total of over 4 gigawatts from 2.5 gigawatts this time last year. We had already seen an acceleration in demand growth for renewable energy, particularly in light of the recent European Union climate-related legislations. Importantly, we continue to make significant progress on our battery storage projects. A few days ago, we announced the signing of Phase 2 of our Crimson Project, also located in California. Crimson is a stand-alone utility-scale battery storage project of 1.4 gigawatt-hours, one of the largest in the world. We previously signed an 800 megawatt-hours storage contract with Southern California Edison. A few days ago, we signed a resource adequacy agreement with Pacific Gas and Electric. The project is set to start commercial operation by December of 2022 to help improve California's grid reliability. We have a very tight deadline for a project of this magnitude. We see significant growth in demand for battery storage across all global markets. The U.S. is currently the largest and most advanced market, but we see significant opportunities worldwide given the widespread need for grid reliability, particularly with the growing penetration of clean energy and the increasing occurrence of extreme weather events. For instance, we won the first battery storage project in Colombia a few weeks ago. The project has a capacity of 45 megawatts and 45-megawatt hours. It will help strengthen Northern Colombia's transmission network and support a greater share of renewable energy. Most of our work in battery storage project development to date has been in the contracted markets to provide a capacity of resource adequacy services. We are also exploring alternatives to participate in un-contracted markets, such as power trading, where we believe that there is more long-term value. Separately, turning to Slide 12, we continue to make progress on our strategy to raise the share of recurring income in our global energy business. We continue to proactively grow our services platform in operations and maintenance or O&M business and investment vehicles in Brazil and Europe. Both vehicles remain on track to be launched as planned. Now, let me turn the call over to Huifeng, who will go through the financial results in greater detail. Huifeng, please go ahead.

Huifeng Chang, Senior VP and CFO

Thank you, Ismael. Please turn to Slide 13. In Q2, we delivered a record quarterly revenue of $1.43 billion. The gross margin was 12.9%, well ahead of our guidance of 9.5 to 10.5%. Q1 benefited from both volume and price increases in module shipments, as well as a greater contribution from battery storage shipments and beyond module sales. We also made significant efforts to improve manufacturing efficiency and reduce unit costs. Selling and distribution expenses were flat quarter-over-quarter but up year-over-year due to higher shipping costs. Operating expenses were also flat quarter-over-quarter due to continued tight control on discretionary costs. Total operating expenses were up only 5% despite much faster revenue growth, and it now accounts for 11% of total revenue. The net foreign exchange loss in the Second Quarter was $3 million, down from a $7 million loss in the First Quarter. We continue to optimize our currency hedges. The income tax benefit was $2 million in Q2, compared to a tax expense in Q1 of $14 million. The benefit was driven by a lower effective tax rate and a lower impact from high tax jurisdictions. Net income attributable to Canadian Solar shareholders was $11 million or $0.18 per diluted share. Slide 14, please. Now, turning to cash flow and the balance sheet. As Yan mentioned previously, we have adjusted our procurement and working capital management strategy to hold more inventory than we have traditionally. As a result, we increased the inventory by nearly $200 million this Quarter. This strategy has helped us better manage our costs and mitigate supply chain pressures. We also had an increase in accounts receivable, which is reflective of higher shipments to China-based customers who generally require longer receivable days netted out by an increase in notes payable. After netting all the moving parts, we used approximately $61 million of cash in operating activities. Q2 CapEx was $138 million. We expect Full Year CapEx to be approximately $650 million, unchanged from our previous guidance, as we support the higher global demand we are seeing across all markets. At the end of the Second Quarter, we raised approximately $60 million from the At-the-Market equity offering program and, to-date have raised around $110 million. The program is progressing well. Overall, our total cash position remains strong at $1.3 billion, giving us the financial flexibility to fund capital expenditures and long-term growth investments. Total debts declined moderately to $2.2 billion as we optimize our financing sources. We also lengthened the overall maturity profile of our total debt, with long-term debt, including all long-term borrowings on project assets, accounting for only 40% of our total debt, down from 60% just two years ago. Net debt to EBITDA in Q2, excluding restricted cash, remains at a healthy level of 3.8 times. Now, let me pass it back to Shawn, who will conclude with our guidance and the business outlook. Shawn?

