Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's third quarter 2022 earnings conference call. My name is Melissa, 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 now like to turn the call over to Isabel Zhang, investor relations director at Canadian Solar. Please go ahead.
Thank you, Melissa. Welcome everyone to Canadian Solar's third quarter 2022 conference call. 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 subsidiary, 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, as amended, 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. Now, I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.
Thank you, Isabel. Hi, everyone. Welcome, and thanks for joining us today. Please turn to slide three. This slide provides a summary of our key performance metrics. We achieved strong results in the third quarter of 2022. The headline for us is the 57% year-over-year revenue growth, 18.8% gross margin, and net income of $1.12 per diluted share. Profitability in both our CSI Solar and Global Energy businesses improved meaningfully as we continued to focus on solidifying our leadership position and driving profitable growth. Our teams executed across the board and made Q3 one of our strongest quarters since the beginning of COVID. As always, Yan, Ismael, and Huifeng will go through our performance in more detail. Before that, let me highlight some key messages. Please turn to slide four.
First, we made significant progress in our battery storage business across all our verticals. This includes CSI Solar's utility scale and residential battery storage product teams and our Global Energy's battery storage project development teams. On the CSI Solar side, we continue to be pleased with the level of engagement on our SolBank product for utility scale storage applications, which we launched a few months ago. Yesterday, we announced a new 2.6 GWh multi-year supply agreement. This underscores the very healthy demand we are seeing and our favorable competitive position. We will continue to provide updates for our contracted pipeline as we move forward. I'm also very pleased with the positive customer response to CSI Solar's residential energy storage product, the EP Cube. This was showcased during the RE+ conference in the U.S., and we expect this to be a multi-year contributor to our sales.
Our Global Energy team, supported by our CSI energy storage team, made significant progress in completing one of the largest battery storage projects in the world, the 1.4 GWh Queensland project. I am very pleased to report that the Global Energy team continued to expand the storage pipeline, reaching 40 GWh at the end of Q3. When you take a step back, you can clearly see that battery storage has become a very strong growth driver for our business. Our customers are excited about the long-term potential of battery storage solutions. We are excited about the growth opportunity ahead of us. Second, the U.S. remains one of our core markets. We are strongly committed to serving our customers and partners there. We believe the U.S. will remain as one of the most important and attractive clean energy markets in the world.
Efforts in the U.S. to decarbonize and the passing of the Inflation Reduction Act have provided important lessons for other countries in our common fight against climate change. With that in mind, we are planning on investing in U.S. domestic manufacturing across the solar supply chain. We have expanded our U.S. team in preparation and are now in the final stages of our site selection process. Well, there are many challenges. We know the market well. We are proud of our 20 years of market leadership. We are confident in our ability to build upon our long-term track record and expand the level of support to our customers and partners in the U.S. even further with the planned U.S. domestic manufacturing activity. Lastly, please turn to the next slide.
After a short procedural pause, CSI Solar's carve-out IPO is back on track and is awaiting the completion of the registration with the China Securities Regulatory Commission. The process has taken longer than we initially expected, we are on track and working to complete the carve-out within Q4 or in Q1 next year. Let me now turn over to Yan, who will provide more details on our CSI Solar business. Yan, please go ahead.
Thank you, Shawn. Please turn to slide six. In Q3, the CSI Solar division delivered 6 GW of solar module shipments and 570 MWh of battery storage shipments, of which 300 MWh were to our own projects. Total revenue reached close to $2 billion. Importantly, our gross margin continued to improve, reaching 17.3% in Q3. This was up 140 basis points quarter-over-quarter. From an absolute standpoint, doubled year-over-year to $341 million. Several factors contributed to our improved performance. Our manufacturing costs declined further in Q3, led by an increased contribution from the expanded upstream ingot, wafer, and cell capacity. With a higher degree of vertical integration and greater control over our costs and supply chain, we've been able to improve our cost structure and profitability.
