Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's First Quarter 2020 Earnings Conference Call. My name is Amber and I will be your operator for today. [Operator Instructions] And I'd like to turn the call over to Isabel Zhang, Director of Investor Relations at Canadian Solar. Please go ahead.

Isabel Zhang - Director of Investor Relations

Thank you operator and welcome everyone to Canadian Solar's first quarter 2020 earnings conference call. Joining us today are Dr. Shawn Qu, Chairman and Chief Executive Officer; Yan Zhuang, President and Chief Operating Officer; and Dr. Huifeng Chang, Chief Financial Officer.

On this call, Shawn will provide an update on the market impact from COVID-19, a perspective of Canadian Solar's long term position, followed by Yan, who will review our recent progress and outlook. And Huifeng will then review our financial results and actions we have taken to further improve our balance sheet and liquidity. We will then have time for any 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. Therefore 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 estimates as of today. Canadian Solar assumes no obligation to update these projections in the future, unless otherwise required by applicable law. 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 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 results. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. At this time, I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Dr. Shawn Qu - Chairman and Chief Executive Officer

Thanks everyone for joining us today. Over the past few months, a number of COVID-19 cases, assays and economic closures has steadily expanded globally. Needless to say, a lot has changed since we last spoke at the end of March. At Canadian Solar, we moved quickly and took bold measures to protect and support our employees, customers and partners, first in China and then in the rest of the world. We have not only implemented strict preventative protocols but have also taken steps to support the local communities in which we operate across the globe. According to the latest data, the worst seems behind us now. Here, I hope that you and your families are safe, healthy and wish you all the best.

Now, let me give you an overall picture of the current market situation and some color on our long term view. In 2020, global demand for solar equipments are expected to decline for the first time in 20 years. Recent market report forecast global demand to be somewhere in between 95 gigawatt to 100 gigawatt compared to last year's estimate of approximately 120 gigawatt. Meanwhile, supply side capacity is expected to grow which will lead to additional ASP pressure and market consolidation. These effects will likely be felt across the supply chains, causing input cost to decline as well. On the flip side, currently contracted solar projects are expected to manifest from the lower equipment ASP with the deployment of solar becoming even more attractive relative to other energy sources, given the lower capex costs.

Regionally, the U.S. and the Latin America market have been the most volatile around COVID-19. In the U.S., the biggest impact has been on reduction in availability of tax equity financing and the increase in the cost of capital of certain product buyers. This sets up potential delays in finishing the product sales. In Latin America, the impact has been amplified in a sharp depreciation of local currency prompting local markets to delay purchases and installation of USD-priced solar modules.

On the positive side, the COVID impact has been limited in Europe, Japan and Korea. China was able to reopen and now appears on track with strong demand in 2020 supported by favorable policies and a healthy transition towards great parity. In general, the execution of commercial and utility-scale program has been relatively smooth with delays mostly driven by permitting and other frictions driven by the LatAm. While we expect near term volatility, the long term growth drivers remain strong. We remain optimistic about the industry and Canadian Solar's long term prospect. Global efforts to decarbonize will continue, if not accelerate, especially as the cost of clean energy becomes increasingly competitive. The cost and performance of battery storage continues to improve, which will be critical as solar plus storage reaches grid parity across a growing number of markets. And a lower, longer interest rate environment means that solar power plants will become even more attractive investment assets for investors seeking stable, contract cyclical and climate branded yields.

Canadian Solar's globally diversified revenue on a manufacturing basis, strong relationships with customers, suppliers and financing partners and our healthy balance sheet and liquidity position give us significant competitive advantages. We continue to strategically invest in R&D and innovation, as well as in the significant momentum as a key solutions provider in the solar plus storage solutions market.

In the downstream Energy business, we are positioning ourselves for long term growth. We will continue to grow our global backlog and pipeline, while selectively retain ownerships in solar projects to capture new sources of recurring and predictable cash flow. We're in the process of executing on our solar project monetization strategies that we have shared with you last quarter, preparing ourselves for the recovery that is ought to come. Together Canadian Solar is well positioned to weather the near term uncertainty and capture long term growth opportunities to deliver sustainable returns to shareholders.

