On Feb. 11, SunPower announced the acquisition of European solar company SunRay Renewable Energy for $277 million in what analysts see as a company strategy to stabilize itself in the volatile solar market.
For $235 million in cash and $42 million in a letter of credit, SunPower will adopt a project pipeline of solar photovoltaic (PV) projects totaling more than 1.2 gigawatts of energy in Italy, France, Israel, Spain, England and Greece, according to the SunPower press release. To date, the U.S. has installed around 12.78 gigawatts of power, according to the Solar Energy Industries Association. Last Friday, SunRay won the European Solar Deal of the Year award from Project Finance magazine for the largest solar PV power plant financed in 2009.
The partnership began when SunPower and SunRay built the first phase of the 24 megawatt Montalto, Italy project in 2009. The company said it will complete the remainder of the 85 megawatt plant in 2010.
“This isn’t surprising seeing as they’ve tried to create a geographically diverse installation base for a while,” said Steve O’Rourke, an analyst with Deutsche Bank. “They go in, become the systems integrator, then buy the company. It’s a good strategy in the long run, but in the short term we’ll see.”
For the past month, the solar industry had been experiencing a “slump as a whole,” said Conor Irvine, an analyst with Needham & Company. Solar industry experts predict that many companies will shift some of their manufacturing productions to China, like American company EverGreen. Wedbush analyst Christine Hersey also said that American solar companies will feel pricing pressure from Chinese companies that produce modules at lower costs. But even in China’s growing solar market, Suntech Power Holdings Co., the country’s largest solar company, has seen a similar stock drop of 18 percent from $18.20 to $13.10.
In Italy, the government offers operators generous feed-in tariffs of 72 cents for every kilowatt hour of power produced. But Economic Development Undersecretary Stefano Saglia will announce a subsidy reduction of up to 18 percent sometime this month. Feed-in tariff systems, which are more prevalent in European countries, provide extra incentives to install panels. Homeowners can generate more energy than they consume and utility companies will offer premiums for this excess energy.
In Germany, the largest solar market in the world, companies are protesting their government’s proposed subsidy cuts of 15 percent. Chancellor Angela Merkel has pressured companies to lower prices and increase efficiency. But without subsidies, their largest company, Q-Cells SE, saw stocks plummet 32 percent from €12.83 to €8.74.
“Because of German feed-in tariff reductions, the entire sector took a dip,” Irvine said.
O’Rourke added that the American solar subsidy system was “inefficient” compared to Germany’s feed-in tariff system. The federal government will offer a 30 percent grant, not tax credit, to offset installation costs for business owners who installed solar panels in 2009 and to business owners who install panels this year.
Due to Europe’s more generous solar subsidies, O’Rourke said that SunPower’s expansion into the European market was “a smart move.”
“There’s an awful lot of legislation going on now in the states, but the chance that any of it actually gets turned into law in the near future is pretty low,” O’Rourke said. “If the ACES bill could get passed, this would be good news for the renewable energy industry.
In June 2009, the American Clean Energy and Security Bill narrowly passed in the House 219-212. Congressmen Henry Waxman and Edward Markey aimed to “create clean energy jobs, achieve energy independence, reduce global warming pollution and transition to a clean energy economy.” However, the bill has been on the Senate Legislative Calendar since July.
Though legislation progress is stagnant and most solar energy stocks are in a bearish trend, the solar industry has some bright spots. The German government announced that it may push back the subsidy reduction dates to this summer rather than in April.
Chinese company JA Solar posted stronger fourth quarter earnings than analysts expected, “sending the sector into positive momentum,” Irvine said. Additionally, China offers large subsidies that reduce installation costs by about half.
Back in December, analysts had pretty strong “Buy” recommendations for SunPower and stock predictions of $30.
“We have a pretty steep price target on it right now,” Irvine said.
“But we’re not making any changes. We’re comfortable with the ‘Buy’ rating. It’s tracking in line and we’ll just wait and see how it does.”
O’Rourke was also confident in his “Buy” rating for SunPower.
“Because Germany plans to cut their subsidies, demand might fall off in the second half of the year,” he said. “This acquisition is good defense on SunPower’s part because they can lock up a whole bunch of business in Europe.”