2016 Was a Disaster For SunPower, Will 2017 Be Better?

In 2016, a few negative market trends converged on SunPower Corporation (NASDAQ:SPWR) all at once. Falling solar panel prices put pressure on margins as the year went on, investors demanded higher rates of return for solar projects the company sold, and the investment tax credit (ITC) extension led to little urgency for utilities to sign new solar contracts.

SunPower responded by laying off a quarter of its staff and cutting back production of its E-Series solar panels that have lost most of their efficiency advantage over the competition. That will lead to a reduction in solar shipments over the next year as the company converts production to the lower cost P-Series product and the high efficiency X-Series. With those strategic changes in mind, here's what to watch in 2017.

Will P-Series and Oasis be SunPower's savior?

One of the big moves SunPower made in 2016 was to change its strategy in utility scale solar. The company updated its Oasis power plant design to be lower cost and more versatile in the hopes of winning more business in the future. But a key part of the utility strategy will be the P-Series solar panel that's just beginning production.

P-Series is a panel construction that layers solar cells like shingles, allowing for a higher efficiency panel than the traditional panel construction. The cost is slightly higher than conventional panels per watt, but also slightly higher efficiency. The company is hoping the combination will allow SunPower to better compete with commodity solar competitors, something it wasn't able to easily do with the E-Series product.

We won't know for some time what the margin of Oasis and P-Series will be, but in 2017 we should look for SunPower to start winning competitive bids to build solar farms with these two products. If that takes place SunPower will be able to grow its gross profit from low levels in 2017 and the hope is that will eventually lead to higher profitability. Contract wins will be the first sign the combination of P-Series and Oasis are paying off.

How big can the residential solar business get?

The one bright spot for SunPower in 2016 was the residential solar market. High efficiency X-Series panels are in high demand and the Equinox system design is proving to be a timely product introduction. Gross margins in residential solar were 20.6% in the third quarter, which makes it the most profitable business SunPower was in during 2016.