What the Buffett factor really means for solar
Of course it’s the indirect involvement of Buffett that has been the centre of the news frenzy rather than anything else, although the US$2 billion plus price tag gets noteworthy attention.The financial community and press have got themselves all worked up over SunPower’s success in selling two large-scale PV power plants to MidAmerican Solar, a subsidiary of MidAmerican Renewables and part of the billionaire investor Warren Buffett's business empire.
But does this really mean anything new and different for the solar industry?
No question it’s a great story for SunPower. The loss-making company can now better plan factory utilisation rates and lower manufacturing costs with improved demand forecasting over the next couple of years as the projects get built and milestones are reached, bringing in much needed revenue.
However, the deal alone would not return the company to annual profitability.
The deal must have been good for MidAmerican Solar as it has acquired the two projects. It will also give the energy firm a real insight into the IRRs and Levelised Cost of Energy of two mainstream competing technologies, both operating at the high end of large utility-scale PV in a high irradiance region as the company already owns a First Solar-built plant.
Hopefully over time the PV industry will get some valuable insight into the competing technologies’ LCOE’s, though I will not hold my breath too long on that.
What would be interesting to eventually uncover is which technology is ultimately providing the best IRR.
It is an interesting subject because SunPower touts its high-efficiency and tracker technology for providing the sort of kilowatt hour figures that enable its higher upfront module costs still to remain competitive with cheaper upfront-cost modules produced anywhere else in the world.
First Solar on the other hand is one of the lowest cost-per-watt producers and also touts its temperature coefficient advantages over c-Si technologies as evidence that its lower module conversion efficiencies can still be highly competitive with conventional modules. Lower power losses in higher climatic conditions than conventional modules are claimed to significantly narrow the overall kilowatt hour produced.
How this matches up to SunPower’s industry leading conversion efficiencies with the added boost from trackers, but impacted by temperature coefficient factors, is a masterful real-world technology test.
The fact that Buffett is involved may have a positive impact in the form of encouraging more investment in the downstream PV utility market. Finding investors has been the key problem since the financial collapse in 2009, yet module costs have fallen significantly thanks mostly to polysilicon price declines.
The Buffett factor could enable the 30GW-plus project pipeline in the US to pick up speed and see the country become the largest installer of solar, a moniker that has been touted for far too long and never happened.
Without more investors the fear is that much of the pipeline in the US will never be fulfilled and that the short but important phase the industry is in now of massive project sizes will rapidly be built-out but gone forever.
The SunPower projects have been known about for several years and are already factored into demand-side industry modelling. So let the financial community celebrate but it’s really business as usual for the PV industry struggling to control and match manufacturing capacity with demand.