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SunPower Corporation (SPWR), SolarCity Corp (SCTY) & First Solar, Inc. (FSLR): How Fast Will the Solar Market Shift?

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SunPower Corporation (NASDAQ:SPWR)The solar market is exploding. Both the major U.S. players, SunPower Corporation (NASDAQ:SPWR) and First Solar, Inc. (NASDAQ:FSLR) have seen huge jumps in value over the last year – over 500% in the case of SunPower Corporation (NASDAQ:SPWR), over 250% for First Solar, Inc. (NASDAQ:FSLR).

SolarCity Corp (NASDAQ:SCTY), which only debuted in December, is also up nearly 250%.

What’s happening?

All this is happening in the absence of real results. SunPower Corporation (NASDAQ:SPWR) is not yet profitable and showed minimal growth between 2011 and 2012, sales rising from $2.374 billion to $2.417 billion. It lost $3.01 per share during 2012, and another $0.46 per share during the first quarter of this year. That’s movement in the right direction, but what’s keeping SunPower Corporation (NASDAQ:SPWR) afloat is that it’s majority-owned by Total, a French oil company. Take away its continuing investment and you might have a different picture.

First Solar’s figures are better. The company has now been profitable for four straight quarters, and it has accelerating growth, with sales of $2.766 billion in 2011 and $3.368 billion in 2012. The company looks to be on-track to beat that figure for 2013, as its sales of $755 million were more than 50% higher than the same period a year ago. The amount of cash on hand is steadily rising, yet it’s still selling at an Apple-like 10.77 times earnings.

SolarCity Corp (NASDAQ:SCTY), which sells and finances panels instead of making them, should not be evaluated based on the earnings statement, which is always going to show short-term losses as it seeks sales and growth. Instead, investors are looking at assets that have grown about 50% in the last year, to almost $1.5 billion, and a declining debt-to-assets level, spurred on by the rising stock price.

What will happen

What will happen here is more important than what is happening. SunPower Corporation (NASDAQ:SPWR)’s optimism is driven by its high-efficiency polysilicon panels, which offer more than twice the efficiency of low-cost Chinese rival’s. First Solar, Inc. (NASDAQ:FSLR)’s relative pessimism is driven by the fact that it uses Cadmium-Telluride (CdT) technology, where efficiency is improving more slowly. SolarCity Corp (NASDAQ:SCTY) is thought to be on the “right” side of solar transactions, that is to say, the side selling panels and generating demand.

Ed Fenster, the CEO of privately-held SunRun, competes directly with SolarCity Corp (NASDAQ:SCTY) and sees the market changing rapidly. When the 30% federal tax credit is included in a deal, a rooftop solar panel now costs less than electricity bought from the grid in 10 states, and that’s going to increase fast.

The problem for the industry lies in installation and permitting costs. Some 80% of an installation’s costs come after the panels are purchased. Countries like Germany and Australia, which have streamlined the permitting and installation process, have much lower “fully-burdened” costs and are thus more profitable for those selling panels.

Never mind the utilities

What about utilities trying to change net-metering contracts and trying to burden rooftop solar owners with the costs of maintaining their facilities?

Fenster says that has been a standard industry argument since 1995. There have been about 155 instances where utilities have opposed net metering or tried to charge for it, but they’ve lost every time, even in states like Idaho and Louisiana where conservative politics prevail.

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