This is in line with the strategy we previously outlined. While we did a great job controlling what is within our control, input costs remained a headwind in Q3. In fact, average polysilicon pricing remained at elevated levels and was flat or even slightly higher than the previous quarter, as you can see on slide seven. The improvement was mostly organic. We believe polysilicon prices have finally reached a peak, and we expect input costs may start to come down over the next few weeks. Although we won't really see a benefit until probably next year, given the strength in end market demand, we still believe input costs will only come down gradually. Second, our gross margin benefited from currency fluctuations led by the strong U.S. dollar relative to the RMB.
With a large part of our costs being in RMB relative to a large part of our revenues in U.S. dollar, our costs depreciated relative to our revenues. However, this was partially offset by the weakness in most other currencies relative to the U.S. dollar. Net, net, the ASPs of all our non-USD markets were lower sequentially, which had an impact on our aggregate revenue number. Third, unit shipping costs came down further in Q3. As we said before, there's significant room for logistic costs to come down, which we started to see in Q2. We believe there's further room for improvement given we are still above historical normal levels, and there's no reason to believe that logistics costs are sub-structurally higher than pre-COVID times. Please note that logistics costs do not impact gross margin are, and are recorded in selling and distribution expenses.
All of these factors combined helped drive a tripling of our operating profit year over year to $97 million. Q3 was a record quarter for CSI Solar, which showed the strength of our brand and resilience of our business despite the tough market environment. Please turn to slide eight. On the technology front, we're making significant progress on our latest N-type TOPCon cell technology. As you know, we've been working on several N-type pilot lines covering both heterojunction and TOPCon technologies. We believe the time is right for mass production, and therefore, all of the new cell capacity we're now adding will use our TOPCon technology. The first TOPCon products will be delivered early next year. We believe our product is best in class and will have approximately 1.5 percentage points of higher conversion efficiency than the average mainstream product in the market today.
TOPCon will also be margin accretive once we start production. It was developed to contribute positively to our pricing power due to its ability to lower our customers' levelized cost of electricity. Meanwhile, our goal is for manufacturing costs for TOPCon to be similar to our current mainstream product even though the power wattage will be much higher. We expect N-type TOPCon cell products to account for roughly 30% of our 2023 solar module shipments. Please turn to slide nine. In terms of battery storage, we're on track to achieve our full year targets of 1.8 GWh-1.9 GWh. Our new utility-scale SolBank product is gaining significant traction with customers. We recently signed a 2.6 GWh multi-year supply agreement with UBS for the U.S. market with the SolBank product.
This gives us significantly visibility over our long-term growth beyond just one or two years. We've also been expanding our market offering across more geographics, expanding from the U.S. into U.K., Canada, and China, with more markets currently under expansion. One of our key competitive advantages is our strong partnerships with upstream battery cell producers, which helps ensure long-term security of supply for our customers. With that, our CSI Solar battery storage turnkey pipeline more than doubled quarter-over-quarter at nearly 25 GWh globally as of the end of Q3. While certain projects in this pipeline overlap with global energy storage development pipeline, the value creation and services provided by the two storage teams are distinct and separate. Therefore, the two storage pipelines should be viewed independently.
On the residential EP Cube product, reception from the customers during the RE+ conferences was overwhelmingly positive. The initial shipments to the U.S. market are already underway. We're confident that EP Cube is one of the best, easiest to install products in the market. We are excited about this product and believe it will be a highly competitive residential solution. Let me pass it on to Ismael for an overview of the Global Energy business. Ismael, please go ahead.
Thanks, Yan. Please turn to slide 10. In Q3, we achieved $101 million in revenue with a 47% in gross margin, making this a highly profitable quarter for us. We sold around 890 MW of projects in Japan, the U.S., and Brazil, which were mostly pre-construction on earlier stage projects, which meant relatively lower revenues at higher profitability. Recently, we had two major project completion milestones, which I'm incredibly proud of. Please turn to slide 11. The first one is the commercial operation of our landmark 1.4 GWh standalone battery storage project in California, the Crimson project. We completed this project in a very challenging environment of stringent COVID restrictions, which affected shipping schedules and led to project delays.
