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'll be your operator for today. [Operator Instructions]

I'd like to turn the call over to Isabel Zhang, IR Director at Canadian Solar. Please go ahead.

Isabel Zhang - Investor Relations

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 are available on Canadian Solar's Investor Relations website, within the Events and Presentations 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; Corporate VP and President of Canadian Solar's wholly-owned Global Energy. All company 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 the 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 estimates 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 operating goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP.

And now, I would now like to turn over the call to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Shawn Qu - Chairman and Chief Executive Officer

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're focused on profitability and improved the performance of our CSI Solar business division, which helped us deliver net income of $11 million and diluted earnings per share of $0.18.

Before I turn to Yan, Ismael and Huifeng to 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 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 are focused on factors under our control and especially our 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 give us a competitive advantage to capture profitable growth opportunities. We will continue to gain market share this year, and believe that any demand push outs 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 more reliable power grid. We made big progress in Q2 by delivering our first battery storage shipment, 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 on our ESG practices. We have set out structures to incorporate the environmental, social and governance factors in all our major business divisions. For example, one of these divisions is the expansion of our upstream ingot manufacturing capacity. We decided to construct this facility in Shanghai as this province is nearly fully powered by renewable energy. Almost 90% of its installed power capacity is solar, wind or hydropower.

By locating energy-intensive ingot manufacturing there, we can further reduce the carbon footprint for our solar modules. Actually, based on our estimates, greenhouse gas emissions payback time for our existing module is 1.1 years. This means our modules become carbon-neutral assets that can last for 30 to 40 years or even longer. We are now making further efforts to bring the molecule greenhouse gas payback time even lower. This is just one of the many examples that underscores Canadian Solar's commitment to sustainability and ESG improvement.

Now let me turn over to Yan who 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 revenue, both record quarterly highs. Gross margin improved by 340 basis points to 13.1%, 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. So more inventory is waiting to be shipped or it 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 a 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.

On 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 Recurrent a few years ago, which Canadian Solar sold back in 2019. Last year. we signed the 300 megawatt hour battery storage retrofit contract. And last quarter, in Q2, we delivered on the battery shipments. All the equipment has been installed and the team is finalizing the project due to commission this month.

Turning to Slide 9. This is the slate solar plus battery storage project of 300 megawatts plus 561 megawatts hour, 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 shipment volume will reach 861 megawatts hour for 2021. Overall, our team continues to do a great job in a fluid 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 on to Ismael who will talk about Canadian Solar's Global Energy business. Ismael, please go ahead.

Ismael Guerrero Arias - Corporate Vice President and President of Energy Business

Thanks, Yan. This quarter, we closed over 300 megawatts in project sales and added $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 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 as core 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 projects and 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 from higher equipment costs.

Moving to Slide 11. All in all, the structural market forces are 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 are both significant increases compared to this time last year, which were 15 gigawatts and 5 gigawatt hours respectively.

In Japan, we've recently won 86 megawatts in the latest solar auction. This accounted for approximately a quarter 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 the 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, the total of over 4 gigawatts from 2.5 gigawatts this time last year. We are already seeing 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 the Phase 2 of Crimson project, also located in California. Crimson is a standalone utility scale battery storage project of 1.4 gigawatt hours, one of the largest in the world. We previously signed an 800 megawatt hour storage contract with Southern California Edison. And a few days ago, we signed a resource adequacy agreement with Pacific Gas and Electric or PG&E. The project is set to start commercial operation by the summer of 2022 to help improve California's grid reliability. So 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 on most advanced market, but we see significant opportunities worldwide given the widespread need for grid reliability, particularly with 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 hour. It will help strengthen Northern Colombia's transmission network and support greater share of renewable energy. Most of our work in battery storage project development to date has been in the contracted markets to provide capacity or resource adequacy services. We are also exploring alternatives to participate in uncontracted markets such as power trading where we believe 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 Vice President and Chief Financial Officer

Thank you, Ismael. Please turn to Slide 13. In Q2, we delivered record quarterly revenue of $1.43 billion. Gross margin was 12.9%, well ahead of our guidance of 9.5% to 10.5%. Q1 benefited from both volume and pricing increases in module shipments as well as 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 the distribution expenses were flat quarter-over-quarter, but up year-over-year due to higher shipping costs. G&A expenses were also flattish quarter-over-quarter due to continue to tight control on discretionary costs. Total operating expenses were up only 5% despite much faster revenue growth and 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 the 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 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 roughly. The program is progressing well. Overall, our total cash position remained strong at $1.3 billion, giving us the financial flexibility to fund capital expenditures and a long-term growth investments.

