A look into SunPower’s US$2 billion payday

What do you see as the significance of the over US$2 billion price tag MidAmerican Renewables will pay for SunPower’s 579 MW AVSP?
Indeed it does show that the utility-scale market in the U.S. is still alive and kicking. Looking at the size of the projects that are being talked about, they are getting bigger. The AVSP will be the biggest combined photovoltaic system announced to date and as soon as Berkshire Hathaway is involved in an investment then it tends to be seen by many people, also outside of the industry, as the ultimate proof of a sustainable business case.
So this is good news for the industry as a whole. On the other hand it does show that photovoltaic demand is still dominated by demand for utility-scale projects. This demand also does not come from the pure economics. If you look at this figure of US$2 billion to $2.5 billion (and I’ve checked back on the SEC filing of SunPower so it is an official figure), it does show, at least in this point in time, that photovoltaic power in the U.S. still requires support from the Renewable Portfolio Standards. If you break this system price down into a kilowatt hour price, it still is rather expensive and we have considerably cheaper offers that we’ve seen in Europe compared to the prices in the U.S.
What does the sale indicate for SunPower?
It proves once again that SunPower is maintaining a significant market share in the utility-scale system segment in the U.S. They don’t have anywhere close to comparative market share anywhere outside of the U.S. Historically SunPower has had a significant track record of winning relevant projects in the U.S., be it with the military or other utility scale systems.
This by far is the biggest project win announced by any company and again by SunPower. Obviously to them and their majority shareholder Total from France, it does show that there is demand for high efficiency products. Although I do believe that there is a component of "buy American" involved in this investment decision and that MidAmerican Solar does favor technology that is provided by a U.S. company – as far as I understand they’ve only invested in companies with photovoltaic system that were produced by American manufacturers, be it First Solar or SunPower.
Are you surprised about the deployment of SunPower technology, including tracking systems, at such a large-scale and in this desert climate?
Well the other SunPower utility-scale systems were deployed in the Californian desert, so it’s not totally new territory for them. With the temperatures out there and with the temperature coefficient, you would assume that that environment lends itself more to thin film systems.
As photovoltaic power does become a viable electricity source, we should expect to see the trend, first of all, more frequently seeing large-scale systems in the order of 100 MW and above. Other projects in the MENA region that we see being discussed are in the order of above 100 MW, although not at the 500 MW region as these AVSP are, but solar projects of 100 MW, 200 MW or 250 MW will become more common. I think on the other side what we should all also look out for is that in the more developed photovoltaic markets, the real breakthrough for this technology that would prove that it is becoming more and more independent of public subsidies would be an increasing market share comprised by medium or small scale systems, where obviously the economics start making sense a lot earlier than at the utility-scale.
Thin film modules are being employed at EDF Renewable Energy’s 143 MW Catalina project. Today it was announced that it has also been financed. It uses First Solar and Solar Frontier modules. While the price has not been disclosed, what do these sales signal about the U.S. PV market at present and also for thin film producers?
What we’ve seen about the technology just in general is that to date there are more or less just two thin film players left: First Solar and Solar Frontier. So that is also another explanation of the purchase of the SunPower projects, that the customers of utility-scale projects don’t want to be dependent on just two suppliers.
Also with the pricing available on the world market – crystalline (c-Si) module suppliers are very price competitive to thin film suppliers – if not even more competitive at this point in time. Both First Solar and Solar Frontier have been very successful in the past 18 months to two years in securing large-scale projects, so they’re still hanging in there. But for both of them it is going to remain challenging and as module prices achievable typically for large-scale systems are the lowest of all market segments, also the thin film manufacturers would prefer to supply medium to small scale systems just in order to achieve higher average selling prices than those than you can supply in the utility-scale segment.
Would you say that the sale of both photovoltaic power plants show that the U.S. market is more robust than some had predicted?
There were fears that with the termination of a number of incentive schemes within the U.S. that we would see a decline in market size or at least no growth in the U.S. going forward. And indeed when we look at the second half of 2012, the second half of last year was characterized by a fairly low number of new systems announced. So these projects aren’t new, they have new buyers but both were announced earlier. But with new buyers it is interesting to see who is willing to invest in this industry and if we talk about the Catalina Solar Project it is interesting to see which financial institutions are willing to invest, and these are large institutional investors who consider the risk profile of large photovoltaic installations in the U.S. and they see that as being rather attractive.
Both sales show that we can expect further growth in the Californian market over the next few years, in terms of projects being driven by Renewable Portfolio Standards (RPS). I hope that we will see signs of small and medium scale projects picking up because ultimately I don’t expect that RPS imposed on an individual state level will ultimately be sufficient in order to maintain the photovoltaic demand that we would expect to see in the U.S. going forward. Again this is also a function of how fast prices have come down and if we look at how prices quoted for the AVSP, we should expect to see further price declines in the U.S. It’s still not on par with the price we’ve see in the most price efficient markets in Europe.
So the AVSP could end up being quite an expensive purchase for MidAmerican?
Not too many details have been revealed. Typically SunPower technology is a more expensive technology – having the highest efficiency modules on the market. I believe that it also comes with tracking systems so you have to look at the price per-kilowatt-hour, so you can’t just look at the price tag and equate that with other large scale systems. But again if you look at the overall energy yield from that solar system, I believe that SunPower wasn’t really in the position to charge a premium, I guess they were able to demonstrate that the energy harvest will not be meaningfully more expensive than if you were to have taken a comparable c-Si system provided by an Asian manufacturer.
Goetz Fischbeck is the Executive Director Equity Research at Bankhaus Lampe.