Before I turn the call to Yan, I'm pleased to announce that Yan has been appointed as President and Chief Operating Officer of Canadian Solar. I'm grateful for Yan's leadership and his incredible dedication during his nine years tenure at Canadian Solar. I look forward to working closely with Yan and our entire team at Canadian Solar. With that, I would like to pass the line to Yan. Yan, please go ahead.

Yan Zhuang - President and Chief Operating Officer

Thank you, Shawn. As always, let me start with some key takeaways from this quarter. Firstly, we achieved a strong financial and operating results for Q1, 2020 with the revenue and profitability both above our expectations. We were affected by manufacturing disruptions in China, but the overall COVID-19 impact was limited. We expect a more significant impact in the second half, as Shawn noted. Near term, our approach is to conservatively manage a healthy balance sheet and preserve cash through this period of volatility. We have a strong track record in doing that. Longer term, we are reinforcing the company's position for growth and an area we are excited about is the solar plus storage market. We see a window of opportunity from the declining battery storage costs, higher capacity needs and accelerating retirements of also few plants across the world.

Canadian Solar is uniquely positioned to benefit from this as we leverage our competitive manufacturing base and large captive markets. In fact, we have built a solid 2.5 gigawatts hour storage pipeline and a 320 megawatts hour backlog. We're currently in advanced negotiations on various projects and look forward to sharing more information with you as we reach key milestones.

Furthermore, we continue to grow and monetize our solar assets. Currently we have 956 megawatts in projects under operation, 807 megawatts under construction, 3.7 gigawatts in backlog and 12 gigawatts in pipeline. This quarter we are sharing with you, for the first time, our five-years plan for growth in the Energy business. We've made strategic and organizational decisions to ensure we maximize value capture in the asset monetization process. Our plan is to selectively retain minority stakes in key markets with strong energy demand, attractive power prices and stable capital markets. Over time, this will allow us to generate higher margins and capture stable and recurring sources of cash flow, while recycling a large portion of the capital invested. This strategy has been one of our key successes in Japan. So, we intend to replicate it in certain other markets. We're in the process of executing this strategy and look forward to updating you with exciting developments.

Now, let me go through our Q1 results. On the Energy business side, Q1 revenues were $238 million with 37.7% gross margin. Revenue and profit growth saw a significant contribution from the sale of the 56 megawatt solar power plant in Japan, as well as the sale of an 18 megawatts portfolio of subsidy-free solar plants in Italy. Meanwhile, we continued to secure project financing and execute on our project backlog. For example, in Italy, we secured $16 million in a bilateral revolving credit facility with Intesa Sanpaolo. This will be used to fund the construction of a 151 megawatt portfolio of solar projects, which is expected to break ground in the coming months. In Brazil, we secured $55 million in non-recourse project finance from BNB for the 151 megawatts Lavras project, which started construction in Q2. We closed several additional project financings since Q1 ended, mainly in the Latin America region. This further demonstrates the strong capability of Canadian Solar developed projects.

Additionally we expanded our presence in the distributed generation market in Australia. We made significant inroads in the commercial and industrial segment, recently signing a milestone PPA with a global e-commerce player in Chile. We acquired a portfolio of small distributed generation projects currently still under development, totaling 48 megawatts to bring clean and reliable energy to rural areas in the country.

On the Module and Systems Solutions or MSS side, shipments in Q1 were 2.2 gigawatts in line with guidance. Q1 revenues were $690 million, up 47% year-over-year and down 10% sequentially. The sequential decline reflects COVID-19 related manufacturing closures and lower ASPs. As a result, gross margin also declined sequentially to 21.6%. We remain committed to research and develop and then continue to innovate. For example, in Q1, we opened the new R&D center in Daxing, China. The new center is focused on cutting edge future junction technology and we will be putting down pass lines over the next few months setting ourselves up for mass production next year.

Now, let me comment on guidance for Q2 and outlook for 2020. The second quarter of 2020, we expect total module shipments to be in the range of 2.5 gigawatts to 2.7 gigawatts, including approximately 200 megawatts of module shipments to Canadian Solar's own projects that may not be recognized as revenue. Total revenue is expected to be in the range of $630 million to $680 million with gross margin expected to be between 18.5% to 20.5%. For the full year of 2020, we continue to expect total module shipments to be in the range of 10 gigawatts to 12 gigawatts. However, COVID-19 has caused significant uncertainty regarding business conditions in the second half of 2000, especially related to the timing and the scale of ASP and cost declines and the timing of certain project sales. Therefore, we are withdrawing our 2020 financial guidance.

