SunWorks Inc (SUNWQ)

[markp1950]

SunPower Is Building Out A Comprehensive Energy Ecosystem

Solar3D’s SUNworks Division Achieves SunPower Elite Status

Jul. 20, 2015 12:47 AM ET | About: SunPower Corporation (SPWR), Includes: ENOC
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Summary

SunPower is making an early mark on the booming energy management industry, most recently partnering with EnerNOC to improve upon its energy management services.
The company's quality-first mindset is conducive to success in the energy management arena and should be a differentiating factor between itself and the competition.
While there are certainly opportunity costs associated with diverting attention/resources away from the solar PV business, involvement in energy management services should only augment SunPower's solar PV business.
The energy management trend has been gaining steam as of late, with solar companies notably increasing their presence within the industry. The solar industry's involvement in this emerging industry only makes sense as solar companies have the forward-thinking mindset that is required in such a new and promising industry. SunPower (NASDAQ:SPWR) has been especially involved on the energy management front, and has been making numerous inroads into this market through its growing number of partnerships and innovations.

The company already has a firm presence in the home energy management arena by investing/partnering with the likes of Tendril. While the home segment certainly has a lot of potential for these services, the commercial/industrial segments could prove to be equally, if not more, lucrative. SunPower recently make a large commitment to the commercial/industrial sectors by signing a three-year agreement with EnerNOC (NASDAQ:ENOC), which entails that both companies have access to each other's respective portfolios. Through the agreement with EnerNOC, SunPower will have access to intelligent software that better manage energy supply and demand.

SunPower is particularly well positioned to make a large impact on the energy management arena, given its experience in the distributed energy markets. While the company may not have the distributed expertise of leading distributed energy pure plays, it is still more well versed in these markets than the vast majority of its energy management competitors. This means that SunPower generally has more experience dealing with the homeowner, commercial, and industrial markets. The company's high-quality approach and distributed market experience makes its energy management endeavor highly promising.

Here is a look at one of SunPower's energy management apps.

Source: SunPower

High-Quality Approach

SunPower emphasizes quality, which is evident from its high-efficiency/quality solar modules. This emphasis on quality should help the company cement a dominant place within the energy management industry. As energy management is essentially a service, a major differentiating factor would be the quality of service. The company will likely excel on this front, giving it a competitive edge in what will undoubtedly be a highly lucrative market. SunPower's additional behind-the-meter experience should also allow the company to more effectively integrate its energy systems with its energy management solutions.

Its behind-the-meter experience should allow for a higher-quality energy management service, as SunPower is one of the few solar module manufacturers with any significant exposure in the distributed solar markets. While some other major solar manufacturers involved in this arena (e.g., SunEdison (NYSE:SUNE)) are also starting to enter into the distributed markets, SunPower still has much more experience in this arena. The company is uniquely set up to take on energy management solutions, which should widen its addressable market considerably moving forward.

First Mover's Advantage

While many energy companies have entered the energy management arena, very few have embraced the industry to the degree that SunPower has. The company's exclusive agreement with EnerNOC is just the latest in a long string of commitments to the industry. If SunPower is able cement its brand name within this industry early on, the company should benefit tremendously down the road. With potential cost savings that can easily reach the double-digit percentage, energy management is a huge opportunity.

With tens of millions of dollars invested into this space and a growing list of partnerships with energy management companies, the company is ensuring its long-term presence within this space. The energy industry market, which is already worth tens of billions of dollars, is expected by some industry analysts to reach the $60B range by 2020. This translates to a CAGR of 20.5%, which clearly shows the opportunity to be had. Should SunPower cement its status as a frontrunner in this arena, the company could see the emergence of another truly profitable business segment.

Competition

With increasing competition from the likes of General Electric Corporation (NYSE:GE), Johnson Controls (NYSE:JCI), Honeywell International (NYSE:HON), and so forth, SunPower is up against some major competition in the energy management arena. Despite the formidable size of many of its competitors, the company's experience in the distributed markets should prove to be a key to success. SunPower's distributed solar business is also a direct source of potential energy management customers, which is something that a power company like General Electric Corporation does not have.

In other words, its growing fleet of distributed solar customers not only gives the company experience dealing with residential, commercial, and industrial customers, but also gives it a great base in which to cross sell its energy management services to. Rather than having to waste excess money advertising, SunPower will be able to directly offer energy management services to its distributed solar customers. While the company's distributed solar customer base is still rather small compared to its utility-scale business, it continues to grow at a rapid pace.

Risks

SunPower's foray into the energy management arena does come with risks. Most notably, energy and resources spent in this arena could potentially be better spent on its solar PV business. Given the enormous growth rate of solar, the energy management industry could just serve as a distraction. The opportunity costs of getting involved in the energy management arena could outweigh the benefits gained from this involvement. While this is definitely a possibility, SunPower's integration of energy management solutions should actually augment its solar business by boosting the company's overall value proposition.

Conclusion

SunPower is already one of the most valuable solar companies in the world at a market capitalization of $3.6B. In spite of its higher-than-average P/E ratio of 25.7, the company still has more room to grow. SunPower's growing energy management business should only add more upside to this burgeoning solar company, making it a solid investment choice. Not only does it manufacture the highest-efficiency commercial modules in the industry, but it will also soon have one of the most comprehensive product portfolios in the energy industry.