SunPower Turns Sunshine Into Dollars

Installing SunPower solar panels on a new house in Atlanta's Buckhead section.

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.