Looking beyond the near-term uncertainties, we are confident that Canadian Solar's competitive position will allow us to capture a greater share of the industry's secular growth opportunities. Our long term outlook remains optimistic as we continue to execute on our strategy and create value for the company and its shareholders.

Now let me turn over the call to Huifeng for additional color on our financial results and latest risk mitigation strategies. Huifeng, please go ahead.

Huifeng Chang - Senior Vice President and Chief Financial Officer

Thank you, Yan. As both Shawn and Yan noted, we delivered a strong quarter on revenue and profit despite the sharp decline in the market ASPs. We continue to command higher pricing than the overall market, given our strong brand and customer and channel relationships. Q1 results also benefited from a large project sale in Japan where the revenue and the profitability per watt is several times that of other regions. Note that our divisional results, we reclassified our operations and the maintenance subdivision from MSS to the Energy business to better reflect logical structure of our business and operations. You will find the details in our press release.

Total opex was $110 million during the quarter, 9% higher year-over-year, but 7% lower than last quarter. Selling expenses were higher sequentially mainly from higher shipping and handling costs due to the logistical challenges in Q1. However, we have put a tight lid on all discretional spending so G&A expenses were lower in the quarter. During the quarter, we recorded an income tax benefit of $29 million, which included a $49 million tax benefit from the net operating loss carryback provision under the U.S. Coronavirus Aid and Economic Security Act. Combining all of this, we generated a Q1 2020 net income of $111 million and a diluted EPS of $1.84.

Moving on to the balance sheet, we have maintained healthy leverage and liquidity levels pursuing more cautious than usual approach as we communicated in the last quarter. We reduced our total debt to $1.87 billion and further reduced our short term debt level. As we noted last quarter, the majority of our short term debt is rolled over annually with Chinese banks, where we do not see any material risk. Likewise, there are no major principal repayments due in 2020. Our credit facilities were increased to $3.4 billion, of which $1.1 billion remain undrawn. Our non-GAAP total debt to trailing EBITDA declined to 3.4 times, while the trailing EBITDA to net interest coverage increased to 8.3 times. Both metrics are at their healthiest level in the past five years. We remain focused on managing our working capital although inventory days at the end of Q1 increased to 92 days. It mostly reflects our strategic decision to increase module inventory in the U.S. to qualify odd investment tax credit. Overall, our cash recycled remains at a robust negative 20 days.

Capex spending in Q1 was $42 million. Our plan for the rest of 2020 is approximately $270 million. While we are committed to investing to support the long term growth, we are also conscious and prudent with our capital expenditures, especially in the current environment. So we marginally reduced our capacity expansion plans for this year. However, this is not setting tone and the final capex plan for 2020 can be adjusted up or down depending on the external market circumstances.

Finally, we have suspended our share repurchase program to preserve cash and maximize liquidity in the current market environment. All in all, we are confident that our strong balance sheet and liquidity will allow us to navigate the market uncertainty and prepare us for the macroeconomic recovery. With that, I would now like to open the call to your questions. Operator?

Question & Answers

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Colin Rusch from Oppenheimer. Please go ahead.

Colin Rusch - Oppenheimer - Analyst

Thanks so much, guys. Can you speak to the pricing dynamics and channel inventory levels for both the direct sales channel as well as the bifacial modules that you have going on right now?

Yan Zhuang - President and Chief Operating Officer

Well, this is Yan. First is the bifacial. We just heard the news actually yesterday, so well, It certainly helps both on our side and customer side. So - but we also understand that this is not forever. So while we are actually benefiting from this new progress, but we are also preparing for the end of this. So - but, yes, for the next few months, I believe, two to three months, we don't know, maybe even longer, we will have significant benefits on this policy change - policy progress. And on the…

Colin Rusch - Oppenheimer - Analyst

But I'm looking at the direct sales channel. I'm looking for pricing and kind of channel inventory levels, trying to get a sense of sales on that part of the business.

Yan Zhuang - President and Chief Operating Officer

For our direct sales into the residential and DG market, so we have been seeing - experiencing a downside because of the COVID-19, but what we are seeing is actually warming up. It's actually improving in the recent weeks. We had a - we have been observing activity actually, actively contacting our customers and monitoring their inventory level. It was on the uptrend for quite a while and some customers, they had a payment difficulty. So, we reduced our shipment into that channel late in Q1 and early Q2 so to manage the payment risk. However, in the past two weeks, it's been improving, the sell-through is improving. Pricing wise…

Colin Rusch - Oppenheimer - Analyst

Okay, thanks.

