The Significance of the Total Deal--Will GT Solar be a future target for a buyout?
France's Total drops $1.4B on SunPower in major oil-solar deal (05/02/2011)
Joel Kirkland, E&E reporter
Wall Street investors rewarded SunPower Corp. on Friday for a nearly $1.4 billion partnership with France's Total SA, giving the solar power stock a 34 percent boost by day's end.
Total, one of Europe's top oil producers, agreed to take up to a 60 percent stake in San Jose, Calif.-based SunPower, which is the second-largest U.S. solar panel manufacturer. Solar industry analysts viewed the move as a sign that the solar sector will see more consolidation and strategic partnerships. Clean energy enthusiasts noted the first recent partnership between a sizable renewable energy company and an oil giant.
"This is sort of a wake-up call for big American oil companies," said Greg Kats, a managing director of venture capital firm Good Energies. "Where do they fit into this transition to clean energy; where do they hedge their bets?"
Oil giants such as BP and Shell have dabbled in solar power in the past, but significant buy-in from a well-capitalized hydrocarbon company has been elusive for the renewable energy sector in recent years. Kats said it could be the start of a trend.
"In many ways, renewables are a natural extension for Big Oil," he said. "What's great for renewables is you have a deeper balance sheet, lower-cost equity and lower-cost debt."
Oil companies know how to compete in global markets, Kats said, and they could bring experience to big energy projects and to a manufacturing sector that competes with Asia. "Total is saying we're not in the hydrocarbon business, but in the energy services business," he said.
A need for partners with deep pockets
For SunPower, Total's cash injection means a deep-pocketed investor that can support both upstream and downstream development of the business, said Nathaniel Bullard, a solar analyst with Bloomberg New Energy Finance.
U.S. solar companies are looking for partners to add the financial heft and depth needed to secure financing for future projects. The exit strategy for solar companies sponsoring expensive projects has been to sell assets to private investors or to an independent power producer. Bullard said a company like Total can keep assets on the books. And in doing so, those assets expand the balance sheet and improve opportunities for securing more funding.
"An oil company has a capital structure and ability to retain ownership of assets for many years," Bullard said.
"It looks like Total was interested in doing a strategic play," he said. "The market is now reaching the scope and scale where they bring a material advantage to project development, financing and asset management."
A foothold in a bigger game
If solar continues to look like a growth market, Bullard said it might make sense for U.S. and European oil and gas companies that bring in $100 billion or so a year, or a large industrial conglomerate, to get a foothold in solar.
In early April, the Department of Energy said it would provide a $1.2 billion loan guarantee to support SunPower's California Valley Solar Ranch. That project is the biggest U.S. photovoltaic project to use an automated system that allows modules to follow the sun, and, according to DOE, it improves output by 25 percent.
Solar companies have been securing large amounts of financing for future projects, including tapping equity markets and searching for strategic partnerships. Shortly before DOE announced its deal with SunPower, the agency said it would provide a $1.6 billion loan guarantee to BrightSource Energy Inc. to help it build its 392-megawatt Ivanpah solar-thermal project in the California desert.
BrightSource last week filed for a $250 million initial public offering, and it has already taken $160 million from Google for the Ivanpah project.
U.S. solar companies are reporting first-quarter earnings in the coming weeks. A survey of Wall Street earnings expectations by Dow Jones Newswires suggests analysts are preparing for mixed results.
First Solar, the biggest U.S. manufacturer of thin-film solar panels, is forecast to post earnings of $1.16 a share on $544 million in revenue, slightly below revenues during the same period last year. But analysts appear optimistic about the company's position in the U.S. market and the strength of its finances. First Solar, based in Tempe, Ariz., said last month it would continue expanding its U.S. investments by building a solar panel factory in Arizona.
