Should SunPower Investors Be Concerned As SolarCity Clinches Module Efficiency Title?

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Solar City (NASDAQ:SCTY) created some buzz last week, announcing that it had produced the world’s most efficient rooftop solar panel, with a module efficiency exceeding 22%. The announcement was particularly notable on two counts. First, this is the first time that SolarCity is venturing into panel manufacturing following its June 2014 acquisition of Silevo, a solar manufacturing startup. Second, the panels also appear to be very cost-competitive, with the company claiming manufacturing costs of just about $0.55 per watt. The developments may appear to come as a blow to long-standing efficiency champion SunPower (NASDAQ:SPWR), potentially hurting its marketing narrative of having the most advanced panels in the industry. In this note, we examine SolarCity’s claims and figure out if the company’s panel foray could prove to be a legitimate challenger to SunPower’s business.

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Why Panel Efficiencies Are Important To Solar Companies

Panel efficiencies are perhaps the most recognized metric of solar panels. Higher efficiency panels convert a larger amount of sunlight into electricity and usually have a more compact size for each watt of rated power output. Conversion efficiencies have become the most recognizable specification of a solar panel, making them an important aspect in the marketing and advertising of panels. Higher panel efficiencies also help to bring down manufacturing costs of solar panels (since lower quantities  of raw material are required per watt) as well as balance of systems costs of a solar system (since more compact panels mean lower balance of system costs). This makes it particularly useful for companies such as SunPower and SolarCity as it allows them to keep costs for their residential solar leasing and installation businesses low, while offering better performance.

SunPower Has Proven Its Efficiencies At Scale

SolarCity’s record panels were measured to have 22.04 % module-level efficiency by the Renewable Energy Test Center, while a majority of its panels were achieving efficiencies of roughly 21.8 %. In comparison, SunPower’s best panels, the X series, offer efficiencies of about 21.5% and the company is reported to be currently producing panels with 22% efficiencies. [1] This implies that the two companies may be fairly closely matched in terms of efficiencies. However, SunPower still has a significant edge in terms of scale and time to market. SunPower is already mass producing high efficiency panels (over 1.3 GW in annual capacity). However, SolarCity will only produce small quantities of the new modules from its 100 MW pilot facility in California starting this month, while its volume productions likely won’t begin until Q1 2017 when its new 1 GW facility in Buffalo, N.Y comes online. Solar manufacturers continually tweak processes and improve efficiencies of their production lines, and this could potentially give SunPower an edge since it has a large base of capacity that is already operational. SolarCity, on the other hand, could face hiccups in deploying its technology from a small base of under 100 MW to about 1 GW.

SolarCity Has Cost Edge, SunPower’s Planned Fabs Will Help It Improve

SolarCity’s manufacturing process is apparently less complex compared to that of SunPower, which calls for masking, patterning and etching. The company expects initial production costs, including overhead, of roughly $0.55 per watt – a sum it refers to as “much better” than SunPower’s costs, though SunPower doesn’t report panel costs. [1] Moreover, the cost advantage of the technology becomes more compelling when we consider that a bulk of SunPower’s panels are manufactured in lower cost Asian markets, while SolarCity is citing the $0.55 per watt number for its U.S. manufacturing operations. With that said, SunPower is no slouch when it comes to cost management, and the company is expected to see significant improvements with its next generation fabrication units. SunPower expects to reduce its manufacturing costs by about 35% from current levels, with its new Gen 3 Maxeon back-contact solar cells that it will produce in its newest Fab 4 manufacturing facility, located in the Philippines. The 350 MW facility is expected to reach full capacity by 2016. The company also has plans for another large scale facility, tentatively called Fab 5, that could come online by the end of 2017, producing modules with efficiencies as high as 23%, allowing for still lower costs. ((SunPower bets on high efficiency and low concentrating PV, PV Magazine, August 2014))

Bottom Line

While SolarCity’s new panels are indeed compelling for an upstart manufacturer, it’s unlikely that they will prove a challenger to SunPower in the immediate term. Producing panels from a pilot line is one thing, but manufacturing them at a large scale is another. Moreover, SunPower’s new fabrication fabrication units, which are expected to ramp up over the next two years, are expected to help it improve its efficiency and cost competitiveness significantly. It’s very possible that SunPower’s panels will maintain their edge by the time SolarCity begins volume production.

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Notes:
  1. Is SolarCity’s New PV Module the ‘World’s Most Efficient Rooftop Solar Panel’?, Greentech Media, October 2015 [] []