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Summary

  • The company has a number of projects to its name, including the Solar Star 579 megawatt, known to be one of the largest solar power projects in the world.
  • The company had another strong performance this quarter and managed to beat estimates.
  • SunPower now intends to hold some projects until their construction is complete and they are fully operational.

SunPower's (NASDAQ:SPWR) project development business has been the main driving force of the entire company's performance for the past two years. The company has a number of projects to its name, one of which is the Solar Star 579 megawatt (MW) -- one of the largest solar power projects in the world. In order to help its parent company Total S.A. (NYSE:TOT), the company has been trying to increase the number of projects it is taking on overseas as well.

SunPower's business is currently in its maturing stage and the company has been looking for complementary business models and ventures in order to get the most residual value out of the projects it is already involved in, and also to bring down costs of funding the project business. But how exactly does the company plan on extracting a larger residual value from its projects?

Holding Projects

In the past, SunPower had been following the strategy of selling its solar projects while they were still in the construction phase and were underdeveloped. However, a shift is being witnessed in this strategy as the company now intends to hold some projects until construction is complete and they are fully operational. While the company holds on to these projects, they will show on the balance sheet. This strategy has been termed the "Holdco structure" for the company. Under this Holdco structure, the company has more than 500 MW worth of projects in the pipeline. This includes the 135 MW Quinto Solar Project, whose construction recently began in California.

Although this strategy reduces revenues and earnings, as well as liquidity, for the company in the short run, it will allow SunPower to earn higher margins in the long run as well as contribute to increased shareholder returns. This is mainly because when a company sells a solar project once its construction is 100% complete, it is bound to realize larger gains than it would have had it sold projects that were halfway complete. In fact, buyers are more interested in buying a fully functioning plant as opposed to one that is in the construction phase, since less risk is involved regarding whether the project will eventually be completed and operate as planned.

If the company decides against selling the projects that are under development at the moment, it stands to gain in such a situation. These projects would eventually have the potential to turn into long-term power purchase agreements for the company as well.

SunPower -- An Brief Overview

The company had another strong performance this quarter and managed to beat estimates, holding steady with regard to 2014 guidance. The firm is currently consolidating its eight-gigawatt pipeline and pursuing its Holdco program. Since 2013, the company has faced capacity constraints and is now focused on allocating its production. CEO and President Tom Werner has stated that the firm is still focused on improving its efficiency and hopes to achieve a 24.5% efficiency level by 2016.

Other Lucrative Projects

Having decided on the Holdco structure for its business, SunPower hasn't stopped just yet when it comes to expanding its revenues. Recently the company launched a leasing program in Melbourne, Australia, by the name of SunPower Choice. The program is based on the model that the company used in the U.S. market, which turned out to be very lucrative.

The program helps residential customers finance SunPower solar system projects without any money to begin with. The project involves the company installing energy efficient solar panels for homeowners at predetermined, competitive rates that are to be paid monthly over a period of 25 years. Tom Werner spoke about this project, saying that "SunPower reinforces its commitment to the Australian market with SunPower Choice, a financing option designed to help more homeowners save on electricity with SunPower solar panels, the most efficient on the market today." He added that the program would deliver to its customers the reliability and savings they expect, at rates that are lower than traditional electricity prices.

Conclusion

Assuming that the Holdco strategy goes in favor of the company and that it continues with lucrative projects that bear fruit in the future, both steps could complement each other and strengthen the stock price. That would make investing in SunPower worthwhile for those who hope to hold it and make large gains over a period of time. No immediate gains seem to be in sight, since the Holdco program is a long-term one. But what is expected is that the strategy could either turn into larger revenues for the company by encouraging buyers to invest in fully functioning power plants, or could result in long-term power purchase agreements. Either way, a boost in earnings potential is expected and could lead to promising shareholder returns in the future.

Source: How Would Holding Solar Projects Impact SunPower?