SunPower: A Bright Spot in Renewable Energy

A diversified, integrated approach to making solar energy both an affordable and profitable venture.

OVERVIEW

SunPower designs, manufactures and provides solar components, systems and services to residential, commercial and utility customers globally.  Founded in 1985 by a Stanford professor, the Company now operates on six continents with over 7,000 employees and is majority owned by Total S.A., one of the world’s largest energy companies.

BUSINESS MODEL

SunPower’s legacy remains its largest competitive advantage to date.  SunPower manufactured solar components are the most efficient commercially available – meaning more power per panel vs. competitors (which is particularly important for maximized used of constrained spaces).

Comparable Panel Efficiency (portion of sunlight the panel is able to transform into electricity)

Panel Efficiency

SegmentsIn addition to selling panels, SunPower has evolved its business model to integrate them into a diversified range of complete solar solutions and is now organized across three key segments: 1) Residential, 2) Commercial and 3) Power Plant.  The Company recently revised its reporting structure from a geographic segmentation in order to align with its “one-stop shop”, customer-centric approach.

Residential

SunPower offers complete residential solar solutions to homeowners, deriving revenues through direct cash sales and long-term leases, sales to third party dealers and follow-on maintenance services.  In addition to a clear value proposition to homeowners of reducing monthly utility bills through clean, renewable energy, SunPower has dramatically simplified the process by managing each step.  The Company offers free consultation services to create a custom design proposal and outline estimated savings, manages installation as well as permitting and paperwork and offers flexible long-term payment options.  With zero money down lease financing available, SunPower rents the system directly to homeowners, significantly increasing its potential customer base by eliminating prohibitive upfront costs and managing the monetization of investment tax credits.  Additionally, energy management software services and a best-in-class 25-year warranty provide continued value to the customer over the lifetime of ownership.

Commercial

SunPower provides a range of distributed generation systems to businesses, educational institutions, government and homebuilders.  The Company’s Helix TM platform represents the first fully-integrated commercial system, again simplifying a traditionally complex installation and integration process.  SunPower offers a range of purchase and lease options designed to reduce overall energy costs, including Power Purchase Agreements (PPA) in which customers incur no upfront costs and pay a fixed rate per kilowatt-hour consumed.  Similar to its Residential products, the Company differentiates itself through superior panel efficiency, durability and aesthetics, value-add services and ongoing maintenance support.

Power Plant

SunPower’s Power Plant segment includes large scale solar projects.  The Company works across the value chain, from developing utility-scale power plants, procuring solar off-take contracts, project finance, engineering & construction and maintenance.  SunPower also sells components for third-party power plant developers, and its Oasis TM system of 1.5MW modular blocks allow for seamless scalability (think Tetris with solar panels), improving ease of installation and reducing costs.

OPERATING MODEL

SunPower’s operating model is predicated on its vertical integration, representing a clear alignment to its diversified business model and end-user base.  As panel costs become a smaller part of the overall system, the Company’s ability to drive scale and reduce overall systems costs by offering complete, standardized solutions will allow it to sustain its current advantages.

Vertical Integration

Scale
Costs
Superior technology and fully integrated solutions have driven increased demand from the greater return on investment provided customers across channels (including being the only company with integrated offerings for the Commercial and Utility segments).  As SunPower has grown, it has continuously and successfully invested in cost-control strategies, reducing manufacturing costs while still generating technological improvements.  Likewise, as one of the dominant global producers, the Company has partnered with suppliers of key materials such as polysilicon through long-term arrangements to secure availability and drive down costs.

Sales Channels

Through vertical integration, SunPower has sourced direct relationships across the solar ecosystem (from utilities through to homeowners). In addition to over 2,000 sales representatives in the U.S., SunPower has built a comprehensive network of channel partners.  For example, the Company recently partnered with ConEdison, a major utility and developer of renewable projects, to serve as a channel partner for its residential distributed generation products.  This type of customer sourcing is directly attributable to its diversified model and has both broadened market access and reduced customer acquisition costs.

Acquisitions / Partnerships

SunPower has also been active in strategic acquisitions and partnerships to find further value additions to its systems.  In late 2014 the Company acquired SolarBridge, a microinverter specialist.  SolarBridge technology will allow SunPower to incorporate inverters directly into its modules, reducing the need to mount additional rooftop components thus further simplifying installation to reduce time and system costs.  Furthermore, to better integrate energy management services offerings, SunPower made an investment in Tendril Networks Technologies to license its software to integrate data coming from its customers’ systems.

Financing

Given up to one-third of power plant costs are financing related, a focus on managing capital costs is essential.  In utilizing its scale and available resources through Total, SunPower has been able to effectively do so.  This serves as a key pillar in supporting a diversified and integrated approach, from better managing its residential lease portfolio to securing financing for large-scale projects.

As a notable example, SunPower recently took public 8point3 Energy Partners, a joint venture with FirstSolar.  8point3 operates as a Yieldco formed to acquire and operate long-term, contracted solar generation assets and thus distribute a source of predictable dividends to investors.  One of the first renewable investment vehicles of its kind, 8point3 will serve as a unique source of cheap capital to fund growth going forward.