Shawn Qu, Chairman and CEO

Thanks Huifeng. Let's turn to slide 15. Now for the Third Quarter of 2021, we expect total module shipment to be in a range of 3.8 gigawatts to 4 gigawatts, including approximately 275 megawatts of module shipments to our own project. Total revenue is expected to be in the range of $1.2 billion to $1.4 billion. The gross margin is expected to be between 14% to 16%. The wider-than-usual revenue and profitability range for the third Quarter reflects the timing of certain project sales, which may be recognized towards the end of this Quarter, or already in the following quarters but should be recognized in the year of 2021. For the full year 2021, we reiterate revenue guidance of $5.6 billion to $6 billion with product sales of 1.8 gigawatts to 2.3 gigawatts and total battery storage shipment of 810 to 860-megawatt hours. We are slightly reducing module shipment guidance from 18 gigawatts to 20 gigawatts to the new range of 16 gigawatts to 17 gigawatts. We kept Full Year revenue guidance unchanged as we expect higher module ASP to offset the impact of the slightly lower shipment guidance. This is reflective of marginally lowered global demand as a response to higher solar system equipment costs. We remain highly optimistic about the overall demand environment and expect growth to accelerate in 2022 and beyond. Now let's turn to Slide 16. Finally, let me give an update on the progress of the planned carveout listing of CSI Solar. We have now moved toward the Question and Answer stage with the Shanghai Stock Exchange. The feedback process typically takes a couple of months, so we're well on track. With that, I would like to open the call to our questions. Operator.

Operator, Operator

Your first question comes from J.B. Lowe of Citi. Please ask your question.

J.B.Lowe, Analyst

Good morning, everyone. My first question is about the reduction in module shipment guidance. Could you provide details on how much of this reduction was related to avoiding sales to maintain higher pricing, how much was driven by demand, and whether any delays in shipments were caused by timing, particularly whether some shipments are being pushed from '21 to '22?

Shawn Qu, Chairman and CEO

Yan?

Yan Zhuang, President, CSI Solar

Yes. If I understand your question correctly, most of the projects we've received information about and our market feedback suggests they are still planned to be connected this year. We have noticed some positive signs in the market. While there has been a change in module demand, the adjustments on the module side typically lag behind the upstream suppliers and materials. Therefore, we believe that demand will remain strong in the second half of the year, significantly stronger than in the first half.

J.B.Lowe, Analyst

Right. But what was the main reason for the reduction in guidance?

Yan Zhuang, President, CSI Solar

Reductions. Yes. We believe that in the second half, particularly in Q4, there will be a very tight balance between average selling prices and supply chain costs. To maintain the right balance and optimize our margin, we need to have a more controlled pace in sales. Yes, there are some volumes shifting to next year, but it's important to ensure that pricing allows us to achieve the right margin while balancing volume.

Shawn Qu, Chairman and CEO

Hi, J.B., this is Shawn speaking. We have only slightly adjusted our annual shipment guidance from the previous range of 18 to 20 gigawatts to 16 to 17 gigawatts, which is just a 2-gigawatt change. I would estimate that about one-third of this reduction is due to our focus on average selling price and profit. Another third is attributed to some customers indicating a desire to wait for Canadian Solar modules until next year. This means that certain projects and demands are being postponed to next year. The remaining third is related to logistics and global shipping issues, which have significantly lengthened the time required for delivery from the factory to the project site. While some shipments scheduled for December or even November might still arrive before December 31, they will now count as 2022 shipments. I hope this provides additional insight beyond what Yan just discussed.

J.B.Lowe, Analyst

Yeah, that's exactly what I was looking for, thank you. My other question was about the gross margins on the storage side, which is obviously becoming a bigger part of the business. What were the gross margins on storage in the second quarter? And what do you expect them to trend over the next couple of quarters?

Yan Zhuang, President, CSI Solar

First of all, the storage revenue from the project and integration is currently mainly from integration business. Typically, a project deal consists of two parts: upfront system integration installation and a long-term service agreement that generates revenues and profits. Generally, the system integration business has lower capital and operational expenses compared to the module business. While the gross margins may not be as high, the net profit proportion is considerably better than the module business. There may be variations in profitability from project to project, but overall, they outperform the module business significantly.

Shawn Qu, Chairman and CEO

Hi, J.B., this is Shawn again. Again, I would like to add some color other than what Yan just discussed. Pure gross margin wise, the battery storage EPC until those solution business for us, this moment will give us low-teen to mid-teen gross margin. However, as Yan said, it's different because there's no CapEx, therefore no depreciation costs for this business. So we can turn a low to mid-teen gross margin into a high-single-digit net margin contribution. It's pretty good. It's a different business from the module, and the net contributions are very good. And I also want to highlight that this is only the beginning. At the beginning, as you know, we always have higher costs in product certification, in bank competitors study all that kind of stuff. And also we are picking some products on the battery storage product OEM. Now, as we continue to grow this business, also continue to bring more of the manufacturing in-house, I expect the margin, both gross margin and net margin for our battery storage business to increase.

