Equity Investments

12 Months Ended

Jan. 01, 2023

Equity Method Investments and Joint Ventures [Abstract]

Equity Investments

EQUITY INVESTMENTS

Our equity investments consist of equity investments with readily determinable fair value, investments without readily determinable fair value, and equity investments accounted for using the fair value option.

Our share of earnings (losses) from equity investments accounted for under the equity method is reflected as “Equity in earnings (losses) of unconsolidated investees” in our consolidated statements of operations. Mark-to-market gains and losses on equity investments with readily determinable fair value are reflected as “other, net” under other income (expense), net in our consolidated statements of operations. The carrying value of our equity investments, classified as “short-term investments” and “other long-term assets” on our consolidated balance sheets, are as follows:

	As of
	January 1, 2023		January 2, 2022
(In thousands)	(As Restated)
Equity investments with readily determinable fair value:
Enphase Energy, Inc.	$	132,480	$	457,352
Total equity investments with readily determinable fair value	132,480		457,352
Equity investments without readily determinable fair value:
OhmConnect investment	5,000		—
Equity method investments under the Dealer Accelerator Program	26,419		—
Other equity investments without readily determinable fair value	280		807
Total equity investments without readily determinable fair value	31,699		807
Equity investments with fair value option:
SunStrong Capital Holdings, LLC	9,871		8,371
Dorado Development Partners, LLC	8,173		—
SunStrong Partners, LLC	302		3
Total equity investment with fair value option	18,346		8,374
Total equity investments	$	182,525	$	466,533

Equity investments without readily determinable fair value

In February 2022, we made an equity investment in OhmConnect, Inc. (“OhmConnect”). We accounted for the investment as an equity investment without readily determinable fair value in accordance with the guidance in ASC 321, Investments - Equity Securities.

In fiscal 2022, we launched our Dealer Accelerator Program to help speed the adoption of renewable energy across the U.S. by making minority investments in solar dealers to advance their growth in coordination with the rapid growth of their direct business. As part of the program, dealers receive preferred access to SunPower equipment, battery storage, and financial products offerings. In addition, we provide the dealers with enhanced lead generation and business strategy support.

During fiscal 2022, we entered into four equity investments as part of the Dealer Accelerator Program. The equity investments made were in Sea Bright Solar, Inc. of $2.0 million for an equity interest of 20.0%, Freedom Solar Holdings, LLC of $9.4 million for an equity interest of 4.5%, EmPower CES, LLC of $6.0 million for an equity interest of 20.0%, and Renova Energy Corp. of $8.5 million for an equity interest of 10.6%. All of these equity investments were accounted for as equity method investments without readily determinable fair value in accordance with the guidance in ASC 323, Investments - Equity Method and Joint Ventures, given the material intra-entity transactions that exist under our exclusive supplier agreements as a result of our investments. We recognize our earnings from our equity method investments in the fiscal quarter after the corresponding earnings are recognized by the investee, and recorded earnings from equity method investments of $0.5 million during the year ended January 1, 2023. In addition, during the year ended January 1, 2023, we received a dividend from one of our investees in the amount of $0.3 million.

Variable Interest Entities (“VIEs”)

A VIE is an entity that has either (i) insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) equity investors who lack the characteristics of a controlling financial interest. Under ASC 810, Consolidation, an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and is required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:

•The power to direct the activities that most significantly impact the economic performance of the VIE; and

•The right to receive benefits from, or the obligation to absorb losses of the VIE that could be potentially significant to the VIE.

We follow guidance on the consolidation of VIEs that requires companies to utilize a qualitative approach to determine whether it is the primary beneficiary of a VIE. The process for identifying the primary beneficiary of a VIE requires consideration of the factors that indicate a party has the power to direct activities that most significantly impact the investees’ economic performance, including powers granted to the investees’ governing board and, to a certain extent, a company’s economic interest in the investee. We analyze our investments in VIEs and classify them as either:

•A VIE that must be consolidated because we are the primary beneficiary or the investee is not a VIE and we hold the majority voting interest with no significant participative rights available to the other partners; or

•A VIE that does not require consolidation because we are not the primary beneficiary or the investee is not a VIE and we do not hold the majority voting interest.    

As part of the above analysis, if it is determined that we have the power to direct the activities that most significantly impact the investees’ economic performance, we consider whether or not we have the obligation to absorb losses or rights to receive benefits of the VIE that could potentially be significant to the VIE.

Unconsolidated VIEs    

In March 2022, we entered into a joint venture with Hannon Armstrong and SunStrong to form Dorado DevCo, a jointly-owned entity, to hold our residential lease solar power projects. Similar to our prior joint ventures for residential lease assets, SunPower and Hannon Armstrong will make total capital contributions of up to $7.9 million into Dorado DevCo for 50% equity interest, each. SunStrong, our existing joint venture with Hannon Armstrong, was appointed as a manager of the entity. We also entered into a development asset purchase agreement to provide development services for solar power systems sold into the fund.

