SunPower/Flextronics Deal Sets Stage for Solar Cell Contract Manufacturing Boom

The recently announced deal between SunPower Corp. and Flextronics International Ltd represents the early stages of a boom in solar panel contract manufacturing driven by a rapid expansion in demand, according to iSuppli Corp.

SunPower said it has partnered with Flextronics to begin manufacturing solar panels in Milpitas, California, by the end of 2010. The company said the California location will allow it to quickly and cost-effectively supply solar panels to solar installations at homes, power plants and commercial and public facilities throughout the Western United States. Flextronics is expected to produce 75MW worth of SunPower solar panels annually.

“iSuppli believes SunPower’s move is part of an emerging trend in the solar market that closely parallels the situation in the electronics market in early 1990s,” said Greg Sheppard, chief research officer for iSuppli. “Faced with rapidly exploding demand, the need to produce products close to end markets and the requirement to obtain sufficient capital, electronic OEMs in the early 1990s turned to electronics manufacturing services (EMS) companies like Flextronics for help. This led to a massive boom in electronics outsourcing and explosive growth in the EMS business. In the early 2010s, a new EMS boom is starting up, this time in the solar panel business.”

Contract manufacturers in 2010 will manufacture 1.1GW worth of solar panels, up 200 percent from 369MW in 2009. The remainder of production will be accounted for by dedicated solar panel makers and other firms. By 2014, contract manufacturing of solar panels will nearly quadruple, rising to 4.1GW.

One major factor causing solar panel makers to turn to EMS providers is the rapid expansion of the market. iSuppli predicts solar installations will rise to 13.6GW in 2010, up 93.6 percent from 7GW in 2009.

“Solar panel makers now are running their factories at 90 percent of capacity, straining their capability to meet demand,” Sheppard said. “Additional production capacity is in critical need right now. Outsourcing of manufacturing provides access to that essential capacity.”

The SunPower/Flextronics deal and other solar contract manufacturing work also allows for localized production. “Panel production conducted close to the end-market can minimize logistics costs associated with shipping, breakage and inventory,” Sheppard observed. “In a market where every penny per megawatt counts, this can help tremendously.”

Sheppard also noted that access to capital to invest in production is challenging for panel suppliers to obtain. Outsourcing mitigates this challenge.

Finally, working with EMS providers reduces risk for companies entering the solar value chain. For example, leading solar cell maker Q-Cells SE now is working with Flextronics also as it diversifies into the panel business.