Critics of solar power have pointed to lack of grid parity -- the electricity generated costing more than electricity from traditional power utilities -- as one of the main reasons why the energy source isn't ready for "prime time" in much of the developed world. However, solar panel costs have gone down significantly over the past decade, while efficiency levels -- i.e., how much sunlight a panel can convert into electricity -- continue to slowly improve.
GT Advanced Technologies (NASDAQ: GTAT) recently announced its Merlin technology that the company says will lower manufacturing and installation costs by 10%, increase panel efficiency, and easily integrate into panel makers' existing production lines. Will key panel makers such as Trina Solar (NYSE: TSL) -- a big supplier to installer SolarCity (NASDAQ: SCTY) -- integrate Merlin into their manufacturing? What does it mean for investors? Let's take a closer look.
SolarCity actively driving install costs down
SolarCity residential installation featuring Zep Compatible panels. Source: SolarCity
SolarCity's acquisition of Zep Solar last year was largely an effort to streamline its installation process and reduce costs. Zep makes mounting systems and hardware that reduce the time needed to install solar systems; a number of suppliers including Trina Solar, make Zep-compatible panels and mounting systems. With Trina Solar being one of SolarCity's key panel suppliers, buying Zep just made a lot of sense for the company. As SolarCity Executive Vice President Tanguy Serra stated in the press release announcing the acquisition:
Zep Solar's product allows each of our crews to install significantly more solar every day, and it looks better on the roof than any comparable product we've seen. By acquiring Zep Solar, we can deliver solar electricity at a lower cost than was previously possible. We plan to continue to offer the Zep Compatible platform to international installers looking to increase their productivity. We will also continue to maintain the open nature of the Zep Compatible platform and continue to support integration with module manufacturers and other vendors.
So now SolarCity owns the technology that many installers depend on to more quickly and efficiently complete installations. That's a nice competitive advantage, as well as a cost savings by owning the technology. Merlin -- while not something that SolarCity would directly own -- could offer even more cost savings if it's adopted by panel makers.
Should Trina Solar use Merlin?
While speculating on whether Trina will adopt GT Advanced's new technology isn't a smart way to invest, Trina could probably benefit from integrating Merlin into its production. According to a GT Advanced presentation on Merlin, the process results in panels that are lighter, cost less to make, and are more efficient:
Video source: GT Advanced Technologies
The company claims that panel makers will see an efficiency increase of 0.7% using Merlin. While 0.7% may not sound like much, consider that Trina's solar cells are about 15.5% efficient -- in line with industry norms for low-cost panels. Adding Merlin would immediately make Trina's panels generate 4.5% more electricity, while also costing less to make and being slightly smaller and lighter. Sounds like the kind of technology low-cost panel makers like Trina should be adopting in droves.
Where does SolarCity fit in this?
SolarCity's customers don't need to care what brand of panels are on their homes, as long as they know that SolarCity will back them up and keep the system performing. SolarCity's
Trina's panels operate at about 15.5% efficiency, compared to more than 20% for those of SunPower. Trina operates in the price-driven, commodity end of the solar market. Source: SunPower
value proposition is about reducing cost while being better for the environment, but also being simple and seamless for the homeowner. This means the company is constantly evaluating suppliers, and any manufacturer that could increase panel output by almost 5% while cutting the size, weight, and cost of the panel, would likely be very appealing. If it's not Trina, then Trina has the most to lose.
Final thoughts: This is what makes GT Advanced and SolarCity so attractive
If GT Advanced's Merlin is as revolutionary as the company says, you can be sure that plenty of panel makers -- not just Trina -- will line up to integrate it into their production lines to get an edge on the competition or just to keep up. The cost benefits are likely to be passed along to the customer.
GT Advanced and SolarCity, on the other hand, aren't stuck in the middle: SolarCity gets better panels that generate more power for less cost, driving expense out of its operation, while GT is positioning itself as a key supplier to a patented technology that generates recurring revenue.
Sure, GT and SolarCity have both seen their stock prices explode over the past year, but there's strong evidence that there's plenty of growth to come. Trina? Management is doing a pretty good job there, but it's in a price-driven, highly competitive commodity business. Even the best companies in those situations can be bad investments.