We cooperated closely with our CSI Solar energy storage colleagues to bring this project to fruition, which is testament of the synergies created among our business divisions. The Crimson project will provide critical reliability services to the California grid and allow the local grid to absorb more clean energy. We monetized 80% of the project to a long-term investment partner and retained a 20% long-term ownership. We will continue to provide the operations and maintenance of the battery storage power plant. We are also expanding our capabilities in energy trading through this project, which we believe will be a key area of growth in the future. Please turn to slide 12. The other major project completion is the commercial operation of our other flagship project in Japan, the Azumakofuji 100 MW solar power plant.
The project is under the JPY 36 FIT, roughly equivalent to $0.24 per kilowatt hour based on current exchange rates, making it one of the world's most valuable projects. What I'm most proud of is that the project will contribute meaningfully to reinvigorate the local community and economy, which was devastated by the earthquake in 2011. This project is still fully owned by Canadian Solar. I highlight these two projects not to emphasize their uniqueness, but to show Canadian Solar's unparalleled track record in executing complex solar and battery storage projects across the world. We have one of the world's largest and strongest development platforms, and our goal is to develop more battery storage projects like Crimson and more solar projects like Azumakofuji. Turning to slide 13.
As of September 30th, 2022, we had a total solar project pipeline of 25 GW and a total battery storage pipeline of 40 GWh . This is the largest solar and battery storage pipeline in the world. Importantly, around half of our total pipeline has interconnection secured, which give us significant confidence of our future ability to create value and growth. That said, you'll also notice that our solar pipeline declined slightly quarter-over-quarter. As you know, Canadian Solar is more than just size. We prioritize the quality and profitability of the pipeline we are building. We are selective on the projects that we decide to move ahead with, and we are not afraid of walk away from projects with less attractive risk-return profiles. Specifically, the combination of high inflation and high interest rates over the past few quarters created an adverse environment in some geographies.
Thus, we've divested of certain assets early and recovered our capital to set the stage to invest and grow in geographies with stronger fundamentals. It is important to note that we have delivered strong results through the challenging backdrop, which shows the resilience and strong performance of Global Energy's world-class platform. Please turn to slide 14. Lastly, our strategy to increase the share of recurring income remains on track. On the operations and maintenance or O&M strategy, we now manage over 3.6 GW of operational projects under long-term O&M agreements. We also have an additional 2.2 GW of contracted projects expected to reach commercial operations soon. This makes us one of the largest project operators in the world in both solar and battery storage. We will continue to grow this business. We will also continue to retain minority ownership in assets that we develop.
Now, let me turn the call over to our CFO, who will go through the financial results in more detail. Huifeng Chang, please go ahead.
Thank you, Ismael.
Please turn to slide 15. In Q3, we delivered $1.93 billion in revenue, up 57% year-over-year. Gross margin was 18.8%, well ahead of our guidance of 15%-16.5%. Q3 benefited from lower manufacturing costs. A net foreign exchange benefit from the strength of the U.S. dollar relative to most other currencies and a higher margin product sales. Selling and distribution expenses were up 5% sequentially, primarily due to higher shipping expenses from the increase in shipping volume. Unit shipping costs decreased, and we expect further decreases in the coming quarters. General and administrative expenses increased primarily due to a non-recurring $30 million impairment of certain aged manufacturing assets. Net interest income in the third quarter was $4 million, up from net interest expense of $15 million in the prior quarter.
