Plotting SunPower’s need for gigawatts of new production capacity

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If you like watching paint dry then plotting SunPower’s manufacturing capacity expansions over the last few years would have been a perfect complement.

SunPower's capital expenditure in recent years.

In contrast, SunPower is a major project developer, or PV energy provider, that has a project pipeline of around 10GW, up from 8GW in 2014. 

Adding to that, if you relied on capital expenditure (capex) figures, SunPower is not only outspending many bigger 'Silicon Module Super League' (SMSL) rivals but its recent spending is rocketing from the lows of 2013. 

Yet that capex spurt will have brought SunPower’s manufacturing capacity to 1,500MW per annum by the end of this year, up only 300MW since 2013. 

SunPower's recent years capacity expansions per annum.

Flipping back from the upstream to the downstream, SunPower highlighted its project completions guidance roadmap during its second quarter 2015 earnings call that projected its installations (forecasted megawatts eployed) would reach almost 4GW by the end of 2019, around a 30% compound annual growth rate from 2015 onwards. 

SunPower's planned MW deployed through 2019.

Capex conundrum 

There would seem to be an obvious disconnect between the above data points in respect to SunPower’s upstream to downstream ambitions. 

However, plotting the key metrics between capex spend, capacity added and forecasted megawatts deployed that SunPower has publicly guided provides some rationale to the conundrum. 

The key point on SunPower’s capex spend figures is that they have no correlation to any of the six super league players, as its capex to capacity expansion ratio, due to its proprietary technology and processing tool base requirements, and the costs therefore associated with its equipment spend, is very different.

In basic terms, SunPower doesn’t buy off-the-shelf semiconductor or PV equipment but is IP owner in as many spheres as is possible to keep its technology proprietary, hence the higher capex requirement per megawatt capacity expansion.

However, as a result the second negative hit is the timeline it takes between the capex spend and new manufacturing capacity deployment, which is significantly longer than conventional c-Si cell equipment from mainstream vendors. 

A third negative seen with SunPower’s latest 350MW fab in the Philippines is the longer ramp-up phase of production than typically seen with conventional c-Si cell ramps. 

The bottom line for SunPower is that it takes more capex and longer lead times for less megawatts of capacity added than conventional c-Si solar cell production. 

Capacity gap 

Taking SunPower’s handicaps in adding capacity and matching that to its forecasted megawatt deployments by 2019 shows a potential need for approximately 2,350MW of new manufacturing capacity that would need to be fully ramped for 2019. 

PV Tech has previously documented SunPower’s capacity expansion plans through 2016 and that this has included incremental capacity additions at its existing cell production plants through productivity and cycle time improvements. 

PV Tech has also highlighted that the company is planning to finally make public its next phase of expansions before the end of 2015. 

However, this was broadcasted before the company guided megawatt deployments targets through 2019, making the plans even bigger than previously expected. 

One of the key issues for SunPower is the significant capex spend (an estimated US$2.0 billion-plus) that would be required for a facility that would seem to need to have in excess of 2GW of cell and potentially module capacity. (The company has assembly plants and also outsourcing that could be expanded.)

Interestingly, majority owner in the company, Total, has recently said in an investor conference that it was planning to spend around US$500 million annually on renewables, including solar for the foreseeable future. 

Total was not specific in referring to whether this spend was targeting upstream or downstream but would be significant if the majority of the capex was upstream rather than downstream as this would be a nothing more than a token gesture to the downstream market. 

Of course SunPower could be planning a JV with partner outside its parent company to limit its capex spend but the scale of its capacity requirements makes that increasingly unlikely unless a merger was on the cards. 

This takes us back to looking at the emergence of the SMSL. Such is the gap in shipments and manufacturing capacity of the current six in this league that other players, including SunPower, will have to bulk up manufacturing scale to remain competitive, and mergers are a lower-cost and faster-to-complete alternative to in-house expansions.

This is especially true in the current environment of very low share prices for listed companies, providing a window of opportunity for industry consolidation. 

Which direction SunPower and others will have to take to remain competitive, or otherwise become increasingly marginal players, has yet to play out. But in respect to SunPower the wait is all but over.

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