Tom Werner, the CEO of solar company SunPower, is one of the most powerful men in the solar industry. He’s led SunPower, which makes high efficiency solar panels and develops solar projects, through both good and bad times over the past decade. Werner was at the helm when French oil giant Total bought a majority stake in the company in 2011 and he was also there as the market for solar rose in Europe, Japan, the U.S. and now China and India.
Werner sat down with Fortune following a visit to the Paris climate negotiations last week, and gave a glimpse into how he sees the solar industry’s evolution and future. He also talked about what SunPower (SPWR) will be focused on next year (hint: batteries, software, international markets). This interview has been edited for length and clarity.
Fortune: What did you think of the Paris climate talks?
Werner: I thought it was really impressive how the President willed his way there over the past couple of years, with John Kerry of course, getting a deal done with China. It set up a productive meeting. I think it’s a really big deal. I think it’s going to make a difference in business.
In terms of the business community, do you think the Paris negotiations will be a driver of the clean energy markets?
You’ve already got Apple (AAPL) going 100% renewable, Macy’s (M) has 60 stores [with solar], there’s Target (TGT) and others. The business community is making these decisions based on economics and to control their energy costs.
This Paris agreement will effect policy. So you take a country like India, which has a heterogeneous policy for energy. One state has one program, another state has another program, and they are at a real energy crossroads. They can go big coal, they can go big renewable. It’s difficult to translate into a homogenous set of policies, but this sends a strong signal to help accomplish that.
It also means capital will be more inclined to move to that market. That’s been a real challenge partially because of the heterogeneous policy environment. So it will effect policy in places like India and Africa.
Do you think the Paris talks will be a strong signal for opening up investment in these markets?
Absolutely. If you’re an investor, you want to be there early. If you’re late, the profit or easier money is already gone. Of course it’s risk vs. reward. This sends a signal to the market that is more risk averse. So will it make a difference? No question. It’s just a matter of how much.
Another interesting angle is public opinion. If you ask people, would you prefer coal or solar? Some 70% or 80% would prefer renewables. This reinforces that. It makes it mainstream.
What about the news of Bill Gates and other billionaires pledging to fund early stage energy innovation? Did that movement make a big splash in Paris?
It had a huge effect on the first week. That’s what I think America ought to talk more about. The innovation economy that’s created by COP [the annual Conference of Parties]. What people call a problem is a business opportunity.
To be fair, Silicon Valley has had a couple cycles with cleantech investing. But it is such a large market, that Gates’ comments on top of the agreement will cause another wave of investment whether it’s in Silicon Valley or elsewhere. It’ll probably be different. Maybe it won’t be making new panels, or even making new batteries, but integrating batteries or energy management, or smart grid — so probably more software oriented.
I also have mixed thoughts about the Gates’ movement. He’s clearly a brilliant guy, but I’m not so sure we need the early stage investing across the value chain. I think the system is already working in sectors like solar. I think we should be selective.
Was there anything in Paris that really surprised you?
India. I think it’s hard for India to sign up. They have a big energy challenge and are certainly one of the top countries with energy poverty. Of course they have great economic growth and that’s not going to happen unless they have more energy. The country is at a crossroads, going big with coal and figuring out what are the economics of coal and getting the real energy price comparisons. India’s involvement in Paris was preceded by China and America working together. For us, the universality is the big deal.
What are the challenges for the Indian solar market? China too?
For India the challenge has been primarily financing [solar projects]. For a solar farm, financing can be a third of the cost of the project in India. Land interestingly is difficult to get access to, relative to other parts of the world. Policy tends to be heterogeneous—there’s 28 states, there’s local laws and various incentives. I think all of those things will get better with the commitments made at COP.
China is a different animal. From our experience, you need a partner. So it starts with deciding who’s your partner? China will install as much solar this year as America has cumulatively. So that’s why it’s such a big deal. Two thirds of the new energy generation will be installed in the next decade will be outside of the OECD countries. That’s where the action is.
I was just reading about the effort to renew the investment tax credit for clean energy over the next two weeks. Is SunPower involved with that?
I’ve been in energy for 13 years and you learn that energy is a policy-driven industry. Because we are a policy driven industry, of course myself and SunPower have to be active in policy. So are we active in city, state and federal policy? Absolutely.
Does SunPower publicly support the extension of the ITC [which would maintain a 30% tax credit for clean energy projects].
Definitely. I would say that our position is clear. If there’s no ITC, you disrupt the solar industry, and in fact it already is being disrupted. The question is by how much? Will the industry go away? No. We’ll continue to innovate and get solar costs down. But 2017 will be a lot harder without the ITC. Will it be good for the solar industry for a longer term or even more intermediate view, like five years out? Yes. It’s abrupt changes that are hard to manage.
Assuming the ITC doesn’t get extended, will China and India be more important markets to SunPower?
Yes is the short answer. We’ve seen markets grow and tail off and new markets form. Being nimble and flexing between markets is really critical. Spain, Italy, the U.K., Germany came and went. Japan’s come and gone twice. Flexing between markets is key. Clearly, if the ITC is not extended, that will be key.
How important will energy storage be for SunPower?
The attach rate [of batteries to solar projects] is still in the low single digit percentages. But I think that it will go up with a meaningful growth rate at 20% to 40% a year. I think it becomes a meaningful part of our business within 5 years.
The question is do people buy a solar system and add storage and energy management to it? Or do they say, ‘Hey I want this complete solution and it’s great that SunPower can sell it to me?’ We’ll see. We haven’t figured out our go-to market on that yet.
Will SunPower’s investment in software and analytics increase?
Oh yeah. We invested in Tendril and we’re growing out our software team.
Is there a point at which the industry is much more of a software play?
Yes, it’s not next year, but maybe five years away. Said differently, can you get more costs out of the system with software? Yes. Selling solar will eventually be a digital experience. And then once you have a solar system, what’s your experience with it through software. Then there’s the soft costs— the design costs, the permit costs, etc.— and software will be a big part of that.
SunPower has acquired a lot of companies over the last few years. Are there areas that the company is looking to acquire technology in during the coming years?
Yeah, integrating energy storage, energy management software and solar systems. And all things when it comes to acquiring customers. There’s some really interesting things you could do there. I think the rate of change is going up not down in solar.
Is community solar of interest to SunPower?
Yes, we’re very interested in it. We’re arguably one of the top two solar developers in the world for solar fields, and we have a strong presence in solar rooftops, so community solar sits in the middle of that. It’s also where software and analytics will be very important. Our plan is to be a leader in community solar for sure.
What are SunPower’s big goals for 2016?
Lowering the cost of energy, for sure. Also smart energy, we call it, so innovating in storage and energy management, increasing how much energy storage we sell with solar projects. In addition, the internationalization of the business, which is not easy. How do you enter new geographies at the right level, with the right pace of spending, and have a customized solution for that market? That’s the last piece that will be a key focus for us in 2016.
To learn more about the economics of clean energy watch this Fortune video:
[fortune-brightcove videoid=4516350022001]