The change was mainly driven by a one-time interest benefit of $70 million, which we received as interest income generated by antidumping and countervailing duty deposit refunds. The net foreign exchange and the derivative gain was $39 million compared to $6 million in Q2. The benefit was driven by the strong U.S. dollar relative to most other currencies, mainly relative to the RMB. Total net income was $102 million, a net income attributable to Canadian Solar shareholders was $78 million. This translates to basic EPS of $1.22, a diluted EPS of $1.12. The variance is primarily due to the adjustment for the dilutive effect of our outstanding convertible notes. Turning the cash flow and the balance sheet. Next slide, please.
In Q3, the net CapEx payment was approximately $110 million, making it approximately $320 million for the first nine months of 2022. Given the delay in the RFQ process, we are reducing our full year 2022 CapEx expectations to $660 million from $850 million. Please note that this does not imply any changes to our capacity expansion projects, but rather an adjustment in the timeline and the pace of implementation of these projects. We ended Q3 with a total cash balance of nearly $2 billion and remain well-positioned to capture future growth. Total debt was large, unchanged at $2.7 billion, but the share of our long-term debt increased to 45% from 40% this time last year.
Four months trailing net debt to EBITDA, excluding restricted cash, continued to decline this quarter to 2.7 x from 2.9 x the prior quarter. Let me turn the call back to Shawn, who will conclude with our guidance and the business outlook. Shawn, please go ahead.
Thanks, Huifeng. Let's turn to slide 17. For the fourth quarter of 2022, we expect total revenue to be in the range of $1.8 billion-$1.9 billion. Gross margin is expected to be between 16%-18%. This reflects the elevated input cost in Q4, partially offset by benefits from manufacturing cost reductions. Continued foreign exchange volatility may affect pricing and margin. For Q4, solar module shipments recognized in revenue by CSI Solar are expected to be in the range of 6 GW-6.3 GW, including approximately 290 MW to our own projects. For the full year of 2022, we expect CSI Solar's total battery storage shipments to be in the range of 1.8 GWh-1.9 GWh , including approximately 300 MWh to the company's own projects.
Global Energy project sales are expected to be in the range of 2.2 GW-2.3 GW. We are also introducing solar module shipment guidance for next year. For 2023, we expect solar module shipments to be in the range of 30 GW-35 GW, which represent approximately 56% year-over-year growth at the midpoint. Canadian Solar's strategy of profitable growth is one of our key differentiators. We'll continue to prioritize investing in long-term growth, which means positioning our business in strategic areas such as battery storage and leading in the deployment of technology innovations. This differentiates our products, adds value to our customers and partners, and is a key driver for our brand equity worldwide. All in all, we continue to focus on what we can control and on building our long-term competitive moat to create lasting value for our shareholders.
With that, I would now like to open the call to your questions. Operator?
Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.
Hey, guys. Thanks for taking the questions. I guess I had a couple just around the guidance. You know, Shawn, Huifeng, you mentioned that, you know, gross margins, the guidance for Q4 implies a little bit of sequential decline. It sounded like, you know, input costs, logistics, polysilicon, all of that is sort of trending in the right direction. Could you kind of walk us through what specifically is changing quarter-on-quarter to drive a little bit of a margin decline into the fourth quarter? Then also how you're thinking about that translating into sort of the early part of 2023, what trends we should expect on the gross margin line?
Hi, Brian. I would like to first of all, I would like to mention that our Q4 gross margin guidance is higher than our Q3 gross margin guidance. We did a wonderful spectacular Q3. We achieved 18.8%, and we now guided 16%-18% of gross margin for Q4. In terms of guidance or forecast, our Q4 actually is we are guided higher than our Q3 guidance. I just want to mention that. I would like Yan to provide more comments, Brian.
Hey, Brian. It's Yan. First of all, I want to say that in terms of net gross, I mean, gross margin, I'm talking about price minus manufacturing costs, EPS. Q4 is not anything less than Q3. That is stable. It's more like we believe there's a. For example, we do not expect a similar level of currency gain for Q4. That's one of that. Shawn, you want to have more comments?