CycleSustainability

It is also worth noting that SunPower use its own solar panels to power manufacturing operations at panel assembly facilities globally.  Two of the Company’s panels have been Cradle-to-Cradle certified, a prestigious international product certification standard evaluating “product design, manufacturing and sourcing practices as well as corporate citizenship and ethics principles.”  The Company’s commitment to sustainable operations directly corresponds to its integrated renewable offerings and drive to provide the best available clean technology solutions.

CONCLUSION

SunPower is an example of how complementary business and operating models can generate success even in an industry that has faced significant headwinds.  The Company’s focus of expanding on its core competency of producing high quality solar cells to provide solutions across a diversified customer base has been supported by its vertically integrated approach that has driven scale and allowed for standardization to reduce system costs and continuously provide more value to its customers.

 

Sources:

  1. http://us.sunpower.com/
  2. SunPower SEC filings
  3. SunPower 2015 Analyst Day Presentation. 12 November 2015. http://files.shareholder.com/downloads/SPWR/1133560418x0x861169/C9FCA34A-DC93-41DC-8CC8-9D52F1ACB49D/2015_SPWR_Analyst_Day.pdf
  4. “First Solar, SunPower Plan 8point3 IPO.” The Wall Street Journal. 10 March 2015. http://www.wsj.com/articles/first-solar-sunpower-plan-8point3-ipo-1425997308
  5. “SunPower Buys SolarBridge To Bring All-In-One Panels To Mainstream.” Forbes. 10 November 2014. http://www.forbes.com/sites/michaelkanellos/2014/11/10/sunpower-buys-solarbridge-to-bring-all-in-one-panels-to-mainstream/
  6. “SunPower: Leaders of the distributed generation.” Macquarie Research. 30 October 2015.

Previous:

GSK – Keep it simple

Next:

Wayfair.com, not your daddy’s furniture store

6 thoughts on “SunPower: A Bright Spot in Renewable Energy

  1. Many thanks MLG, very interesting post!
    This is a great example of a company mastering its core, and then growing into new customer segments. Reading the growth story, I wondered what role Total S.A. played in this success. Did they provide leverage in getting partnerships/acquisitions and/or financing? And looking ahead, would you see value of carving-out the SunPower business at some point?

    1. Hey Silvan – thanks for the response. Some great questions. Total made the investment for a ~60% stake in 2011, and from what I know there is no clear timetable to exit. In regards to their role, SunPower has been able to leverage the strength of Total’s balance sheet in reducing capital costs. For example, in 2014 Total refinanced some existing SunPower debt at a lower cost convertible bond. Furthermore, I believe that Total’s extensive global reach has played a key role in reducing customer acquisition costs for SunPower when entering new markets.

  2. Great post, MLG. Very interesting read how the business and operational models complement each other in a vertically-integrated company.

    Could you elaborate more on 8point3 Energy Partners – why did SunPower enter into that IPO and how is it going to benefit the company? Is it because they are having trouble raising their own capital for projects? From what I understand about such entities is that 8point3 becomes the project owner and basically takes over the cash flows of the solar installations. So why did SunPower need to collaborate with its largest competitor, FirstSolar, for this joint venture (JV)? Wouldn’t that cut into the share of SunPower’s projects to the JV and reduce their returns?

    1. Hey Lidiya – thanks for the response. The YieldCo structure really just presents a unique way to monetize high quality, contracted projects that should provide a steady stream of cash flows going forward and thus can generate a nice diversified source of relatively low cost-capital to fund other project development. A YieldCo offers investors a more stable stream of dividends (hence the ticker, CAFD, which is a clever acronym for “cash available for distribution”) without exposure to the volatility associated with the broader SPWR / FSLR businesses. In regards to the JV structure, I think scale is the key factor. By partnering, SPWR and FSLR could combine to contribute assets without overselling their contracted portfolios and get the investment vehicle to market quicker and at a better price. If you’re interested in reading more about YieldCo structures, the overview at the link below is pretty helpful.

      https://financere.nrel.gov/finance/content/deeper-look-yieldco-structuring

      1. Thanks a lot for the link, I’ll take a look!

  3. Really enjoyed this post. I had no idea about the Cradle to Cradle certification for some of Sunpower’s panels – would be interesting to know how much of a premium those go for relative to their standard panel, and the typical consumer. It’s great to learn about the creative approaches they’ve taken on the technology and business partnership fronts, particularly given some of the uncertainty ahead for their solar industry, and I hope to see Sunpower weather that storm.

    On the discussion regarding YieldCos above, I’d be curious about your thoughts on recent performance and long-term sustainability of this financing vehicle. Given the need to keep “feeding the YieldCo beast” and now that capital is no longer quite as cheap, I’d be concerned that the shift in expectation might actually be a disadvantage to Sunpower, similar to the issues that have cropped up at SunEdison.

Leave a comment