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Boom times are back for solar: 2013 was a break out year for SunPower

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Solar industry bellwether SunPower reversed its fortunes by delivering profits in 2013 and now expects to produce even better results this year, including substantial growth in its program that funds solar panels on home rooftops. The news shows the official turnaround of the solar sector and the emergence of home solar roofs — and new types of financing — as a massive market. Just two years ago SunPower had to significantly cut some of its production.

Executives of the solar panel maker and power project developer said this week that their factories are running at full-tilt to meet demand. The company is building a factory in the Philippines, and it recently raised a $220 million fund from Bank of America Merrill Lynch to boost a program that enables homeowners to use solar electricity without paying for the equipment and installation costs. Lining up the funding was crucial to show that the program’s growth won’t be hampered by a lack of money, as was the case during part of 2013.

SunPower & Flextronics Factory in Milpitas, CA. Photo by Katie Fehrenbacher/Gigaom
SunPower & Flextronics Factory in Milpitas, CA. Photo by Katie Fehrenbacher/Gigaom

“2013 was a break out year for the company,” said Tom Werner, SunPower’s CEO, during a call Wednesday afternoon with analysts to discuss the company’s earnings. “We are confident we will be able to continue to deliver a strong financial performance.”

The $220 million for the residential solar lease program is particularly interesting to watch because the potential for growth is great. SunPower launched the program in 2011 and has been touting it ever since, even though the program is still too new to make any significant impact on the company’s financial performance.

Homeowners in the program pay for the electricity from the solar panels on their roofs via a long term contract, or lease. The money for buying and installing the equipment comes from the fund. Investors who finance the leases get to use a 30 percent federal income tax credit that is designed to encourage solar installations.

Photo by Katie Fehrenbacher/Gigaom
Photo by Katie Fehrenbacher/Gigaom

SunPower also has worked with banks to offer loans for those who want to own the solar equipment, and it expects to announce a new loan soon, said Chuck Boynton, SunPower’s chief financial officer. “Our balance sheet and superior products means we will no longer see financing capacity as a significant bottleneck to growing our business,” Boynton said during the earnings call.

The leasing business has taken off in the United States in the past six years because leases allow consumers to enjoy using solar electricity without paying tens of thousands of dollars for the equipment and installation. Many solar installers also market their leases as a way to reduce monthly utility bills, though there is no guarantee that homeowners will always enjoy lower electric rates through their solar contracts than what they will pay their utilities. A lease often runs 15 to 20 years.

The popularity of leases has propelled the growth of several startups, including SolarCity (s SCTY), which went public in 2012 and is seen as a rare successful exit in the world of venture-backed cleantech companies.

To do well in the leasing business, solar companies have to keep raising money and hope that they won’t run out of it before they close the next fund. Early last year, Werner told analysts that demand for the company’s leases outstripped the money it had available to fund them.

While SunPower executives have been trumpeting the growth of its residential lease program for over a year, they were more circumspect on Wednesday and talked about their desire to have a good mix of leases and cash sales.

PHOTOS: SunPower Factory Tour, 25 Years to 1 GW

Cash sales, of course, gives company a much quicker boost to its finances while the leases promise a steady return over a long period of time. Having a good mix will help minimize risks, such as changes in government incentives and policies and the rise in interest rates, Boynton said.

Rebates, tax credits and mandates for renewable energy generation have driven much of the solar market’s growth in the U.S. and elsewhere in the world. A policy change has shown to be able inflict a lot of pain in the solar industry.

SunPower expects to deliver better financial results in 2014 by generating between $2.45 billion and $2.65 billion in sales and $0.65 and $0.95  per share in earnings.

The company posted $638.1 million in revenue for the fourth quarter of 2013, down from $678.5 million from a year ago. It generated a net income of $22.3 million, or $0.15 per share, whereas a year ago it reported $144.8 million in losses, or $1.22 per share. SunPower saw a slight growth in its 2013 revenue of $2.51 billion and a net income of $95.5 million ($0.70 per share), compared with $2.42 billion in revenue and $352 million in losses (-$3.01 per share) in 2012.

7 Responses to “Boom times are back for solar: 2013 was a break out year for SunPower”

  1. William C'est Tout

    All the well financed and adaptable companies that supply the rooftop market will not only survive, but will go bonkers, from this point forward. Solar has reached grid parity in an ever-growing number of markets (without subsidy and with profit), and that equals an energy revolution. Supply will tend to lag demand, so there is room for many, many players. We are currently at 1% or less (?), and even those installed systems will be replaced as time marches on.

  2. Someone explain how SolarCity has a significantly higher valuation than SunPower. SunPower is a profitable company, with a differentiated technology, a global presence in the largest markets in the world, and a financing business identical to SolarCity, which is just a subset of what they do.

    Just waiting for the Elon Musk bubble to burst. It’s nuts.

    • Investors are wary of solar manufacturers after so many of them went under in recent years as supply far outstripped demand. Downstream players like SolarCity probably seem like a better bet because they focus on financing and installations. You can argue that SunPower’s manufacturing operation and global project development business add more risks.

      • It’s only a matter of time before SolarCity realizes they need to vertically integrate and get access to module technology. Past couple of years have been great – lots of low cost cheap modules, prices always declining. But, this is a cyclical industry. Those of us who have been in it for a decade remember that just 4 years ago, there was a major module shortage, and the module manufacturers held all the cards. This industry is so immature, and the module manufacturers so poor at planning and forecasting, that it will happen again. Look how many times it has happened in the semi industry. The next cycle will be brutal for guys like SolarCity who have been used to calling the shots with panel manufacturers. When that happens, they and their investors will demand that they control their supply chain.

        SunPower has weathered the worst time in history for module manufacturers, and come out stronger than ever. They also (like SolarCity) have taken control of their downstream demand by getting into project development and financing in a big way.

        • That’s right — I remember the cyclical nature of the chip industry when I covered it a decade ago. I agree that having a greater control of your supplies will be critical to minimize disruption, but I’m not sold that SolarCity will become a manufacturer. It could take a stake in a manufacturer or lock in prices via long-term contracts.