Installing SunPower solar panels on a new house in Atlanta's Buckhead section.
MOUNTAIN VIEW, CALIF.—It's only late morning, but already the sun has turned Silicon Valley into an oven that's broiling human and housing tract alike. On days like this, everyone gets the same idea: Crank up the A/C. It's a day of high energy use—the kind that taxes and teases California's fragile electricity grid.
But this brand of sunbaked California weather is when solar energy shines (or, really, soaks in the rays)—making it a high-energy day of a totally different kind. On the roofs of four buildings on Microsoft's Mountain View campus, a sleek grid of 2,288 black SunPower solar panels—covering 31,000 square feet in all, about the size of the average chain bookstore—is slurping up the summer light and converting it into electricity. Thanks to the installation, which was finished in early 2006, the Microsoft complex can tap the California grid for about 6 percent less electricity in all, and about 15 percent less at times of peak use.
Superefficient. These days, that's the kind of math that will rouse the interest of even an Al Gore-Inconvenient Truth skeptic. Gyrating energy prices, fears that the climate is changing, and the public's growing interest in energy independence are good news for solar companies like San Jose-based SunPower. Its superefficient solar cells dapple residential, commercial, and industrial landscapes from Parsippany, N.J., to Barcelona, converting 22 percent of the sun's rays to electricity, compared with industry norms of about 10 to 15 percent. The company plans to market a 23.4-percent-efficient cell within the next two years. In a volatile solar market with lots of emerging players, SunPower's efficiency levels are a big reason the company, with 3,700 employees worldwide, is expected to be "one of the longtime survivors," says Paul Clegg, an analyst with Jefferies & Co.
Along with its technological jump on competitors, SunPower is also leaping quickly into overseas markets that offer fat subsidies for renewable energy, while chasing customers of all stripes. (Commercial and residential sales have each made up about 40 percent of recent revenues, with utility projects accounting for the rest.) "The Harvard Business School professors would ask: Can you win in all three?...I think you can," says SunPower CEO Thomas Werner. "I don't know if you can indefinitely, but I think you can in the early stages of the market."
Investors certainly have high expectations. SunPower stock trades at a rich price-to-earnings ratio of about 250, although that number dropped recently in part on news that Spain may sharply cut its solar subsidies. The company rang up $274 million in sales in the first quarter this year, nearly double the year-ago period. Net income jumped to $12.8 million from $1.2 million a year earlier. The company reports its second-quarter earnings July 17—analysts expect earnings per share will double from a year ago to hit 50 cents.
SunPower gained major kudos when it moved from simply making the components of solar power systems to designing and installing them as well. In 2007, it acquired PowerLight, a California company specializing in large commercial and utility-scale systems that often use SunPower cells. (SunPower still relies on a network of 170 or so dealers to install its residential systems.) The PowerLight purchase may have given SunPower its biggest edge over competitors, says John Hardy, an analyst with American Technology Research. "It's really important to be able to see where the end-market demand is actually coming from, particularly in a relatively new industry like solar," Hardy says. Competitors that make only components often rely on the installers for insights into demand.
Most solar installations so far have been driven by government incentives. In the United States, incentives have drawn such disparate corporate names as Tiffany's and Wal-Mart—both SunPower customers. A system of 72,000 SunPower solar panels provides about 25 percent of the electricity needs at Nellis Air Force Base in Nevada.
But the reliance on incentives can hurt. A federal investment tax credit has mostly encouraged U.S. commercial installations, Werner says—for residences, it allows only a smallish 30 percent tax credit, up to $2,000, for a photovoltaic system. That credit expires at the end of the year. Congress has been tussling over an extension: Senate Republicans are blocking a bill from House Democrats because they don't like the way it's funded. Some states, like New Jersey and California, have offered sizable solar rebates for residents.
Out front. While the domestic uncertainty has certainly given the solar industry a headache, SunPower says it's prepared for the U.S. tax credit extension to fail. The company is bulking up in Europe, where countries like Spain, Germany, and Italy have aggressively courted renewable-energy producers. SunPower has tripled the size of a recent acquisition in Italy—a company similar to PowerLight. "You need to be in each region before the incentive goes away," Werner says. "We're setting up in the other parts of the world before everyone else."
The only way, however, for solar to become a major contributor to the world's electricity supply is for its price to come way down. Solar energy today is recognized as clean and viable—it's obvious electricity can be reaped from the sun—but it represents just 0.1 percent of the total electricity market. The goal for all solar companies is to reach grid parity—where the price per watt of solar is equal to that of grid-generated electricity.
Several walls of SunPower's Richmond, Calif., office—a fresh-scrubbed portion of an old Ford assembly plant—hold posters bearing the company's explicit corporate vision: to compete with retail electric rates by cutting solar power system costs in half by 2012. Oh, right—and to become the most recognized and highly valued solar name.
There's plenty of competition. Companies like First Solar are making headlines with their thin-film cells—made of materials that are cheaper, but less efficient, than the silicon used by most solar cell makers, like SunPower. Even IBM is a competitor—a small group of its researchers is now trying to get greater efficiencies out of thin-film technology. IBM sees "obviously, a huge opportunity" in solar, says spokesman Steve Tomasco. Werner seems unfazed by the growing crowd. "Big multinationals are validating that this is the real deal," he says. Rubbing shoulders with companies like Intel and General Electric only points to the upside in the market, he adds.
SunPower has aggressively tackled its materials costs: While tight silicon supplies have unnerved the industry, SunPower says it has managed to lock in silicon prices that, by the end of 2009 and into 2010, will run 30 to 60 percent lower than what it paid last year. Refined silicon, known as polysilicon—used in microchips and solar cells—requires lots of upfront cash to make, and the solar industry's growth has strained the existing producers. But new suppliers are entering the market, and prices are expected to come down in the next few years. Meanwhile, SunPower is using less silicon by putting thinner wafers in its cells.
The company survived early growing pains by cashing a personal check from Cypress Semiconductor founder T. J. Rodgers, who promised to help get manufacturing costs down. (Cypress now has a majority stake in SunPower and has made moves to prepare for a spinoff of the company, although it's tight-lipped about exact plans.)
Power vs. price. The question is whether SunPower's higher cost structure—thanks to the process of making high-efficiency cells with extra-thin wafers—can be competitive long term, says Piper Jaffray analyst Jesse Pichel. "They have the highest-power-output solar cells, but it's not the lowest cost," Pichel explains. "And ultimately, energy is a commodity." SunPower's product may sell better for business or residential rooftops, where space is limited, than for ground-mounted installations, where cost per watt rules, Pichel says. Its panels tend to win points for aesthetics, notes Jefferies analyst Clegg, which also is more important on a rooftop than in a utility field.
For residential customers, installing a solar power system on a rooftop still requires about as much cash as buying a new car—the industry average is about $8,000 per kilowatt without a subsidy. Most homes would require about 4 or 5 kilowatts to cover most electricity needs. SunPower customers often recoup their costs within five to nine years, Werner says.
The SunPower CEO thinks incentives will be necessary for another three to eight years, when solar would ideally reach cost parity with traditional grid electricity. Ask Werner if the uncertainty about government subsidies makes him nervous and he responds: "Did you ever see the movie Jurassic Park?" He's thinking of Jeff Goldblum's character, hanging off the back of a jeep as dinosaurs nip at his heels: "Must go faster," Werner says. "You've got to get costs down faster.... You have to innovate fast—you have to deliver your end of the deal."
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