Being majority-owned by Europe’s third-largest oil company will help SunPower Corp. (SPWR:US) bring solar power to the Middle East.
Total SA (FP), which owns 66 percent of SunPower, has close ties to customers and suppliers in the Middle East and Africa, and is seeking to bundle fuel contracts with sales of SunPower solar panels, SunPower Chief Executive Officer Thomas Werner said in a phone interview June 22.
Total’s backing also gives San Jose, California-based SunPower cheaper borrowing costs and more money to invest in research while other solar companies must contend with a global oversupply that’s driven down the price of panels 42 percent in the year since the oil company purchased its stake, Werner said.
“The investment was key to SunPower obviously not only surviving, but thriving,” Werner said. “It increases the likelihood that we’re one of the winners.”
Total is planning to test SunPower’s concentrating solar panels at one of the oil company’s sites in the Middle East, and its relationships with energy companies in the region may lead to panel-supply contracts, Werner said.
Saudi Arabia is seeking investors for a $109 billion plan to generate a third of its power from solar power by 2032. Abundant sunshine may help countries in the region reduce their reliance on domestic oil for generating electricity.
Total, based in Paris, is also offering solar panels to customer such as mining companies that often have operations in remote locations, far from the conventional power grid, and rely instead on diesel-power generation instead.
Total “can now offer mining companies another option -- solar panels instead of burning diesel,” Werner said. SunPower is short-listed for a planned power project in South Africa at a mining operation. “We wouldn’t have had that without Total.”
Total’s effort to integrate sales of solar power into its other operations “is coming straight from the CEO,” Werner said. Total Chairman and CEO Christophe de Margerie flew to California and had dinner with SunPower’s CEO after the purchase last year. The solar strategy is “personal for him and it sets the tone for the whole company.”
“Having Total as a ‘big brother’ certainly helps from a balance sheet standpoint, and supports SunPower’s efforts to win future project business,” Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston, said in an interview.
Total paid $1.3 billion to acquire 60 percent of SunPower in June 2011 at a premium of about 46 percent. SunPower shares have declined 72 percent since then.
In December, Total agreed to pay $163.7 million to raise its stake to 66 percent and SunPower took over its Tenesol renewable-energy unit.
Being part of Total brings SunPower a lower cost of capital (SPWR:US) to finance large projects. Werner said his company’s borrowing costs are about 1 percentage point lower than before the acquisition. That cuts expenses by about $1 million to $10 million for each solar project. “It’s had a real impact.”
Total also provided $24 million for research and development, funds that SunPower otherwise “would not have spent,” Werner said. He’s hiring engineers to design thinner wafers and increase efficiency. “It’s allowed us to invest more in the downturn for our next generation panel.”
SunPower is using Total’s support to develop more solar farms, capital-intensive efforts that require a large balance sheet.
“In an industry downcycle, if you can invest in R&D and projects, and have more self-developed projects, you control your own destiny,” Werner said.
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