Total debt declined moderately to $2.2 billion as we optimized 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 Chief Executive Officer

Thanks, Huifeng. Let's turn to Slide 15. Now for the third quarter of 2021, we expect total module shipments to be in the range of 3.8 to 4 gigawatt, including approximately 275 megawatts of module shipment to our own projects. Total revenue is expected to be in the range of $1.2 billion to $1.4 billion. 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 early 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 project sales of 1.8 to 2.3 gigawatt and total battery storage shipment of 810 to 860 megawatt hours. We are slightly reducing module shipment guidance from 18 to 20 gigawatt to the new range of 16 to 17 gigawatt. 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 of 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 carve-out listing of CSI Solar. We have now moved towards the question and answer stage with Shanghai Stock Exchange. The feedback process typically takes couple of months, so we are well on track.

With that, I would like to open the call to your questions. Operator?

Question & Answers

Operator

[Operator Instructions] Your first question comes from the line of JB Lowe of Citi. Please ask your question.

JB Lowe - Citi - Analyst

Hey, good morning, everyone. My first question is on the module shipment guidance reduction. I'm just wondering, if you could kind of give us a sense, if you could break it down between how much of the reduction was foregoing sales because you wanted to keep pricing higher? How much of it was demand driven? And how much, if any, was due to timing if some shipments do you think are being pushed from '21 into '22?

Shawn Qu - Chairman and Chief Executive Officer

Yan?

Yan Zhuang - President, CSI Solar

Yeah. So if I'm hearing your question correctly, I think majority of the projects are coming to our inflammation and our market feedback. There's going to be still planned to be connected this year. So we have observing some signs of the market rollout. And although the module demand is actually changed, the change on module side is always behind the upstream suppliers, upstream materials. So we think that in second half, the demand will remain to be strong, much stronger than first half.

JB Lowe - Citi - Analyst

Right. But I guess, the reduction in guidance, I guess, what was the main driver of it in terms of module shipments?

Yan Zhuang - President, CSI Solar

Yeah, yeah. So the reduction, it's - we actually think that the second half, especially in Q4, we are expecting a very tight balance between ASP and supply chain cost. So we believe to maintain the right balance and optimize our margin, we need to have a more controlled pace on sales. So that's what we are estimating. Also, yes, indeed, there are some volume pushing out next year, but still, we need to make sure that the pricing can give us - the volume with balanced pricing can give us the right margin.

Shawn Qu - Chairman and Chief Executive Officer

Hi, JB. This is Shawn speaking. See, we only reduced the annual shipment guidance on demand from previous 18 to 20 gigawatt to 16 to 17 gigawatt. So well, it's just like 2 gigawatt adjustment, that's all. And I would say, probably one-third of the reduction is due to our insistence ASP and profit. And maybe another one-third is due to some customer say, okay, we still want Canadian Solar module, but let's wait for next year. So as it was said, some project - some demand get pushed out to next year.

And maybe another one-third is due to logistics. And because of this - the global logistic issues, the shipping time and the time to deliver from our factory to the project site get much longer. So some of the December or even the November shipment may not end up in the customer's site before December 31. So that become year 2022 shipment. So I would say, maybe one-third, one-third, one-third. I hope this would give you more color other than what Yan just discussed.

JB Lowe - Citi - Analyst

Yeah. No, that's exactly what I was looking for. Thank you. My other question was just gross margins on the - I mean, the storage side is obviously becoming a bigger part of the business. What were the gross margins on storage in 2Q? And where do you expect them to be, to trend over the next couple of quarters?

Yan Zhuang - President, CSI Solar

Well, so first of all the storage revenue on the CSI Solar side is essentially right now mostly integration business. And usually a project - a deal actually include two part; one is the upfront installation, so some integration installation, the other one is a long-term service agreement. So both have their revenues and their profits. So by nature, the system integration business in terms of capex and opex are both low, much lower than module business. So on the gross margin side, it may not be that high, but the proportion of net profit is actually significantly better than module business. So of course, from project to another - from project-to-project, you may see some variations on the profitability, but in general, they are significantly better than module business.