J.B.Lowe, Analyst

All right. That was excellent. Thank you so much.

Shawn Qu, Chairman and CEO

Thank you, J.B.

Operator, Operator

Your next question comes from the line of Philip Shen of ROTH Capital. Please ask your question.

Philip Shen, Analyst

Hi, everyone. Thank you for taking my questions. As a follow-up on the margins for the energy business, I was wondering if you could provide more details on the 4% margin in the global energy business for Q2. Historically, you've reached as high as 32%, so could you explain why it was so low in Q2? Additionally, how do you anticipate the overall margin to trend in Q3 and Q4? Also, for the global energy business, can you specify which countries you sold projects in during Q2? Thanks.

Shawn Qu, Chairman and CEO

Hi, Philip. I will let Ismael to answer your question.

Ismael Guerrero, Former VP and President of Energy Business

Thank you, Shawn. Thank you, Philip for your question. Looking in related to gloss margin to project sales in immediate is very tricky because this is fully dependent on how you do the accounting treatment. So what you're seeing, we are delivering in Q2, is the last stage of projects that were under construction. So most of the margin of those projects has already been booked. What you should expect to see around the year is the typical solid gross margin that we usually get as the average of the year. So please don't get fooled by the accounting treatment on Q2. All the projects that we booked were in the U.S., and they were all under construction already.

Philip Shen, Analyst

Okay. Thank you, Ismael. In terms of the module business, was wondering if you could comment on the geographic mix of the 3.7 gigawatts shipped in Q2. And then how do you expect that mix to change in Q3 and Q4, and what are your expectations for the geographic mix in 2022? Thanks.

Yan Zhuang, President, CSI Solar

First of all, regarding the distribution of shipments, I want to emphasize that it remains substantial, with approximately half of the volume going to the distributed generation market, including residential. Geographically, the leading market is China. In the second quarter, we expanded our operations in China to address uncertainties related to the exchange rate and the increased ocean shipping costs. Consequently, China became our number one market in Q2, which is a change from previous quarters. Additionally, both North America and EMEA accounted for over 20% of our shipments, while the remainder was distributed across APAC and Latin America.

Philip Shen, Analyst

Thanks, Yan. And can you share what the percentage was in Q2 for China?

Yan Zhuang, President, CSI Solar

It was 27%.

Philip Shen, Analyst

Great. And then looking into Q3 and 4, do you expect those mixes or percentages to remain the same?

Yan Zhuang, President, CSI Solar

Similar.

Philip Shen, Analyst

Great. And what about 2022?

Yan Zhuang, President, CSI Solar

2022. I think they will probably stable or maybe slightly higher. That's my estimate. But I cannot be so clear for now. In general, we want to increase our presence in China given the high shipping cost and also the exchange rate trend. However, I don't have a detailed number for you; it's going to be similar.

Philip Shen, Analyst

Got it. Can you discuss any changes in the U.S. markets, including customer dynamics or shipping strategies since the WRO on Hushang was implemented? Please elaborate on the U.S. market. Thanks.

Yan Zhuang, President, CSI Solar

The demand we're experiencing is significant, particularly from U.S. customers who are engaging with us to establish supply agreements for large multi-year volumes. We view this demand as exceptionally strong. In response, we are diligently working on our strategies to address this situation, and we are quite confident in our ability to manage the challenges that arise.

Philip Shen, Analyst

Okay, thanks for all the detail. I'll pass it on.

Operator, Operator

Your next question comes from the line of Colin Rusch of Oppenheimer. Please go ahead with your question.

Colin Rusch, Analyst

Thanks so much, guys. Could you give us some insight into how non-silicon costs are trending and availability of materials? Are you seeing any significant tightness or changes in terms of cost and availability?

Yan Zhuang, President, CSI Solar

You talking about processing costs, non-silicon processing costs. Right?

Colin Rusch, Analyst

No. I'm talking about glass, aluminum, silver paste, all those sorts of things that are going into the materials.

Yan Zhuang, President, CSI Solar

Yes, there was a significant increase from Q4 to Q1, but in Q2, it actually decreased and has since stabilized with a slight decline. That summarizes the overall trend.

Colin Rusch, Analyst

Okay. And then in terms of your strategic focus around different system sizes, you talked about the distributed power market having a little bit better pricing, do you see this going forward? On the development side, are you looking at the community solar kind of tender 250 megawatt-type projects being a real growth market? Are you still really highly focused on some more larger investments?