Yan Zhuang - President and Chief Operating Officer

Yeah.

Colin Rusch - Oppenheimer - Analyst

Go ahead. I'm sorry.

Yan Zhuang - President and Chief Operating Officer

Pricing for residential market, the price drop is less. It's less than the utility-scale projects. So it's still better pricing than utility.

Colin Rusch - Oppenheimer - Analyst

Okay, thanks. And then on the storage side, we're trying to get a sense of the real technology position that you guys have relative to some of the other solutions out there. Can you speak to your battery management system performance cycle time, how you're performing versus some of the other solutions that are out there as you're outbidding on some of these PPAs and other projects?

Yan Zhuang - President and Chief Operating Officer

I think our main strength is actually we have the ability to develop such projects, PV plus storage. So we already have a pretty significant pipeline on the ground and we have over - actually in the past years, we've been - we have - we had experience accumulated from the past project executions on EPC and O&M so we learned. We have ability on the execution of solar project and the solar plus storage is the space that we need to create our business model, the value chain, supply chain, economic and financial modeling, risk management and how to provide the wrap-up service for the - as a total solution for those projects. So in terms technology, I don't think we have time to go into the details, but we have - we are actively working on closing the first solution for our first project in the U.S. It's, I guess, a little delayed because of the COVID-19 crisis, but it's coming.

Colin Rusch - Oppenheimer - Analyst

Okay, thanks so much, guys.

Operator

Thank you. Our next question comes from the line of Philip Shen from ROTH Capital. Please go ahead.

Philip Shen - ROTH Capital Partners - Analyst

Hi, everyone. Thank you very much for sharing your five-year plan for your Energy business. I think it's very helpful for everybody. So just was wondering if you could give some additional detail on that plan. So, specifically with your targets of annual project sales in 2020 and '21 and so forth. I was wondering if you could speak to the geographic mix that you expect there. I'm guessing it's largely based clearly on your pipeline and your backlog, but I was wondering if certain years may have a greater emphasis in certain geographies. And then also similarly for the projects expected to be retained, for example, in 2020 to 30 megawatts, I'm guessing a lot of that is Japan, but was wondering if you could speak to the geographic mix for 2020, '21 and '22 as well for the projects retained on balance sheet. So thank you.

Dr. Shawn Qu - Chairman and Chief Executive Officer

Hi, Philip, this is Shawn speaking. For the 2020, most of the project megawatt-wise, it's not going to be U.S. projects and we have good premium Japan project in terms of megawatt and the megawatt size are not big, but of course every - each megawatt in Japan contribute a lot more than the U.S. project. And then moving into the future, let's say, in 2020 is three, 2024 we expect the EMEA project to catch up. Now also we have some projects in Latin America, namely, Brazil and Mexico, as you know. We expect to connect those projects, more or less in 2021. And in terms of project retained, as we said, Japan, we have the CSIF. And so most of the projects are expected to drop into CSIF, as long as the yield supports. Sometimes the private fund, the market provide even better pricing and we might sell those project into those kind - those project fund. But sometime we hold the position - minority position in those fund as well.

And for U.S. market, at this moment, we don't plan to hold any positions because the ITC - the ITC scheme on one hand helps to support the U.S. project. On the other hand also to support the cash flow. So as a share B - Class B investors, we don't get much cash flow in the first five, six, seven years. So unless we can build some kind of discount method - discount of future cash flow through the near terms, unless that happen, we don't plan to hold too many U.S. project. But on the other hand, the ITC is going to be a phase out in a few years. So I expect going into 2024 and 2025, we are going to hold more and more U.S. projects.

Philip Shen - ROTH Capital Partners - Analyst

Great, thanks for the color there, Shawn. Shifting over to the scrutiny on Chinese companies listed in the U.S. I was wondering if you guys could speak to that, given the expected requirements from an accounting standpoint, as well as disclosure of investments. I was wondering if you could address that and how it might impact you and then how - if at all. Thank you.

Dr. Shawn Qu - Chairman and Chief Executive Officer

Can you repeat your question? What accounting? I'm not sure.

