Here's Why the U.S. Solar Market Is Assured of Strong Growth

I first covered the solar sector in May and June 2012, during its darkest days. Since then, the sector has experienced a remarkable recovery, with many share prices having quadrupled or quintupled.  

Many have asked if the sector and specifically two of my favorites -- SunPower  (NASDAQ: SPWR  ) and SolarCity (NASDAQ: SCTY  )  --have room to run. It's important when investing in an industry hit hard by both irrational exuberance and irrational panic to look at the real drivers. Why will this industry grow? Or why won't it?  

As I cover in my recent analysis, this market will continue to grow.

Catalysts
There are a few drivers: improving economics, heightened public awareness, climate and environmental concerns, and government support.  This last one is what I'll focus on. Much is made of national governments' subsidy schemes -- the 30% Investment Tax Credit here at home and feed-in tariffs for much of the rest of the solar-adopting world. What's often overlooked in the U.S. is the importance of state-level Renewable Portfolio Standards (RPS).  

Present in some 30 states plus the District of Columbia, RPS mandate electricity suppliers procure a portion of their electricity from renewable sources. Further, among these states, 16 (as well as DC) include a solar specific provision. 

In many of these states, that provision mandates double-digit year-over-year growth, with that annual increase often as much as 25%-50%, or more. The 2014-2015 increase in North Carolina (which installed the second most solar capacity in 2013), for example, is 100%. In Maryland, a more mature solar market than North Carolina, the 2014-2015 increase is more than 40%. To achieve compliance electricity suppliers must either directly own solar energy assets or must purchase environmental credits from solar asset owners. 

Taken together, these RPS essentially guarantee robust growth in the domestic market. That's a boon for solar companies like SunPower (majority domestic revenue), First Solar (~85% domestic revenue, 2013), and SolarCity (substantially all domestic revenue, 2013). 

And in many years, states have shattered these requirements.  A few years ago, Pennsylvania and Maryland both experienced surges in installed capacity, which sent the price of environmental credits through the floor.  While the drop in the price of credits was not so great for the owners of solar assets, it was a great development for electricity suppliers, and a huge positive for solar panel manufacturers like SunPower and First Solar. 

Bottom line
Understanding state-specific dynamics of the U.S. solar market will equip solar investors to understand and anticipate market developments at the state level that ultimately shape the broader market.  

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  • Report this Comment On April 28, 2014, at 1:14 PM, ronwiserinvestor wrote:

    The solar PV market has matured dramatically over the past 2 years. Consumers are no longer jumping at the first $0 down opportunity that happens to come calling or knocking.

    Consumers are asking questions. Questions like:

    1. Are there other forms of $0 down financing besides a lease or PPA?

    2. What brand of products are you putting on my roof?

    3. How do these products compare to other offerings?

    4. Am I getting the best price?

    5. Am I getting the best return for my investment?

    6. Is it better to rent (lease/PPA) or own?

    The easy pickings are gone. Today, more and more consumers want to own their systems while retaining the financial incentives like the 30% federal tax credit. They want $0 down financing with tax deductible interest. They want a fast ROI. Solar leases and PPAs offer none of these benefits.

    As we move into the 2014 PV market and beyond, look for diminishing market share for the solar lease and PPA companies and a takeover of the market by smaller companies that offer much lower priced, name brand, higher performance solar systems coupled with new $0 down FHA Title 1 solar loans and $0 down PACE financing that both offer tax deductible interest.

  • Report this Comment On April 28, 2014, at 1:16 PM, jargonific wrote:

    We keep posting re SPWR and that's partly because over the years we have been robbed by short sellers on the stock. Would love to see them robbed back.

    Meanwhile though a price of 34 is decent, but the stock is being collapsed to 31.99..

    We bought latest shares to try at 26.70.. what do you all think?

  • Report this Comment On April 29, 2014, at 12:47 PM, aussie2u wrote:

    What scares me about Solar City is the fact that they don't manufacture anything. If Americans suddenly see Chinese panels being dumped cheap into our market again (think Solyndra period), their leasing revenue will get clobbered. Now consider we are approaching an election year in which everything revolves around government incentives, what happens if that gets radically overhauled? Too many unknowns for SCTY when they only install systems.

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