While we have noted that solar power can be harnessed in many different applications, on-site generation in both residential and commercial settings is the fastest growing segment of photovoltaics (PV) in the US. At least this is true in California, where the majority of the nation's solar generation is currently being installed. This is due to the California Solar Initiative (CSI), a program designed by the state government to encourage solar installation by providing incentives to make it cost effective (as PV is the costliest form of power generation without subsidies – at 3-5x more expensive than electricity generated by traditional fossil fuels). By 2017, when the program expires, the goal is to have 3,000 megawatts of solar-produced electricity in the state.
It is with great hope that California is setting the tone for renewable energy programs in other states, as without sufficient subsidies, solar power is no more than a fad. But let's take a moment to examine SunPower Corp. (SPWR), an industry leader who is seeking to make further inroads into the largely untapped U.S. market.
Recognized for having a superior in-house technology, SunPower recently acquired PowerLight, which is known for superior PV system design. The result is an almost fully vertically-integrated company that is positioned to potentially become a global leader and pave the way for the rest of the industry. Indeed, CEO Tom Werner has stated that with the partnership, the company plans to reduce the cost of an installed solar system by 50% over the next five years. Effectively, this would put the cost of solar power at competitive rates with retail electricity, without subsidies, and in one half the time that the CSI has earmarked.
These are ambitious goals to say the least, but if executed properly, SunPower could put itself at the front of the pack. One of SunPower's competitive advantages is its advanced solar cell technology. With above a 20% efficiency rating for its A-300 cell (compared to an efficiency rating of about 15% for cells made by competitor Evergreen Solar (ESLR)), SunPower produces one of the most powerful commercially available cells. This will become quite useful when trying to enter markets that don't get nearly as much sunlight as California, such as the Pacific Northwest and the heavily-populated U.S. eastern seaboard.
SunPower has entered uncharted waters with a large-scale acquisition so early in the industry's growth phase. It is unclear at this point what will happen next – whether they will succeed in their plan, resulting in competitors also needing to consolidate to stay in the game, or whether the integration proves to be too tall of an order, possibly hindering the company's growth. Investor's expectations may have risen with these aggressive plans, thereby increasing the company's cost of equity and its risk premium.
Regardless, by virtue of its superior technology, SunPower holds a competitive advantage. Let's see what can happen as a result.
Disclaimer: I do not give investment advice. Do your own research. Do not rely on anything in this blog to make investment decisions. Consult an investment professional familiar with your specific financial situation before buying or selling any security.
Disclosure: I do not own any of the stocks above but may consider doing so in the future.