New Solar Technology Poses a Threat

Developing CPV technology backed by big investors threatens existing solar manufacturers like First Solar and SunPower.

Mar 10, 2014 at 1:22PM

The upstart Semprius is testing innovative solar panels with module efficiencies up to 35.5%, 1.65 times SunPower's (NASDAQ:SPWR) 21.5% efficient X-Series panels. More efficient panels allow you to generate more power from the small real estate, helping to make systems more cost effective. Semprius' panels are already being tested in the real world, and its big investors include the venture capital arm of Applied Materials (NASDAQ:AMAT) and Siemens AG (NASDAQOTH:SIEGY). Cost remains an issue, but Semprius' progress and its connections make it a player that investors need to watch.

The cost issue
Cost and supply constraints have traditionally held back high efficiency multi-band gap solar panels. Semprius uses concentrated photovolatics (CPV) technology to focus the sunlight on a limited area, thus reducing the amount of rare materials required.

The difficulty with using CPV technology is that trackers must be used to keep the panel pointed at the sun at all times. The good news for Semprius is that the solar industry has already accustomed utilities to trackers. SunPower has an existing Chinese joint venture that produces the CPV C-7 tracker. This system is big selling point for utilities as it helps to lower a system's levelized cost of energy (LCOE). 

SunPower's PV products are known for their quality, long life, and efficiency. This has helped SunPower see big growth in the distributed generation market and bring in $2.51 billion in annual revenue. If Semprius successfully commercializes its technology, then it will be a big competitor of SunPower's high efficiency panels.

Thin film manufacturers also face challenges
Semprius is a big threat to the thin film manufacturer First Solar (NASDAQ:FSLR). First Solar recently tested a cell with a 20.4% efficiency, but its average 2013 efficiency was just 13.2%. This means that Semprius' module efficiency of 35.5% is 2.7 times higher than First Solar's 2013 average efficiency. First Solar has generated a large amount of momentum and is working to increase its efficiencies, but there are still fundamental technological advantages to Semprius' CPV technology. 

First Solar some has time to deal with the CPV threat. Thanks to First Solar's lack of debt and a 10.7% profit margin the company has the resources to integrate the technology it recently acquired from General Electric. At the same time Semprius' combination of CPV technology and limited amounts of rare materials gives it a fundamental technological advantage.

What is the outlook for Semprius' backers?
New technologies require years before they become successful products. For Semprius to fatten Siemens' and Applied Materials' pockets it will need to offer a competitive LCOE. According to industry estimates the average 2013 LCOE for CPV is $0.14 per kWh. If costs continue to decline along industry estimates then it is expected that by 2017 CPV's LCOE could end up around $0.08 per KWh. These numbers are very promising as coal's current LCOE is around $0.10 per kWh.

Siemens is no renewables small fry. It runs a billion dollar wind turbine business with good connections to the utility industry. In Q1 2014 alone it received €2.3 billion in wind orders and had an overall corporate net income of €1.5 billion. By investing in Semprius, Siemens is able to put more money into renewables, leverage its existing utility connections and develop a complementary business. 

Applied Materials is another big investor in Semprius. Applied Materials makes the equipment used in the production of semiconductors, flat panel displays, and PV cells. Its investment in Semprius should be quite symbiotic as it will help Semprius scale its manufacturing operations and let Applied Materials develop and profit from the CPV market. With $2.2 billion in Q1 2014 net sales and $253 million in net income Applied Materials has the size and know-how to help commercialize Semprius' technology.

The bottom line
Existing solar manufacturers like SunPower and First Solar face big competition from CPV's falling LCOE. Keeping an eye on SunPower's and First Solar's ability to increase their efficiencies and push down costs is critical as CPV technology grows. Siemens and Applied Materials are the two big winners in this story as they have the pockets to back Semprius and the connections to jump-start its sales and manufacturing efforts.

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Joshua Bondy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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