- SunPower Technologies constitute 55% of the Trefis price estimate for SunPower's stock.
- North America Residential constitutes 32% of the Trefis price estimate for SunPower's stock.
- North America Commercial constitutes 13% of the Trefis price estimate for SunPower's stock.
WHAT HAS CHANGED?
Q2 '20 Earnings
SunPower reported net sales of $353 million in Q2 '20, down from $436 million in Q2 '19. Net income, too, dropped from $121 million to $19 million over the same period, with EPS falling to $0.11 from $0.85.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of SunPower's value that present opportunities for upside or downside to the current Trefis price estimate for SunPower:
- SunPower Technologies Revenue :
SunPower Technologies saw its revenues decline by over 20% 2018, falling to around $870 million, on account of lower project sales. However, we expect the metric to pick up and grow to roughly $1.2 billion by the end of our review period, driven by higher equipment sales. If the metric rises to over $1.5 billion, exceeding our expectations, there could be a 15% upside to our price estimate. On the other hand, if the metric remains flat at $900 million levels, there could be a downside of 10% to our price estimate.
SunPower is a manufacturer and distributor of silicon-based solar modules which are used to convert sunlight into electricity. The company produces solar power products for installation on residential and commercial units as well as large-scale, utility-sized projects. SunPower's solar modules have among the highest conversion efficiencies in the industry. The company also develops solar systems including rooftop- and ground-mounted solar systems. In 2011, Total S.A. of France acquired a majority stake in the firm.
We are modeling Non-GAAP revenue and cost metrics for SunPower, as U.S. GAAP defers revenues from transactions with the company's joint-venture yieldco, 8Point3 Energy Partners, to the future.
SOURCES OF VALUE
We estimate that sales of modules and solar systems in the Americas account for most of the company's value. This is partially due to the following factors:
Increased utility-scale footprint
Solar cells manufactured by SunPower were historically used for installation on residential and commercial units. However, the company has been steadily increasing its presence in the utility-scale market, constructing some of the world's largest solar farms such as the 579 MW Solar Star project, helping to improve margins. Most of these higher-margin utility project sales are in the Americas.
Growth opportunity in rooftop solar
Rooftop solar is expected to be the fastest growing segment in the global power industry. According to Bloomberg New Energy Finance, rooftop solar will account for 20% of all gross electric capacity additions globally through the year 2020, outpacing other renewable energy sources including utility solar and wind energy. This is likely to be a net positive for SunPower, given that the company specializes in higher efficiency solar panels that are well suited for rooftop applications.
SunPower's Launch Of Next Generation Panels
SunPower has traditionally led the solar industry in terms of conversion efficiencies, essentially meaning that its panels produce more power for a given size. However, its panels are priced at a significant premium to mass-market panels, limiting its market size to more developed markets and specific applications such as rooftops, where space is a constraint. However, SunPower is currently rolling out its next-generation solar panels with its Next Generation Technology (NGT) which are likely to offer efficiencies of around 23% (roughly in line with its top-end X-Series panels), although costs are likely to be between 30% to 40% lower. SunPower expects these panels to compete head-on in terms of price with the mono-PERC solar panels, which are widely available in the market today while offering higher performance and durability. The company expects over 100 MW of NGT panel deployment during 2019, with capacity expected to ramp-up to 250 MW by the end of the year.
Challenges in the utility-scale business
Contracting activity in the utility-scale solar business has slowed down and there has been greater competition from smaller players and independent power producers in the project development space, impacting the prices at which PPAs are being signed globally. Additionally, investor IRR expectations for solar projects have trended upwards, putting pressure on the prices that companies such as SunPower can charge for projects.
Legislature and incentives to aid renewable energy projects
Governments all across the world have taken measures to encourage the use of solar technology as a way to help them remove their dependence on fossil fuels. For instance, in the United States, at the Federal level, the government offers incentives including an investment tax credit (ITC) of around 30% on the initial cost of a solar system. The credit, which was slated to decline from 2017, was extended by U.S. Congress in December 2015.
Emerging solar markets will account for bulk of future demand
China became the worlds largest solar market in 2013, overtaking Germany as the worlds largest solar market. The market is estimated to account for about half of global demand in 2017. Other emerging markets such as Latin America and the Middle East are also becoming important markets for solar power, given a combination of high electricity prices and strong consumption growth.
Changes to the project financing landscape
Financing for solar energy projects has been an issue in the past and developers have largely relied on complex tax equity investments or expensive bank debt to fund projects, as they have had difficulty tapping into cheaper sources of capital due to the lack of long-term data on solar power, and also due to the perception of solar as being risky and unproven. However, the decline in solar systems prices of late, as well as the improvements in panel technology, have brought about a greater acceptance of solar power and have made solar assets increasingly attractive. SunPower has been exploring various means to expand funding for its solar systems business. The company has also indicated in the past that it would issue solar asset-backed bonds. These moves could help the company reduce the cost of capital and maximize value from its projects business.