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MEMC Unit Seals a Solar Deal

Zacks Equity Research

Semiconductor and solar technology provider MEMC Electronic Materials Inc. (WFR) recently announced that its subsidiary SunEdison has entered into an agreement with Chile-based steel and iron ore supplier CAP S.A. Financial details of the deal have not been disclosed.

The companies will jointly work to develop the largest solar photovoltaic power plant in Latin America. The plant will be located in Atacama Desert and have an installed capacity of 100 megawatt (MW).

Founded in 1950, CAP has evolved into one of the most renowned mining companies and manufacturer of steel products. Solar power generated from the plant will meet 15.0% of its entire power supply and reduce the burden on non-renewable sources of energy to some extent. Also, with the power generated from a clean source, CAP will be able to help its government to achieve its goal of preserving non-renewable sources of energy.

During the past few months, SunEdison signed various deals reflecting the growing demand for its solar energy services. In Dec 2012, SunEdison agreed to sell a 20 MW solar photovoltaic power plant to Riverside Public Utilities. Moreover, the company sold four PV solar power projects to Canadian Solar Inc. (CSIQ) for a sum of $38.0 million. In Nov 2012, SunEdison entered into an agreement with Standard Bank Group Ltd. and Futuregrowth Asset Management 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 MW of solar power.

SunEdison’s rich experience has prompted Southern California Edison ('SCE'), San Diego Gas and Electric ('SDG&E'), Southern Company (SO) and MetLife Inc. (MET) to opt for its solar energy services.

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.

We see MEMC's solar initiatives as a key driver for long-term growth. But its debt-laden balance sheet keeps us concerned. Currently, MEMC has a Zacks Rank #2 (Buy).

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