If there's one risk in investing in a high efficiency solar panel manufacturer like SunPower (NASDAQ:SPWR) it's that competitors could catch up or even leapfrog the manufacturer if they make improvements in their technology. SunPower has built its competitive advantage on higher efficiency, overcoming higher costs because it can generate more power from the same amount of space.

But if a new technology comes along that replaces silicon-based solar cells or somehow leaps ahead of SunPower's 21.5% efficient modules the business could be put in jeopardy in a heartbeat. So, how does SunPower plan to stay ahead?

Spwr Headquarters

Image source: SunPower.

What most solar panels are made of
What most people don't realize is that most solar panels in the world are made from essentially the same solar equipment. Companies like the former GT Advanced Technologies sold polysilicon reactors and PV growth systems have become commodities in solar, with many manufacturers using essentially the same equipment. PV growth systems produce ingots that are then cut into thin wafers that become cells and then cells are assembled to create modules.

Sunpower Solar Cells

SunPower's cell architecture is fundamentally different than competitors. Image source: SunPower.

What's amazing is that manufacturers like Trina Solar, Yingli Green Energy, and Canadian Solar did very little research to learn how to make their solar modules. They essentially bought off the shelf equipment and went into mass production. But they built at such scale that costs across the supply chain dropped, lowering the cost of solar modules for everyone. It was economies of scale at its best.

But commodity solar panels are in no danger of leapfrogging SunPower because most cells are made from a fundamentally lower efficiency p-type construction (versus SunPower's n-type) and don't use back contact construction or a number of other incremental improvements. In short, Sunpower doesn't make a panel that's fundamentally different than Trina, Yingli, or others, but it's made incremental improvements on multiple steps of manufacturing and when those improvements are added together it's a competitive advantage that's very difficult to copy. Listen to what SunPower CEO Tom Werner had to say when I asked him about this exact problem. You can see the full interview here.

What about emerging solar technologies?
The bigger risk than silicon based solar cells is technology that may emerge from universities around the world. In the past CIGS, amorphous silicon, and CdTe have all been "the next big thing" in solar and if a new technology emerges that's lower cost and higher efficiency SunPower could be in trouble.

This is a risk, no doubt, but the reality is that none of the technologies I mentioned ever proved to be economical on a mass scale and eventually fell by the wayside. As an investor, until I see one of these technologies pass SunPower in cost and efficiency I won't be too worried. Solar technology is easier said than done and I'm taking a "prove it" attitude with new technology.

What makes SunPower different
SunPower doesn't make splashy headlines about efficiency improvements and cost reductions but slowly and steadily it stays ahead of the competition. That's SunPower's plan in the future as well. Management is confident it's the right path and as an investor I'm less worried about Chinese commodity competitors than a new technology emerging from somewhere we least expect.

Until that technology shows up, SunPower will maintain its technology lead in solar.

Travis Hoium manages an account that owns shares of SunPower and is personally long SunPower shares and options. 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.