Any time a company can announce a deal with a Warren Buffet controlled entity analysts and investors react in a positive manner and yesterday’s announcement from SunPower Corp. (NASDAQ: SPWR) provides further evidence of this reaction as the company, which designs, manufactures and delivers the highest efficiency, highest reliability solar panels and systems, have seen shares surge from a close of 6.13 on Wednesday to a high of 8.33 today while trading volume has already topped the 10.7 million mark early in the afternoon.
Yesterday’s announcement was regarding SPWR’s deal with Buffet’s MidAmerican Energy Holdings Co., a deal that has been valued between $2.0 billion and $2.5 billion for sale of their two co-located Antelope Valley Solar Projects. The two solar projects have electric generation capacity of 579 megawatt and will comprise the SunPower Oasis Power Plant, a fully integrated modular solar technology unit that is built to quickly set up utility-scale solar projects with minimum land use.
The construction of the two projects will be the largest solar photovoltaic power development in the world with construction expected to begin in the first quarter of 2013 and get completed by the end of 2015. SunPower will be acting as an engineering, procurement and construction contractor, and will operate and maintain the facility as per a multiyear services agreement.
Southern California Edison, a subsidiary of Edison International, has already agreed to purchase the renewable energy from the two projects. The benefits these two projects present to the environment are substantial as they are capable of offsetting more than 775,000 tons of carbon dioxide emissions per year, almost equal to eliminating about three million cars over 20 years of the operation of the plant.
The impact that the deal with MidAmerican Energy Holdings Co. will have on SPWR stretches well beyond just the immediate benefits of the $2.0 – $2.5 billion deal. Tom Werner, CEO of SPWR, said there was tremendous value in creating a deal with Buffet; telling Reuters that a stamp of approval from a Buffet utility would make them more bankable and more creditworthy.
In the words of Werner, “If you are a bank you are looking at us a lot differently today than you did last week.” The deal also provides a level of credibility for SPWR as the size of the project clearly puts the solar panels and systems company in a much stronger position for future projects.
For these reasons SPWR saw their shares upgraded from neutral to buy by Lazard Capital Markets LLC, as they forecasted shares to climb higher on improved sales visibility and the implementation of cost reductions.
Of course SPWR isn’t some start-up company with limited operations; the company already has a customer base spread across North America, Europe, the Middle East, Asia and Australia more than 1,000 solar power plants in operation, which also includes the first 130 megawatts of 250-megawatt California Valley Solar Ranch, which is under construction in San Luis Obispo County, California.
SPWR is also looking to build a stronger presence in the residential and commercial market but as every solar investor knows there are certainly hurdles that will need to be cleared to make these efforts successful. Among those hurdles, subsidy rollbacks for solar companies, increased competition and the financial stability of their customers, something they have little control over.
As it stands SPWR is definitely in a favorable position and for investors who held a position prior to the Buffet news the recent surge has been an impressive payoff so far. Right now shares of SPWR are almost twice their 50-day moving average of 4.80 and their 200-day moving average of 4.97 and if the positive reaction to the news continues the company could challenge their 52-week high of 9.52 set back in February 2012.