SunPower Corporation's Best Moves in 2015

The leader in solar efficiency showed further progress in transforming SunPower Corporation into an energy services company.

Travis Hoium
Travis Hoium
Dec 19, 2015 at 11:20AM
Energy, Materials, and Utilities

Image source: SunPower.

The past year was a mixed bag for solar efficiency leader SunPower Corporation (NASDAQ: SPWR), and the market couldn't decide if the company was showing impressive or disappointing results. The company isn't the fastest growing company in the solar industry, but it's solidly profitable and has a technology that gives it a competitive advantage. That dynamic can make it a hard stock for growth investors to love and a difficult stock for typical energy investors to buy into.

But a sideways stock price doesn't mean 2015 wasn't a year of progress for SunPower. Here are the three best moves the company made in 2015 and why they'll help SunPower maintain its competitive advantage.

SPWR Chart

SPWR data by YCharts.

Launching a yieldco
One of the most important aspects of being in renewable energy today is financing projects. The lower your cost of capital is, the lower you can bid for energy contracts. Plus, the more financing options you have, the lower your business risk is as an enterprise. Launching 8point3 Energy Partners (NASDAQ: CAFD) with First Solar in 2015 should help with both of those dynamics.

On the capital cost front, a yieldco is a low-risk business that just owns revenue-generating projects with long-term contracts. That should lead to a lower cost of capital than a riskier solar panel manufacturer, although that hasn't been the case in the past six months as the yieldco market fell apart. But long term, that should be the case, as it is with MLPs in oil and gas.

But the greater value for SunPower is the flexibility it now has in financing projects long-term. It can sell projects to third parties, drop them down to yieldcos, or build them on its own balance sheet. Having multiple options allows SunPower to choose what's right for its business depending on market conditions, a luxury not many solar companies have. 

Image source: SunPower.

One of the biggest product launches SunPower made this year was its Helix product for commercial rooftop solar systems. It's a plug-and-play design that can be installed without using tools, a game-changer compared to the complexity solar systems usually have at installation.

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SunPower expects this product to allow them to lower costs and increase margins, but I think it's also a sign of what's coming for the solar industry in general. Eventually, I think we'll be looking at solar energy as a simple enough installation that won't require a specialized company to install and finance projects. For homeowners and businesses, shopping for solar will be more like shopping for a TV or an airline ticket, rather than the high-pressure door-to-door tactics that are dominant today. Plug and play products like Helix are moving us in that direction, and SunPower is leading the way in these full system designs.

A new low-efficiency solar product
The most shocking move SunPower made this year was the launch of its P-Series low-cost panels. Rather than the back contact panels we've come to know SunPower for -- which can reach efficiency as 22.8% -- these panels will be 17% to 19% efficient at turning the sun's energy into electricity, but come with a much lower cost per watt.  

The theory is that lower-cost panels will allow SunPower to enter markets where interest rates are higher and the advantages of high-efficiency panels aren't as attractive. If all goes well, the new product could be nearly half of SunPower's production by 2020.

Building lower-efficiency panels is a big risk for SunPower because it's always been known for high quality and high efficiency. But management thinks P-Series could cost even less than commodity solar panels from competitors and could open up new markets for the company. That would be a big if those predictions come true, but it's a big risk if the product falls flat.

Building a better business in 2015
For investors, the hope is that these three moves will help drive earnings higher in 2016 and beyond, but it'll take time for this strategy to play out. Watch for signs of progress like higher gross margins, drop downs to the yieldco, and higher growth from new products for signs that these initiatives are paying off. If they do, SunPower could be one of the biggest players in reshaping the future of energy.