Last week, Total SA, the world’s fifth largest international oil company with annual sales of over $193 billion, announced it will launch a “friendly tender” offer for up to 60 percent of San Jose-based solar solutions company SunPower. The acquisition is valued at $1.38 billion, at a price of $23.25 per share. SunPower’s stock rose dramatically by $5.62, or 36 percent, to $21.40 per share on Friday. In addition, total will provide SunPower with up to $1 billion of credit support over the next five years.
The move indicates a new direction for energy companies, whose objectives are often considered to be at odds with renewable energy. Large energy companies must provide attractive returns to shareholders on a quarterly basis in order to remain competitive. However, the long-held perception has been that, in the absence of governmental incentives for solar power, solar does not pay back quickly enough to form a meaningful part of an energy company’s portfolio. So Total’s acquisition marks a shift in thinking in the oil industry toward the economic viability of solar and distributed energy systems.
SunPower produces among the most efficient solar crystalline solar products in the world. Although the company’s progress slipped somewhat over the last two years in comparison with other solar panel vendors, particularly those in Asia, and reported a net loss in the second quarter of 2010, Total’s acquisition indicates a high level of confidence in the SunPower’s fundamentals. In addition, Total’s $1 billion of credit support, which will apply to SunPower’s utility-scale and commercial projects, will lower SunPower’s cost of capital and increase its access to debt financing without collateral, paving the way for future growth with minimized risk.
A number of oil companies already have activity in the solar arena. BP Solar, the photovoltaic branch of BP with over 2,200 employees, has an annual manufacturing capacity of over 200 MW and offers solar installation services. Chevron Energy Solutions, a Chevron subsidiary, also has a solar installation business and is the leading installer of solar at educational institutions in the United States. In November, Showa Shell, one of Japan’s largest oil companies, invested $1.3 billion in Solar Frontier, a Tokyo-based solar panel manufacturer. The Total/SunPower deal continues this trend. With increased concern in volatile petroleum prices, the trend is only likely to continue.
Eric Bloom is a green building and renewable energy analyst for Pike Research.