With respect to our interest in Dorado DevCo, we determined there is not sufficient equity at risk in the joint venture, thus, we determined the joint venture is a VIE as considered under the guidance in ASC 810, Consolidation. Based on the assessment of the required criteria for consolidation, we determined that SunStrong, as the manager of Dorado DevCo, has the power to make decisions over activities that significantly affect Dorado DevCo and subsidiaries. We and Hannon Armstrong do not have the power to unilaterally make decisions that affect the performance of the investee, and we do not have kick-out rights to unilaterally buyout the other party's equity interests, while Hannon Armstrong has a right to purchase our equity interest of the investee. In addition, much of our exposure to absorb the losses of the VIE that could potentially be significant to the VIE, or the right to receive the economic interest from the VIE, is in our capacity as a developer and service provider, where we provide development services at market terms. Therefore, we concluded we are not the primary beneficiary of the investee.

During the year ended January 1, 2023, we made a $8.2 million capital contribution in the equity method investee. The investment contributed to our equity investment balance in SunStrong and is classified in “other long-term assets” on our consolidated balance sheets.

We have elected the FVO in accordance with the guidance in ASC 825, Financial Instruments, for our investments in SunStrong, SunStrong Partners, and Dorado DevCo, our unconsolidated VIEs. Refer to Note 8. Fair Value Measurements.

Summarized Financial Information of Unconsolidated VIEs

The following tables present summarized consolidated financial statements for SunStrong, a significant investee, based on unaudited information provided to us by the investee:1

	Fiscal Year Ended
(In thousands)	January 1, 2023		January 2, 2022		January 3, 2021
Summarized statements of operations information:
Revenues	$	147,946	$	136,428	$	123,772
Net income (loss)	(768)		5,575		(10,788)
Net income (loss) attributable to parents	10,751		(37,913)		52,483

	As of
(In thousands)	January 1, 2023		January 2, 2022
Summarized balance sheet information:
Current assets	$	88,561	$	93,722
Long-term assets	1,823,437		1,626,125
Current liabilities	94,414		65,872
Long-term liabilities	1,378,462		1,295,540

1 Note that amounts are reported one quarter in arrears as permitted by applicable guidance.

Related-Party Transactions with Investees

Related-party transactions and balances with SunStrong, SunStrong Partners, Dorado DevCo, and our dealer accelerator equity investees are as follows:

	As of
	January 1, 2023		January 2, 2022
(In thousands)			(As Restated)
Accounts receivable	$	33,864	$	22,089
Prepaid expenses and other current assets	3,959		2,222
Other long-term assets	6,549		11,000
Accounts payable	165		53
Accrued liabilities	97		676
Contract liabilities	63,504		17,442

	Fiscal Year Ended
(In thousands)	January 1, 2023		January 2, 2022		January 3, 2021
Revenues and fees received from investees for products/services	$	251,265	$	202,386	$	201,130
(Gain) loss on business divestitures, net	—		(224)		—

Consolidated VIEs

Our sale of solar power systems to residential consumers in the United States are eligible for the ITC. On August 16, 2022, the IRA was enacted. The IRA includes, among other things, an expansion and extension of the ITC for eligible solar energy systems through at least 2032. The IRA increased the ITC and allows qualifying homeowners to credit 30% of the cost of the solar or solar paired battery storage system from their U.S. federal income taxes starting in 2022, as well as a new standalone battery storage ITC also at a value of 30% of the cost of the system beginning in 2023. Under the terms of the IRA, the solar, solar paired battery storage, and standalone battery storage systems for qualifying homeowners will remain at 30% through the end of 2032, reduce to 26% for 2033, reduce to 22% for 2034, and further reduce to 0% or 10% after the end of 2034 (with percentage dependent on the eligibility of the taxpayer associated with the residential system). The IRA also includes provisions beginning in 2023 that, depending on the location of a particular system and/or its ability to satisfy certain domestic content or low-income customer requirements, allows for substantial increases in the percentage value of the ITC for eligible systems that qualify, beyond the 30% minimum. IRS guidance on the current law provides for the ability to obtain a safe harbor with respect to the ITC on qualifying solar power systems, allowing preservation of the current ITC rates for projects that are completed after the scheduled reduction in rates assuming other required criteria as prescribed by the IRS are met.

In September 2019, we entered into the Solar Sail and Solar Sail Commercial Holdings, LLC (“Solar Sail Commercial”) joint ventures with Hannon Armstrong, to finance the purchase of 200 megawatts (“MW's”) of panel inventory in accordance with IRS safe harbor guidance, to preserve the 30% federal ITC, under the current law for third-party owned systems. The companies expected to increase the volume in later years, for which Hannon Armstrong extended a secured financing of up to $112.6 million; however, no additional amount was borrowed as of January 1, 2023 (Refer to Note 12. Debt and Credit Sources for other terms and conditions of this facility). The portion of the value of the safe harbored panels was funded by equity contributions in the joint venture of $6.0 million each by SunPower and Hannon Armstrong.

Based on the relevant accounting guidance summarized above, we determined that Solar Sail and Solar Sail Commercial are VIEs and after performing the assessment of required criteria for consolidation, we determined that we are the primary beneficiary of Solar Sail and Solar Sail Commercial as we have power to direct the activities that significantly impact the entity’s economic performance and we have exposure to significant profits or losses, and as such, we consolidate both of these entities.

Total revenue of these consolidated VIEs was $23.1 million and $18.0 million for the fiscal years ended January 1, 2023 and January 2, 2022, respectively. The assets of these consolidated VIEs are restricted for use only by the particular investee and are not available for our general operations. As of January 1, 2023, we had $30.5 million of assets from the consolidated VIEs.