Shawn Qu - Chairman and Chief Executive Officer

Hi, JB. This is Shawn again. Again, I would like to add some color other than what Yan just discussed. Sure, gross margin wise, the battery storage, EPC and total solution business for us at this moment will give us low-teen to mid-teen gross margins. However, as Yan said, it's different because there is no capex, therefore no depreciation cost for this business. So we can turn a low-to-mid-teen gross margin into a high-single-digit net margin contribution. So it's pretty good, it's a different business module and the contribution is very good.

And I also want to highlight that this is only the beginning. At the beginning, as you know, we always have higher cost in product certification, in bank competitors study, all that kind of stuff. And also, we are taking some problems - some products on the battery storage product all year. 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.

JB Lowe - Citi - Analyst

That was excellent. Thank you so much.

Shawn Qu - Chairman and Chief Executive Officer

Thank you, JB.

Operator

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

Philip Shen - Roth Capital Partners - 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 just talk about - give us a little bit more color on what happened with the 4% in the Global Energy business margin in Q2? Historically, you've gotten as high as 32%. So just a little bit more color as to why it may have been so low in Q2? And then how do you expect that overall margin to trend in Q3 and Q4? And also, for the Global Energy business, can you talk about which countries you sold projects in Q2? Thanks.

Shawn Qu - Chairman and Chief Executive Officer

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

Ismael Guerrero Arias - Corporate Vice President and President of Energy Business

Thank you, Shawn. Thank you, Philip, for your question. Looking in - related to gross margin to project sales in a year is very tricky because it is fully dependent on how do 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 was already booked. What you should expect to see around the year is the typical solid gross margin that we will surely 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 - Roth Capital Partners - Analyst

Okay. Thank you, Ismael. In terms of the module business, I 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 geo mix, geographic mix in 2022? Thanks.

Yan Zhuang - President, CSI Solar

So first of all, in terms of split of the shipment, I want to add that it is as huge as in the past quarters that around half of the volume goes to the DG market, residential DG market. In terms of geographical, so we have the leading - the leading market is China actually. In Q2, we expand our presence in China to deal with the uncertainties on exchange rate and also the higher shipping costs, ocean shipping cost. So China became number one in Q2. So this is a little different from past quarters. And secondly, North America, and year-on-year both are more than 20%. So the rest is in APAC and Latin America.

Philip Shen - Roth Capital Partners - 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 - Roth Capital Partners - Analyst

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

Yan Zhuang - President, CSI Solar

Similar.

Philip Shen - Roth Capital Partners - Analyst

Great. And what about 2022?

Yan Zhuang - President, CSI Solar

2022, I think it will probably be 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. So - but however, I don't have detailed number for you. It's going to be like similar.

Philip Shen - Roth Capital Partners - Analyst

Got it. And then as it relates to the U.S., which is, sounds like it might be more than 20%. Can you talk about if you've seen any changes in the U.S. market, whether it's with customers or with other aspects of shipping into the U.S. since the WRO Hoshine was put in place? Again, whether it's customers or if you've changed your approach to the market? Talk about the U.S. market a little bit. Thanks.

Yan Zhuang - President, CSI Solar

The demand we're seeing is high. So there is strong demand from U.S. and we have many customers talking, discussing with us or trying to sign supply agreement with us on multi-year large volume deals. So we see the demand is very strong. And in terms of WRO, we're actually been working very hard to deal with that. And we're pretty confident that we can overcome that constraint.

Philip Shen - Roth Capital Partners - Analyst

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

Operator

[Operator Instructions] Your next question comes from the line of Colin Rusch of Oppenheimer. Please ask your question.

Colin Rusch - Oppenheimer - 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

Yeah. So you're talking about processing cost, non-silicon processing cost. Right now…

Colin Rusch - Oppenheimer - Analyst

I'm talking about glass, aluminum, silver paste, all those sorts of things that are going into the natural materials.

Yan Zhuang - President, CSI Solar

Yeah, yeah. It was going up pretty fast from Q4 to Q1, and in Q2 actually came down. It's been stabilized and going down a little bit. So that's the overall trend.

Colin Rusch - Oppenheimer - Analyst

Okay. And then in terms of your strategic focus around different system sizes, you talked about the distributed power market handle, the better pricing. As you see this going forward, on the development side, are you looking at the community solar kind of 10 to 50 megawatt type projects being a real growth market or are you still really highly focused on some of the larger ground mounts?