Philip Shen - ROTH Capital Partners - Analyst

Sure. Yeah, given for Chinese companies listed in the U.S., the Senate and House have passed a bill and it's going to Trump now to increase the scrutiny of these Chinese companies listed in the U.S. exchanges. So there is the - they're trying to get the PCAOB to - the PCAOB wants to collaborate more closely and get access to accounting documents with the CSRC.

Dr. Shawn Qu - Chairman and Chief Executive Officer

Okay. I understand now.

Philip Shen - ROTH Capital Partners - Analyst

And so I was wondering…

Dr. Shawn Qu - Chairman and Chief Executive Officer

Yeah, I understand.

Philip Shen - ROTH Capital Partners - Analyst

Good. Okay. If you could speak to that overall, the criteria of that upcoming Bill and what it might mean for you guys. Thanks.

Dr. Shawn Qu - Chairman and Chief Executive Officer

Now, first of all, we are a Canadian company and not a Chinese company. But we do have some Chinese operations and, so far, as far as I understand, as you see, that the accounting paperwork's from our auditor in China, without any question. Our CFO, Huifeng will provide more color. Huifeng?

Huifeng Chang - Senior Vice President and Chief Financial Officer

Sure, Phil. Thank you for asking this question. First of all, as Shawn has said that we are a Canadian company, from day one, we were literally re-registered in Canada and the business started in Canada. It's like many other international companies. Many years ago, Shawn, when he started manufacturing and then he opened a factory in China. So this is the fact with a very clear legal track record. Now, you may ask them why we - our company is on the list of the PCAOB list. Now that was because a lot of operations of our company is based in China. So when we were considering hiring which auditor to audit our book and we chose the auditor who has an office in China and for that we also - and every time we file our Form D with SEC, we indicated that the PCAOB at this point, they cannot regularly access the working paper at our auditor.

But, however, we have been in the markets for many years. This issue of auditing, first of all, it's the third time this issue came to the market and some investors was booked and later on the issue went away. Now, this time the House has - the Senate has passed but the House need to vote. And we don't know what White House will handle this issue, but if that happens, according to the latest Bill, I mean, there are several Bills in the history on this issue. According to the latest version of the Bill, there'll be three year window time for company to address this issue and for us, of course, we can switch to an auditor based in Canada and then we are on par with many other U.S. companies in terms of PCAOB compliance.

Now what do I mean by that? Taking, let's say, Tesla example, Tesla has also have a huge factory in Shanghai now. Now for the auditing process of their Shanghai factory, it has to be done by a China-based auditor. So for those accounting books, PCAOB will do the same process, carry on the same process like they audit our book. That is a deal PCAOB, SEC had to sign with Chinese regulator five years back that where Chinese regulators, first filter the documents for any national security concern, then PCAOB can get whatever paper they want. This has been going on process for several years and at the ministry level it has been working very well. Actually, more than 10 companies in the same auditing structure, which is their paper filed with the SEC was done by auditor based in China and then PCAOB have no problem to getting those working papers - so called, working paper.

Now if you pay close attention to whatever is in the media, and we have a Congress, you will notice that there is no words from PCAOB or SEC stating that they cannot get what they need from the Chinese auditor. So we need to take this issue from - on the factual basis and also looking to history and then right now we take a - like you, we're watching the development of this issue and because we are a Canadian company and we have a ability to address this issue, yes, it will become the reality and I don't think our investors should be concerned or worried. We will continue to be a U.S. NASDAQ-listed company. Thank you, Phil.

Philip Shen - ROTH Capital Partners - Analyst

Great, thank you, Huifeng. Hey, one other quick question here, just as a follow-up on the pricing question earlier. I think we roughly calculate pricing for Q1 to be roughly for this module, cents per watt, to be about $0.28 per Watt. I was wondering if you could comment on - is that, first of all, correct? And then how do you expect that ASP to trend on a blended basis for Q2 and into Q3? Thanks.

Huifeng Chang - Senior Vice President and Chief Financial Officer

I think Yan will answer your questions. Yan, please.

