How Big Will the Solar Market Be in 2014?

The challenges in the solar industry over the past three years has really come down to one simple economic concept: supply and demand. There's currently about 70 GW of solar module capacity available in the market and only about 32 GW was installed last year. That imbalance resulted in a plunge in module prices and the death of a lot of solar manufacturers worldwide.

But 2013 has seen stability emerge in the solar market and capacity was likely reduced slightly as companies went out of business. Demand is also up and could reach 37 GW in 2013, according to analysts at JP Morgan. They also think that installations will grow to 46 GW in 2014 as China and Japan increase demand.  

If those predictions come true, that's great news for the solar industry. Demand is picking up in sustainable markets, and we should see consistent growth as the cost of solar comes down and the cost of other energy sources goes up.

The impact on solar companies
Increasing demand has resulted in stable pricing in the second half of 2013, and that's been a boon for manufacturers. Once struggling to break even, SunPower (NASDAQ: SPWR  ) , Canadian Solar (NASDAQ: CSIQ  ) , JinkoSolar (NYSE: JKS  ) , and Trina Solar (NYSE: TSL  ) are now profitable and trends look to be in their favor.

Take a look at the gross margin trends over the past year for these companies. Margins are improving rapidly as a result of better pricing and cost reductions that were put in place when the industry was in a worse position.

SPWR Gross Profit Margin (Quarterly) Chart

SPWR Gross Profit Margin (Quarterly) data by YCharts

If demand grows to 46 GW in 2014, these margins should continue to improve. There's little new capacity coming online next year, and even SunPower's 350 MW expansion won't be ready until 2015.

Chinese manufacturers won't likely start expanding or upgrading plants until at least 2015. Even the best manufacturers are still dealing with bloated balance sheets, and Chinese banks have a lower appetite for solar risk after the past three years. That should keep supply stable for the foreseeable future.

Foolish bottom line
2013 was a great year for solar companies, both operationally and on the stock market. If demand continues to grow, I think 2014 could be even better. Japan and the U.S. should see steady, growth and China will likely install more than 10 GW by itself. 46 GW is an aggressive target for the industry, but one I think it can reach. 

The highest quality suppliers have seen the biggest benefit so far and I think that's where the gains will be next year as well. I'd rather be betting on a profitable company making even more money as the industry improved than a high risk debt ridden company turning things around, something Suntech Power and LDK Solar couldn't do despite strong demand in 2013. 

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Read/Post Comments (5) | Recommend This Article (3)

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  • Report this Comment On December 08, 2013, at 9:08 AM, dsong wrote:

    Your article is right. Solar is just starting.

    The better future is yet coming.

    However, 46 GW is very low estimate. 60-70 GW is possible installment in 2014.

    Just look at China, the fog disaster last week is ranking 6 degree which is highest degree for air pollution in the East provinces around the center of Shanghai.

    The China government now is putting the enviornmental condition at the first priority.

    It will eliminate all power plants by coal. Therefore

    the installation in China will at least double even triple in 2014-2015.

  • Report this Comment On December 08, 2013, at 10:49 AM, Rodney7777 wrote:

    Get ready for a solar powered world. Right now world solar electric output is approx .075% and has been shown to be doubling in output every two years. It is almost 2014, so at 2016 we can expect 1.5% and 3% by 2018. In 2024 ( 24% ) we can expect to see most nuclear plants shutting down. Coal fired plants would be next with, Oil drilling and refineries shutting down before 2030. Solar, like the world wide web, is growing exponentially and it will seemingly come out of nowhere. Clean, quiet, abundant, local and no moving parts.

  • Report this Comment On December 08, 2013, at 12:15 PM, camarodan64 wrote:

    solar will be 10 times bigger then the internet, 40 trillion dollars.

  • Report this Comment On December 09, 2013, at 9:00 AM, sonofTesla wrote:

    Hey Travis,

    Looks like 3 out of the 4 companies above are Chinese. Remember when you were saying how these companies would take forever (if they ever) to become profitable and you would avoid them at all cost. Looks like you're singing a different tune now.

    You still aren't touting Yingli like you should be, also, Hanwha Solar One's recent introduction of the Zep integrated frame means they are trying to show Solar City they can be a viable future partner. Keep an eye on how that relationship develops.

  • Report this Comment On December 09, 2013, at 10:52 AM, TMFFlushDraw wrote:

    @sonofTesla

    Yeah, look at how Chinese companies have performed versus my pick SPWR or SCTY this year.

    SPWR is up 424% this year vs. 84% for YGE, plus YGE isn't profitable.

    YGE has too much debt to invest in the next technology cycle, putting it behind CSIQ, TSL, and JKS, not to mention FLSR and SPWR.

    Travis Hoium

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