Yan Zhuang - President, CSI Solar

I think in second half we are observing that in mature and developed markets, the rooftop market is actually warming up, it's coming back. It was affected more than the utility scale because of COVID, and now it's actually coming back. So that market will continue to be better on profit. So it will continue to be our focus. So you talked about like 1 or 2 megawatts ground mount, did you say that? I couldn't hear it.

Colin Rusch - Oppenheimer - Analyst

No, more like 10 to 50. I'm talking about kind of the medium size 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

Yeah. Those size of project in terms of - if you're talking about if you're seeing module sales, we don't see that anything better than the large projects in terms of pricing for module. But on development side, Ismael may have a different light in terms of development and investment.

Colin Rusch - Oppenheimer - Analyst

Okay. That's super helpful guys. Thanks so much.

Operator

[Operator Instructions] Your next question comes from the line of Mark Strouse of J.P. Morgan. Please ask your question.

Mark Strouse - J.P. Morgan - 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 a bit more kind of high level color on your capacity plans, right? So you're taking down your module capacity in the second half of this year, but increasing your wafer and cells. Just as we think about that over the next several years, has this whole supply chain disruption kind of made you rethink your historical methodology of having significantly more module capacity?

Yan Zhuang - President, CSI Solar

Well, we actually continue to believe in what you call that a flexible integration. We believe that the industry is in the stage that the P-type, the existing PERC technology has reached to a limit, while we still do not have consensus on the N-type. And starting from next year, we're going to see probably a strong oversupply on some of the materials. So we actually - of course, we will continue to go to execute on our existing capex plan, as we have published in the past. However, we're not - so in terms of next year's additional capex, we still don't have a tangible plan yet. We try - we want to be more cautious, and we will still grow our market share next year. So we had market share of 8% last year, 10% this year and our market share will continue to grow year-by-year.

Mark Strouse - J.P. Morgan - Analyst

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

Operator

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

Philip Shen - Roth Capital Partners - Analyst

Hi, everyone. Thanks for taking my follow-ups here. In terms of storage, how much of - 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?

Shawn Qu - Chairman and Chief Executive Officer

Ismael? No, it's not Ismael's.

Yan Zhuang - President, CSI Solar

Okay. My question. Okay. So in terms of COD time. Okay. So we had a 300 megawatt hour shipped to a new start in Q2 and the rest of the almost 900 megawatt hour would be connected in the second half of the year. So in terms of Q3 and Q4, I don't have the exact split yet. So the timing can be somehow uncertain.

Philip Shen - Roth Capital Partners - Analyst

Great. Thanks, Yan. And then…

Shawn Qu - Chairman and Chief Executive Officer

Yeah. Philip, this is Shawn speaking. We have the numbers, but we will follow-up with you later to provide you with some more detailed breakdown by quarters.

Philip Shen - Roth Capital Partners - Analyst

Okay. Thank you, Shawn. And then in terms of the cost inflation that we've seen, you guys obviously sell the modules, but then you also build projects, and we've seen inflation across the board. Just wondering, if you've delayed any of your projects as a result of higher input costs? And if so, what kinds of delays are we seeing; maybe a quarter, maybe longer? And then are you - as a project developer, are you seeing asset owners? Are they willing to take less return, 50 basis points or something meaningfully less to help absorb some of this cost inflation or are you seeing push back from them? And is the preference again to delay projects and push out the CODs?

Shawn Qu - Chairman and Chief Executive Officer

Yeah. Philip, this is Shawn speaking. Unfortunately, we don't have much solar project to start NTP this year. So we are not managing the [Indecipherable] so far by the cost increase. We do have some project that may reach NTP by the end of this year in LatAm. We think we'll go ahead with those projects because the investors, a lot of project buyers are also willing to pay higher cost 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 project to next year, but we also see some developers who are willing to taking higher cost and build the project this year. Also, as we showed you right now our slide, we'll actually start to see the PPA, the Power Purchase Agreement start to move up in recent months. As you said, the inflation is everywhere. So the inflation is on the electricity power price as well. So we seem to see that the PPA for renewable also responding.

Philip Shen - Roth Capital Partners - Analyst

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

Operator

Seeing no more question 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 Chief Executive Officer

Yeah. 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 setup a call, please contact Investor Relations team. Take care, and have a nice day.

Operator

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