Who will win the solar panel battle?
Installers, particularly those in residential, deal with this conundrum every day, and the industry is changing rapidly. SolarCity Corp (NASDAQ:SCTY) has been known to use manufacturers like Trina Solar Limited (ADR) (NYSE:TSL) and Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) , who are two of the biggest manufacturers in the world and compete mostly on cost. Where system costs are low, they will win business.
SunPower Corporation (NASDAQ:SPWR), or a high-efficiency module, will win where costs are higher, which is why the company is focused on the California market right now. What would change this equation is if costs came down considerably. If cost per watt for 20% efficient (or greater) panels falls to $0.80, then SunPower will become more attractive.
That’s one of the reasons I’m betting on SunPower. The industry has shown time and time again that it’s easier to cut costs than to increase efficiency. So, SunPower Corporation (NASDAQ:SPWR) may not be the most attractive panel for everyone now, but in three years when its costs are lower that may change.
Putting the solar panel battle into context
Maybe the best way to think about efficiency in solar, particularly when comparing SunPower to Chinese manufacturers, is to use a couple of analogies. The performance of a BMW may not be significantly better than a Cadillac, but it costs a lot more money because of brand and perception. The same could be said for Apple products, which focus on design and have very few performance differences than other PCs, even though they cost more.
Right now, SunPower Corporation (NASDAQ:SPWR) is selling a premium brand, designed with all-black panels, and that comes with a higher cost. The question is how many consumers will pay up for that brand and design if it doesn’t save them money in the long run? (Note that SunPower says that when all factors are considered, the energy from its panels costs less long term.)
I’ll also point out that when investors think about the analogy above, they should think about the profit made on each car or computer companies make. BMW and Apple may charge more, and it may not be worth it to some, but they definitely make more money per unit than competitors. Will that be the case in solar? Time will tell.
What we know for now is that a solar panel’s efficiency matters — sometimes.
The article Does a Solar Panel’s Efficiency Really Matter? originally appeared on Fool.com and is written by Travis Hoium.
Fool contributor Travis Hoium manages an account that owns shares of Apple and SunPower Corporation (NASDAQ:SPWR) and personally owns shares of SunPower and has the following options: long January 2015 $7 calls on SunPower, long January 2015 $5 calls on SunPower, long January 2015 $15 calls on SunPower, and long January 2015 $25 calls on SunPower Corporation (NASDAQ:SPWR). The Motley Fool recommends Apple. The Motley Fool owns shares of Apple.
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