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Why SunPower Corporation Sees a Bright Future

By Travis Hoium – Feb 21, 2016 at 10:00AM

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A growing pipeline and improving performance in residential solar should please SunPower Corporation investors.

Image: SunPower.

When SunPower (SPWR 7.13%) reported earnings on Wednesday, it made reported a lot more than just fourth quarter earnings figures. Management said out what it saw as its opportunity in the global solar market and how the market had changed in recent months.

The two things I took away from the call were an explosion in SunPower's reported pipeline and very bullish comments on residential solar, which flies in the face of slowing growth at SolarCity (SCTY.DL).

SunPower's pipeline explodes
At Analyst Day in November, SunPower outlined what it saw as a 10 GW potential pipeline worldwide. Three months later, when the company reported fourth quarter earnings the company saw its pipeline as over 14 GW, a huge jump in just a few months.


Analyst Day-November 2015

Q4 2015 Earnings-February 2016


3,050 MW

4,100 MW


580 MW

1,280 MW

Middle East and Africa

5,600 MW

6,150 MW


1,150 MW

3,000 MW

Global Total

10,380 MW

14,530 MW

Source: SunPower.

I thought this would be driven by the ITC extension, but you can see above that the pipeline expansion is broad based around the world. I asked CEO Tom Werner what drive the big increase in the pipeline and he said the COP21 agreement in Paris late last year was the biggest driver of the bullish pipeline predictions.

Falling costs for solar costs and abundant solar resources are driving countries like India, Saudi Arabia, the UAE, and China to rapidly increase their planned solar installations. The commitments they made at COP21 gave SunPower confidence to boost the pipeline and it should be able to take advantage of these emerging markets long-term.

Residential solar is a growth market?
When SolarCity reported earnings last week it gave largely disappointing numbers. Installations grew 54% in the fourth quarter, which missed estimates, and it said growth would be just 18% in the first quarter of 2016. Here are some figures SunPower gave showing a more bullish residential business.  

  • Installed leased MW grew 60% year over year in the fourth quarter.
  • 67% of fourth quarter residential sales were cash sales (includes loans) and just 33% were leases.
  • Growth for Q1 2016 is expected to be 45%-50%.
  • SunPower gained market share in 2015 and expects to do the same in 2016.

There are a few things driving SunPower's growth and SolarCity's weaker results. The first is that SunPower's model of working with dealer partners to do sales and installation leaves it less susceptible to rapid market changes, like we saw in Nevada. SolarCity was forced to shut down Nevada sales operations, losing a booming pipeline, while SunPower just shifted its allocation of panels to customers in different states.

Loans have also been a key selling point for SunPower. The company has long sold well over half of its residential solar system with loans, which are typically lower cost for homeowners long-term. GTM Research predicts that leases, which is SolarCity's primary financing method, will drop from 73.2% of the market in 2014 to 46% by 2020 as customers become more educated on solar and costs to buy systems come down. This is consistent with data from solar marketplaces like EnergySage and Pick My Solar. Perhapse we're seeing the solar business model shift away from SolarCity's preferred lease toward SunPower's more flexible financing options?

SunPower has also begun using utility partnerships to drive residential solar adoption. It has agreements with TXU Energy, ConEd, and Dominion to partner in residential solar sales. This allows SunPower to use the utility's contact with customers and makes them partners in an effort to expand solar.  

One quarter doesn't make a trend when it comes to residential solar, but it's very interesting that SunPower is so bullish on its residential solar future at a time when SolarCity has investors very uncertain.

The landscape has changed in solar
We're seeing the solar industry as a whole grow into a more sustainable business long-term, but the positions of power have changed as well. Lately, SunPower has been proving that a strong balance sheet and superior technology is a winning strategy, even in residential solar. We'll see if the trend continues through 2016 and beyond. 

Travis Hoium owns shares of SunPower. The Motley Fool owns shares of and recommends SolarCity. The Motley Fool recommends Dominion Resources. 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.

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