One of the core challenges solar manufacturers have always had is the sheer speed at which the solar industry moves. By the time you develop a new solar cell and build a manufacturing plant for it, the technology is already nearly obsolete. I highlighted earlier this year that SunPower's (NASDAQ:SPWR) first two major manufacturing plants lasted less than a decade each before being shut down. And if you look at the performance of Suntech Power, Yingli Green Energy, Renesola, and even First Solar (NASDAQ:FSLR) the same dynamic holds true.
Ideally, manufacturers would like to build plants that could adapt as new technology is created, and build their businesses around a more dynamic manufacturing platform. And that's the theory behind SunPower's huge bet on P-Series solar panels and the utility-scale Oasis platform.
How P-Series reduces risk in solar manufacturing
I was reminded of the importance of flexible manufacturing when China's GCL-SI, a leading solar manufacturer, announced that it has made 20.6% efficient multi-PERC solar cells in mass production. And it expects to reach 21% efficiency by the end of the year.
Manufacturers are increasing the efficiency of their solar cells constantly, which leads to the challenging operating conditions SunPower, First Solar, and others find themselves in. In their own manufacturing facilities, they're trying to fight off the improving technology of others with better technology of their own -- a never-ending battle.
What SunPower is trying to do with its P-Series product is leverage the improving cell efficiency of other suppliers. The company can take any front contact solar cell and, with the P-Series shingling process, make a module that's slightly more efficient than competitors could make with the same cell.
This gives SunPower the ability to ride the efficiency increases in the solar industry rather than fight them. And with a low capital expense of around $0.05 per watt of capacity, the P-Series could be the kind of product SunPower can build a utility-scale business model around.
The solar business model may finally be working itself out
Equally important to creating technology and manufacturing plans that are financially feasible is building a business model around your capabilities. For a long time in the solar industry, that meant vertically integrating. SunPower started making cells, moved to modules, and eventually built and owned entire power plants. First Solar followed a similar strategy, and so did Canadian Solar (NASDAQ:CSIQ) and many others. But that may not be the most efficient approach. After all, can you really expect a solar cell technology company to do the best job of lowering installation costs for utility-scale solar projects?
What I think we're seeing slowly happen in solar is the separation of manufacturing and development functions into more logical business models. GCL-SI may be the best at making silicon and even solar cells, but it's going to leverage that position to sell products to module manufacturers. And those module manufacturers will in turn sell products and solutions to solar developers.
SunPower is betting that it can leverage its experience developing solar projects and the technology behind the P-Series into a niche within the utility-scale solar market. It's buying cells from companies like GCL-SI and turning them into panels, but also offering design and engineering solutions to solar developers. This allows the company to scale its offering with very little additional capital expense.
For this model to succeed, SunPower has to be right on two fronts. First, the P-Series solar panel has to be at least as good, if not slightly better, than competitors' similarly priced solar panels. Management says it can achieve that goal, but that remains to be proven. Second, SunPower needs to provide design and engineering services that result in lower-cost installations of utility-scale solar. It thinks it can do that with the Oasis platform, starting with a drone that will design a plant to maximize energy production, a racking design that lowers costs versus previous versions, and a cleaning robot that lowers maintenance costs and maximizes energy production.
The best chance at building a sustainable utility scale solar business
If SunPower can execute on the P-Series technology and leverage its design and engineering capabilities, it will have the flexibility it needs to build a long-lasting utility-scale solar strategy, rather than investing in technology that will be obsolete in a few years.
Leveraging the parts of the value chain where it can differentiate itself while riding the technology improvement of solar cell suppliers seems like the best option SunPower has in today's solar industry. There's no guarantee of success, but this has a better chance than previous efforts like building power plants with high-efficiency (and expensive) solar panels, or making a solar concentrator product. And with over 5 GW of P-Series manufacturing capacity (about 6% of global solar installations) already in the plans, SunPower stock could be a huge winner long-term if the strategy is successful.
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