No, that's helpful color. I can take that question offline, and maybe we'll dive more into the moving pieces. Maybe on that same topic, though, pricing is the first time I think in a while where module ASPs look like they've come down a little bit, and I think you mentioned that in your commentary as well. Can you kind of talk about your quoting activity? Are you starting to lower prices on modules? What's your sort of view on module ASPs through 4Q as well as into 2023?
Yeah. Brian, actually for Q4, our ASP is quite stable comparing to Q4. We do not see any material price reduction from Q3 into Q4. There might be some, for some customers, some order in some markets, we see some minor reduction, but it's not significant. In terms of 2023, we're already signing a lot of orders for next year. We also, you know, we also see some price reduction on some long-term orders, but it's not significant. It's $0.01 or $0.02 lower than what it is today. That's the current price situation.
Moving forward, we still believe the price reduction moving into 2023 is gonna be more moderate and smooth and in a longer transition period. Reason for that is we still, you know, we all know that the end market is still growing rapidly. And also the end, the investors in the end market has a stronger affordability on costs combined with the fact that the ingot capacity right now into end of this year is due more than the silicon capacity. We believe there's certain resistance on the price reduction moving to next year. We do not anticipate any sudden death on pricing. That's not gonna happen.
Brian, I want to add one more comment that ASP, the price measured by U.S. dollar may decline a little bit. Measured by local currency, for example, Japanese yen and euro, and even Chinese RMB, are not really declining. In some cases, the price actually is moving up. We are facing the situation that U.S. dollar is very strong. When you look at U.S. dollar, it looks like price is going up. To me, it's going down. On some of local currency, the price is quite stable and even going up.
Yeah. Brian, on top of that, we're quite confident that our margins can improve moving next year because we're actually, as you know, we've been always stronger in more developed markets, high price markets. Particularly in the U.S. market, we're gonna be quite strong next year. We're still expanding our talent capacity. Channel-wise, we've been always strong. We're shipping half of our volume into DG market. Given the electricity retail price has gone up so much, we're experiencing a strong demand from that channel. Obviously, the price tolerance in that channel is getting very strong. So, we're quite confident that it's gonna be a good year for us.
Okay, that's great. Super helpful. Last one for me, and I'll pass it on. I appreciate the updated thoughts around the U.S. manufacturing plans. I think you had talked about recently looking at just module capacity. Maybe if you could give us a bit more detail. Are you still thinking of building just a module-only facility? What would be kind of the scale and timeline? You know, would you have production on in 2023, or would it be more 2024? Then, could you give us a sense of the CapEx dollars and funding strategy you would be putting behind it? Thank you.
Okay. capacity-wise, as you know, we have a guidance, volume guidance for 2023 of 30 GW-35 GW. That's our guidance for next year, shipping guidance. In terms of CapEx and capacity, we are actually we will have to support that. by year-end this year, we're gonna have 20 GW of wafer, internal ingot wafer, and also 20 GW of cell, and 32 GW of module to end of this year. Moving into next year, we're gonna add more of TOPCon capacity on cell. total cell production next year is gonna be 27, 26 GW-27 GW. in terms of cell capacity, no, it's 26-27 output.
In terms of output, it's 26 GW, 27 GW. We're gonna have to more than 20 GW of ingot and wafer. It would be more, over the course of next year, we're gonna build more, module capacity. Also that include, expansion of Thailand capacity of 8 GW of cell and 6 GW of module. We're gonna have enough, capacity to support our, volume guidance. With, of course, with some, cell purchase like, around 8 GW, 9 GW of, cell purchasing. That's, the capacity plan. CapEx wise, you know, we're actually in the process of, you know, we already started investment.
Okay, sorry. I was wondering just specifically on the U.S. as well.
The U.S., we're actually in the process of for site selection. We plan to secure a site that long-term wise can support 5 GW of module capacity. At the same time, we're also actively assessing the economic viability, policy wise as well, on upstream capacity such as ingot, wafer, and cell. Still, we're in the process of clarifying a lot of details on our IRA with the DOC. It's a running, changing process. On module site, on execution, we may execute in phases. This is the plan.