Yan Zhuang, President, CSI Solar

I think in the second half, we are noticing that in mature and developed markets, the rooftop market is starting to recover. It was impacted more by COVID than the utility scale, but it is now showing signs of improvement. This market is expected to yield better profits, so it will remain our focus. You mentioned 1 or 2 megawatts of ground-mounted systems; did you say that? I couldn't hear.

Colin Rusch, Analyst

No, more like 10 to 50. I'm talking about the medium-sized ground mount systems and whether that's a real growth market, where you can plug into the 65 KV lines or 64 KV lines and support the grid in a little bit different way.

Yan Zhuang, President, CSI Solar

We don't see anything better than large projects in terms of pricing for module sales related to EPC. However, Ismael may have a different perspective regarding development and investment.

Colin Rusch, Analyst

Okay. That's super helpful guys, thanks so much.

Operator, Operator

Your last question comes from the line of Mark Strouse of JPMorgan. Please ask your question.

Mark Strouse, Analyst

Yes. Thank you very much for taking our questions. Most of them have been answered. I just wanted to see if you could give us a bit more high-level color on your capacity plans, right? You're taking down your module capacity in the Second Half of this year, but increasing your wafer and cells. As we think about that over the next several years, has this whole supply chain disruption made you rethink your historical methodology of having significantly more module capacity?

Shawn Qu, Chairman and CEO

We continue to believe in flexible vertical integration. We think the industry is at a point where existing PERC technology has reached its limits while there is still no consensus on N-type. Starting next year, we are likely to see a significant oversupply of certain materials. We will proceed with our existing capital expenditure plan as previously stated.

Yan Zhuang, President, CSI Solar

In terms of next year's additional capital expenditures, we still don't have a concrete plan. We want to be more cautious, but we will continue to grow our market share next year. Our market share was 8% last year, increased to 10% this year, and we expect it to keep growing year by year.

Mark Strouse, Analyst

Okay. That's it for us. Thanks, Yan.

Operator, Operator

Your last question comes from the line of Philip Shen of ROTH Capital. Please ask your question.

Philip Shen, Analyst

Hi, everyone. Thanks for taking my follow-ups here. In terms of storage, how much of a well in terms of the 1.5 gigawatt-hours under construction, can you give us a sense for how much might either COD or be sold by Quarter in the coming quarters?

Yan Zhuang, President, CSI Solar

Oh, Ismael? In terms of commercial operation date timing, we shipped 300 megawatt-hours to a new stock in the second quarter, and nearly 900 megawatt-hours will be connected in the latter half of the year. For the third and fourth quarters, I don't have the exact division yet, as the timing can be somewhat unpredictable.

Shawn Qu, Chairman and CEO

Philip, this is Shawn speaking. We have the numbers, but I'll follow up with you later to provide you with some more detailed breakdown by quarters.

Philip Shen, Analyst

Thank you, Shawn. Regarding the cost inflation we've encountered, you sell modules and also undertake project construction, where we've observed inflation affecting all areas. Have any of your projects been delayed due to higher input costs? If so, what kind of delays are we observing, maybe a quarter or longer? As a project developer, are asset owners willing to accept lower returns, perhaps around 50 basis points, to help mitigate some of this cost inflation, or are they resisting this? Additionally, is the inclination to delay projects and extend the commercial operation dates?

Shawn Qu, Chairman and CEO

Philip, this is Shawn speaking. Like fortunately, we don't have many solar projects to start NTP this year. We are not that much affected, so far, by the input costs increase. We do have some projects that we may reach NTP by the end of this year, and we will see. We think we will go ahead with those projects because the investors or the Project buyers are also willing to pay higher costs to us. Now, this is our situation. In terms of third-party project developers, I guess we see both. We do see some developers delay their projects to next year, but we also see some developers who are willing to take higher costs and build a project this year. Also, as we showed you in one of our slides, we're actually starting to see the PPAs, the power purchase agreements, start to move up in recent months. As we all said, the inflation is everywhere. So if the inflation is on electricity, Apollo price as well. So we seem to see that the PPA for renewable is also responding.

Philip Shen, Analyst

Great. Thank you for the color, Shawn, and I will pass it on.

Operator, Operator

Seeing no more questions in the queue, let me turn the call back to Dr. Shawn Qu, Chairman and CEO for closing comments, please go ahead.

Shawn Qu, Chairman and CEO

Thank you. And thanks everyone for joining us today. And also, thank you for your continued support. Now if you have any questions or would like to set up a call, please contact our Investor Relations team. Take care and have a nice day.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.