Yan Zhuang - President and Chief Operating Officer

Okay. I think the price movements varies from market to market. For example, the price yields in U.S. and Japan are much slower and the price yields in the residential DG market is lower than utility-scale projects. So the pricing for big utility projects in other markets slowing down faster, so in different paces. And so going from Q1 to Q2, it's - the pricing - and into the second half, I think the price will go down and then stabilizing. I think the price - we are seeing some very low pricing sub $0.20 pricing. That's the bottom. If you're talking about ASP, some other channels, the price may continue to move. But for the lowest pricing segment, I think, it's likely to be stabilized towards the end of this year. So Q1, our ASP is like $0.27 and Q2 is like - we cannot tell you that. But for Q2, it will come down a little bit, but the job, the reduction has slowed down and Q4, we believe, the market may warm up and we'll recover the demand. So pricing is likely to be stabilized. That's my answer.

Philip Shen - ROTH Capital Partners - Analyst

Great, thank you, Yan. I'll pass it on.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Brian Lee from Goldman Sachs. Please go ahead.

Brian Lee - Goldman Sachs - Analyst

Hey, everyone. Thanks for taking the questions. Yan, maybe if I could just follow up there. I know you don't want to give specific numbers, but the directional color on pricing is helpful here. So 2Q is going to be down from 1Q. It sounds like, based on your comments, 3Q pricing will also be down from 2Q and then 4Q may be stable to even better, just based on the directional trend you sort of articulated. Given where spot pricing is today and kind of given the lag between when you contract volume and ship, it seems like the worst pricing impact in the year may be in 3Q. So is that a fair assumption that 2Q is down, but then 3Q could be down even more before you start to see stability into the very end of the year?

Yan Zhuang - President and Chief Operating Officer

Well, it's more or less, that's the trend, but I wouldn't just oversimplify the situation. It's out of the Penny Act [Phonetic] in the recent months. We've been seeing some super low prices. I would just say those super low prices will not go down anymore and less likely, because it's just a Penny Act pricing. So - and also for residential market, it will - it's coming back and the residential and then the DG market is coming back. And proportionally, if there is more volume shipping in that channel, the overall pricing down situation would be eased. So that's - this can be complicated, but overall, I cannot - I mean I agree, Q3 price cannot be better than Q2 but Q4 will be stabilizing.

Brian Lee - Goldman Sachs - Analyst

Okay, that's helpful. And then maybe just related to that. From a gross margin perspective, obviously Q2 is down here, based on the guidance. Fair to assume that Q3 is also softer on a sequential basis before you maybe see some margin stability or improvement in 4Q and I'm speaking specifically to the module segment, not the project side.

Yan Zhuang - President and Chief Operating Officer

Yeah, I think the uncertainty - the reason we are - part of the reasons we're withdrawing our financial new guidance is because of uncertainty, the big uncertainty, significant uncertainty caused by this situation because we're not sure how ASP and cost is going to coordinate in the next couple of quarters. And so in terms of gross margin, I really cannot give you clarity at this moment. And - but I can say that Canadian Solar, we have more share of our shipments into the rooftop market as well as more share into the high price market, more proportional shipping goes to Japan, Korea, and the U.S. and also the residential market and also with our own projects. So, I think, maybe our position is slightly better.

Brian Lee - Goldman Sachs - Analyst

Okay, that's fair. And then the last question and I'll pass it on here. I think, last quarter, you guys had mentioned that the residential market rooftop was seeing impact from COVID but my read was that you weren't seeing any real impact as of that point in the utility-scale segment. Your comments today suggests that's kind of changed here where you've seen impact across all buckets of your business. So can you maybe help quantify? I know you can't give us guidance for the year, but sort of quantify what sort of impact you're expecting here in the utility-scale segment.

I guess, if I look at the 1.1 gigawatt to 1.3 gigawatt range for project sales for 2020 in your five-year outlook, how much would you say that's changed owing to incremental COVID uncertainty since the last quarter? I know you didn't have those targets out last quarter, but assuming you did, would they have looked the same or, kind of, what - can you give us a sense of how much that's changed here?

Yan Zhuang - President and Chief Operating Officer

I think the impacts are mainly in U.S. and some projects in Latin America as well. So on the module side, the impacts have delayed. So Q2 have certain - some volume that's delayed, but that comes from both the residential market and also the ground mount utility projects. And that's - the utility part is, I would say, it's more like two-third of the volume, but for - on the project sales, it's also a similar reason. It's delaying of project sales and the project financing delaying and some of them is because of the lockdowns, so the construction that's delayed. So our current five-year plan already reflect that. And if you're talking about the impact comparing to end of March, we do see some impact on the pace and speed of our financing closure and project sales. So, however, we're actually trying to fix that and there will be some impact compared to our planning in end of March. But whatever impact it is, it's already within our five-years plan. So - and we're working on solutions to deal with that.