Okay, thank you. I'll pass-
CapEx wise, we have customer support. Yeah, we have customer support. A lot of down payment also helps.
Thank you. Ladies and gentlemen, if you'd like to join the question queue, please press star one on your telephone keypad. Our next question comes from line of Philip Shen with Roth Capital Partners. Please proceed with your question.
Hi, everyone. Thanks for taking my questions. First one is on the IPO in China. Was wondering if you could give a little bit more color on the timing of that. I know in the deck and you guys talked about maybe Q1 of 2023. In addition to that, do you still expect to bring your poly plants online by mid-2024? What's the update on how that development is going and how, you know, the IPO might be tied to some of your capacity expansion plans ahead? Thanks.
Hi, Huifeng, do you want to address this question?
Sure. Sure. Hi, Phil. Let me first talk about what that short procedural pause in our IPO process. On September 30th, Shanghai Stock Exchange, on its website, it changed the status of our IPO application to paused, awaiting updated financial information. We submitted the requested information to the stock exchange in early October. As a result, on October 27th, the stock exchange, after reviewing all the documents and also on its website, changed our IPO status back to in registration and with a message, "CSI Solar has submitted updated financial information." Since then, we are not receiving any more requests. Our application is back on track, so that pause is about like four weeks.
Yes, the process is slower than our expectation, but at this point, I don't have a clear answer to why, because in general, it is hard to know the behind-the-scene details inside the government office. In our case, it's much harder due to the COVID restriction on travels. For management, we focus on managing business and deliver the better results. The good news is that there's no deadline for our IPO. We just wait there. If the question from CSRC, we answer them. Let me share with you some statistics. There are over 30 companies applying for STAR Market listing in the same status with us called registration. Actually, 1/3 of that submitted application before us. There are also 50 companies in a paused status. We continue wait for the completion of registration.
Meanwhile, manage daily business and to make a company better for the listing. Thank you.
Great. Thanks, Huifeng. Good morning.
Hi, Phil.
Thanks. Hi, Shawn Qu.
Hi, Phil. You also asked about the schedule of our polysilicon project and whether that investment is tied to the IPO proceeds. The answer is yes. Polysilicon is a big project. As we answered some the questions in the last earnings call, we will only proceed with the polysilicon project after we complete our IPO.
Great. Thanks, Shawn.
The other capacity. I'll say that other capacity project, not really tied to the IPO. We're financing for other capacity project, the new module, cells or ingot and wafer, more or less secured. Not really tied to the IPO.
Great. Thanks for that detail, Sean. Quick follow-up on that was wondering if you could share what your expectations for CapEx would be for 2023. You know, we have the details of expansion of ingot and wafer to 25 GW, cells at 35 GW, and module to 50. If you could share that CapEx, that would be helpful. You also gave 2023 shipping guidance. Was wondering if you could give expectations for project sales and battery shipments for 2023 as well. Thanks.
Hi, hi, Phil. We are still working on the CapEx plan. As I said, some of the projects will be tied to the cash flow and particular capital injection such as IPO. We plan to release the CapEx estimate in March 2023 earning call. At the same time, as I said, the module and cell CapEx and the capacity expansion is more or less secured. As you know, Canadian Solar has always been conservative. We have very strong, like and diversified customer distributed around the world.
Even without a heavy polysilicon capacity expansion, we are still confident to reach our volume growth target and also to expand the gross margin from today's level.
Great. Thanks. Another one for me here. In terms of freight, was wondering if you could break out in Q3, how much your freight cost was in either absolute dollars or cents per watt? I know it's expected to go lower. How much do you expect it to be in Q4 and maybe into Q1 of next year? Thanks.
Phil, it's in Q3, it's about $0.023, and Q4 is coming down to about less than $0.02. That's our estimate.
