SunPower Among First to Gain from Budget Decision

SunPower (NASDAQ:SPWRA) did not have to wait much to see how the federal government’s decision to continue funding the Department of Energy’s (DOE) loan-guarantee program would help the solar energy sector at large, and itself in particular. The company received a conditional commitment for a loan guarantee of up to $1.187 billion from the DOE for its California Valley Solar Ranch. ^[1] SunPower manufactures and distributes silicon based solar cells and also produces solar power products for installation on residential and commercial units. The company primarily competes with companies like First Solar (NASDAQ:FSLR), SuntechPower (NYSE:STP), and Yingli Green Energy Holding Com (NYSE:YGE).

Our price estimate for SunPower’s stock is at $14.85, about 10% below market price.

Understanding the DOE’s Role in Improving Solar Energy Adoption

Over the last few years, the DOE has worked on making large scale solar and wind energy projects feasible for companies by providing them with loan guarantees. Essentially, the loan guarantees allow companies to raise debt for individual projects – something that was difficult after the economic downturn as private debt sources had little experience or limited appetite for financing such projects.

If the government had cut the funding to the DoE, it would have directly affected the $41 billion in loan guarantees for renewable energy projects, a move that companies in the renewables sector said could “kill all clean energy projects” ^[2] We previously discussed the impact of the proposed budget cut on First Solar, the largest manufacturer of PV modules in the U.S., in our article titled “First Solar & Renewables Industry Plead to Save DOE Loan Program.” Looks like the plea was given its due with the budget compromise. ^[3]

What This Means for SunPower

SunPower’s 250 megawatt (MW) California Valley Solar Ranch project is poised to become one of the largest photovoltaic (PV) solar power plants in the world when it is completed by 2013. The plant will be owned by NRG Solar, a subsidiary of NRG Energy (NYSE:NRG).

SunPower has been able to foray into large scale utility-sized power projects only recently with the acquisition of PowerLight Corporation. The success of this project would push SunPower up on the preference list among solar companies due to its distinctly higher-efficiency solar cells.

The impact would be seen directly in the shipments of utility and power plant components by SunPower in the years to come. You can determine the effect of an increase in shipment numbers on the company’s stock value by modifying the trend line in the interactive chart above.

See our complete analysis for SunPower’s stock here

1. Energy Department Offers $1.187 Billion Conditional Commitment for Loan Guarantee, SunPower Press Releases, April 12 2011 [↩]
2. Proposal Aims to Gut DOE Loan Program, The Wall Street Journal, March 30 2011 [↩]
3. Federal green energy program lives on, Reuters, April 12 2011 [↩]