This Week in Solar

By Travis Hoium Markets Fool.com

As earnings season moves along, we're learning more and more about what's going on within the solar industry at a tumultuous time for manufacturers and developers. Strategies are shifting and alliances are changing, but earnings tell the real story of what's going on.

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Below I'll cover a couple of interesting strategic shifts, as well as policy and earnings updates that happened this week.

Image source: Getty Images.

Tesla ditches Silevo

If there was any doubt that Tesla's (NASDAQ: TSLA) acquisition of SolarCity meant the end of Silevo's technology in the Buffalo, New York, solar factory, now dubbed Gigafactory 2, Tesla's 2016 10-K ended the debate. Panasonic will be in charge of manufacturing and Tesla will be little more than a customer. Here's the notable segment from the filing:

In December 2016, we entered into a Production Pricing Agreement: Phases 1-3 ... with Panasonic Corporation, Panasonic Corporation of North America and Sanyo Electronic Co., Ltd (collectively, Panasonic). This agreement provides that Panasonic will manufacture custom photovoltaic (PV) cells and modules for us, primarily at Gigafactory 2, and that we will purchase certain amounts of PV cells and modules [from] Panasonic during the 10-year term, with the intent to produce PV cells and modules totaling approximately 1 gigawatt annually beginning in 2019.

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It's also worth noting that Tesla said Silevo won't meet its last two milestones associated with the acquisition -- related to reaching target efficiencies and manufacturing volume and cost -- and recorded an $84 million gain as a result of the contingent payouts that will now not be made, an amount which was recorded as an offset to selling, general and administrative expenses.

The solar manufacturing situation at Tesla appears to be a complete mess, and with Silevo out, Panasonic is nothing more than a traditional supplier. It's hard to see how that will lead to lower costs or higher efficiency than just buying solar panels on the open market.

SunPower has more big plans in China

Word trickled out this week that SunPower (NASDAQ: SPWR)has signed a deal with Tianjin Zhonghaun Semiconductor (TZS) and China Eastern Electric Group (Dongfang Electric Corp.) to create 5 GW of P-Series manufacturing in China. The agreement was actually reached last week, but interestingly, management is keeping the deal low-key; it hasn't made an official announcement yet.

The joint venture will reportedly have the two Chinese companies each owning 10% and SunPower owning 80%. It is the second big move for SunPower into China after it tried to produce the C7 concentrator product, which hasn't taken off as planned. This deal is intended to leverage domestic cell supply to create solar panels that are slightly more efficient than competitors'.

If this joint venture does create 5 GW of solar panels, it could be transformative for SunPower. The company would enter a new level of scale in the solar industry, with a product more competitive in the utility market than its high-efficiency panels have been. Time will tell if the agreement works out as planned.

Image source: Getty Images.

Update on the solar policy fight

There were two major policy decisions this week that will impact the solar industry. The first is the EU Commission extending solar trade duties on Chinese solar cells and modules for another 18 months. This is notable because Canadian Solar (NASDAQ: CSIQ), Trina Solar (NYSE: TSL), and JA Solar Holdings (NASDAQ: JASO) have all dropped out of a minimum price scheme in Europe and are now paying a tariff that's around 50% of the cost of a solar panel, depending on the manufacturer. The tariff will put a damper on demand in Europe, but given the cost advantages these companieshave in China, falling prices make the impact less and less meaningful.

Solar companies and electric company Arizona Public Service (APS) have settled a contentious rate-design dispute that will give residential solar a little life in the state. APS won't be implementing demand charges for all residential and commercial customers, and will instead give customers the option of a demand-based rate or time-of-use rate. New rooftop-solar customers would have to pay a grid access fee but would be compensated for energy exported to the grid, albeit not at the same rate as net metering. It's not a perfect solution for solar companies, but it'll keep the industry from collapsing overnight.

Earnings that slipped through the cracks

There were two notable solar-related earnings reports this week, from Pattern Energy Group (NASDAQ: PEGI) and NRG Yield (NYSE: NYLD), that showed some improvement in the yieldco space.

Pattern Energy said that gigawatt-hours sold jumped 33% in the fourth quarter to 6,806 GWh, revenue was up 7% to $354.1 million, and cash available for distribution jumped 44% to $133.0 million. The company also announced a 1.4% increase in the dividend this quarter, to $0.41375 per share.

NRG Yield's results were fairly mixed, with adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rising from $189 million a year ago to $207 million in the recent fourth quarter. But the company also swung from a quarterly net income of $12 million last year to a net loss of $126 million. These losses aren't necessarily an indication of fundamental weakness, given that most were impairment losses, which are non-cash charges and don't impact operations.

Check back next week for another recap of what's sure to be another busy week in solar energy.

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Travis Hoium owns shares of SunPower. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.