Dr. Shawn Qu - Chairman and Chief Executive Officer

Hi, Brian. This is Shawn speaking. The current number of 1.1 gigawatt to 1.3 gigawatt already takes in some of the potential delay of the project - delay of project sales into 2021. It looks like some of the project sales closing will end up in Q4 at this moment. But key point is a little bit delay will become Q1 next year. So for those project I would rather put into next year than this year. So Q1, and Q - no, 1.1 gigawatt and 1.3 gigawatt is the number we are reasonably comfortable in this moment, but, of course things change. So that's why we see uncertainty. So by August, well update you again.

Brian Lee - Goldman Sachs - Analyst

Okay. That's - I mean, 1.1 gigawatt to 1.3 gigawatt, I know that's your most reasonable projection at this point in time. But is that sort of embedding a 10% slippage from 2020 to 2021 or is it a larger percentage of that? I guess I'm just trying to get a sense of how much things have moved out to the 2021 timeframe if it's a modest amount or if it's may be more significant.

Dr. Shawn Qu - Chairman and Chief Executive Officer

Yeah, in terms of management's estimate, we always take a conservative view. So we move to more than 10% - more than 10% of previously planned for 2020 to 2021. But maybe we will be able to close it before December 31, then we will get a - you will get a pleasant surprise.

Brian Lee - Goldman Sachs - Analyst

Okay, great. Best of luck. Thanks, guys.

Dr. Shawn Qu - Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] Next question comes from Mark Strouse from J.P. Morgan. Please go ahead.

Mark Strouse - J.P. Morgan - Analyst

Yeah. Thank you very much for taking our questions. First, when you talk about potentially replicating the Japanese infrastructure fund strategy in other markets, how should we think about timing? Is that something that could occur within the next 12 months or is that more of a longer-term view?

Dr. Shawn Qu - Chairman and Chief Executive Officer

Yeah, Mark, this is Shawn speaking. Without COVID-19, we think we would be able to sign some strong letter of intent this year. So, something will be launched next year, although with this current situation things become fluid, I still expect within 12 months, we can have something more concrete, but we'll have to see, because we have this structure in Japan. Japan is one of the stable countries. We are active in some other markets such as Latin America and Europe. Latin America got the shift by this local currency depreciation, so we'll have to see when that market stabilize - that financial market stabilize. And for EMEA, we expect a large numbers of - also they're reaching COD, let's say, reaching MTP [Phonetic] and then COD in a matter of two to three years. So we only have to get our structure prepared in the next few years and we'll be fine.

Mark Strouse - J.P. Morgan - Analyst

Okay, that's helpful. Thanks, Shawn. And then just lastly, I think this is pretty clear, but I just want to be certain. So regarding second half, it's fair to say that there is some uncertainties regarding potential delays, but as of today, have you seen any project cancellations?

Dr. Shawn Qu - Chairman and Chief Executive Officer

This is Shawn, again. We haven't seen project cancellation. If we have the PPA, then we don't cancel it. And though, we do see that sometimes the tax equity become a problem. All other financing costs become flat. Although the interest rate - the flat rate is going down, but people have become so risk averse. So actual lending rates - we haven't seen really the actual lending rates drop yet. So that will delay the project. And where the project still have - if we still have room before the COD drop that date, then okay, we have time to negotiate. If we are somehow coming close to that date then we'll negotiate with the local authority to extend the COD date. We haven't really run into that much situation like that. But if we do, then I would expect the - really the authority will be tolerant.

Mark Strouse - J.P. Morgan - Analyst

Okay, very helpful, thank you very much.

Operator

Thank you. I'd now like to hand the conference back to management team for the closing remarks. Please continue.

Dr. Shawn Qu - Chairman and Chief Executive Officer

All right. Thank you for joining today's call. And also for your continued support. If you have any questions and would like to set up a call, please contact our Investor Relations team. We thank you for your continued support again. I hope you and your families are safe and healthy. Thanks and have a nice day.

Operator

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CANADIAN SOLAR INC

Q1 2020

Earnings Transcript

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