Great. Thank you, Yan. One last one. Can you talk about the OpEx and EBITDA trajectory from here, maybe, over the next few years? How much operating leverage do you think you have? If you can speak to both OpEx and EBITDA trajectory, that would be fantastic. Thanks.
Hi, Huifeng, do you want to address this question?
The OpEx number changed, the biggest part is driven by the shipping cost, the selling and the cost. But other numbers, they increased slightly because the size of our team become larger as we ramp up the capacity. If we do the analysis, OpEx slashed by total revenue, I think going to the coming quarters, it will decline. It will be somewhere around a low teens.
Great. Thank you very much. I'll pass it on.
Thank you. Once again, as a reminder, if you'd like to join the question queue, please press star one on your telephone keypad. Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Thanks so much. Guys, can you talk a little bit about the pricing dynamics for the energy storage market in the utility scale side? Just curious how you're seeing that trend given the growth in the backlog.
Colin, can you repeat your question?
Sure. you know, given the strong growth in the utility scale storage pipeline, can you talk about the pricing dynamics and what you're seeing in terms of moves in pricing given, you know, we've seen in the energy markets as well as the utility rate market?
Yeah. Unfortunately, as you know, the storage pricing, this is more or less determined by the cost, and especially the lithium carbonate price. The lithium carbonate price is affected more by the EV rather than the storage, because this is the EV still account for 90% of the lithium usage, and the storage only 10%. If you know, talk about the pricing dynamics, the price is moving up unfortunately recently, but that's more because of the lithium carbonate price. That's more or less even more determined by EV than by the activities through storage.
Yeah. Colin, what more common is for the project we're signing, we actually secured, somehow secured the supply and have a control on pricing, and with the back-to-back deposit arrangements. Our strength on those projects is because we're providing turnkey service and long-term service, which is now in the market. It's actually a shortage of capacity that's in shortage, so it's much demanded capability, so we have better control on pricing. You know, it's not just additional revenue and profit on the turnkey service and long-term service, but also this service actually help us to have a more bargaining power on the equipment pricing.
This is, we would be what we have achieved, in the markets, especially in the U.S. and the European markets.
I agree with Yan, I also want to comment that although the pricing is going higher for storage product. You know, customer demand continues to be strong. That's because there's more solar and wind. The market requires more and more storage. Also, the energy price itself is going up, as you know.
Yeah. Given our rapidly growing pipeline, our pipeline is actually probably one of the biggest in the world, such a pipeline help us on the bargaining power on supply chain. We have successfully secured a multi-year supply agreement with our suppliers, with our pipeline.
Thanks so much, guys. Can you talk a little bit about your position in the interconnection queue in the U.S.? Obviously, you know, those things move through those, you know, those projects move through the queues at the rate that they need to. Can you talk about the order of magnitude of that interconnection position and the rate at which you're seeing projects get approved at this point?
Oh, yeah. Next. Connection. Yes, no. Do you get this question?
Yeah, sure.
address that?
Sure, Shawn. Thanks for the question, Colin. Look, what we are experiencing in general, not only in the U.S., but in general, is delays on interconnections due to the longer lead times of equipment, especially, high-voltage transformers. To give you an order of magnitude, in the past, a reasonable timeframe was six to nine months. We are seeing now lead times of up to 20 months. As a result, interconnections are getting delayed. Even though your position in the queue might be a good one, your interconnection is getting delayed, too. Look around 2 GW of what we have in the U.S. have pretty good interconnection queue positions.
Some projects that are far away on the connection queues, when we see that the economics might be changing dramatically, we are selling, and we sold some of those in the U.S. this quarter. That gives you an idea of where we are, I hope.
Yep, that's helpful, guys. I'll leave it there. Thanks so much.
Thank you. At this time, I'd like to turn the floor back to Canadian Solar's CEO for closing comments.
Thank you for joining us today and for your continued support. As always, if you have any questions or would like to set up a call, please contact our investor relationships team. I hope you all have a great Thanksgiving holiday, and take care.
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.