Fickle subsidies used to drive the solar industry, and it was hard to predict from quarter to quarter what industry demand would be. But subsidies have fallen in recent years, and the industry is starting to compete with the grid on a more consistent basis.
Once the solar industry passes grid parity in a location it's like a freight train that's impossible to stop. In Hawaii, which combines lots of sun and high electricity costs, regulators had to put a halt to installations just to figure out how to manage the grid with all the new solar on residential rooftops.
Slowly, that dynamic is playing out around the world, with utility-, commercial-, and residential-scale solar now competing with fossil fuels on a cost per kW-hr basis around the world. As a result, the industry is going to have a banner year.
Explosive growth is just beginning
NPD Solarbuzz recently predicted that solar demand would jump 30% in 2014 to nearly 50 GW. If that prediction comes true, module prices should rise to more sustainable levels, leading to profitability across the industry.
Two of China's biggest suppliers are already planning to take advantage of this increase in demand. Trina Solar (NYSE: TSL ) is expecting to ship between 3.6 GW and 3.8 GW of solar modules in 2014, up from 2.58 GW last year. Yingli Green Energy (NYSE: YGE ) expects to increase shipments by as much as 33% to 4.0 GW in 2014. As two of the largest solar suppliers, Trina and Yingli not only have a lot riding on increasing shipments, they have a lot to gain as well.
Both can use their leveraged balance sheets to turn profits for shareholders, which have been a drag for the last few years but will be beneficial now. Trina Solar has already turned a profit, one that should grow throughout the year, while Yingli could swing to a profit later in the year.
2015 and beyond
The good news is that the solar industry is just getting started. Once grid parity is passed, there's no going back.
SolarCity (NASDAQ: SCTY ) , which uses panels from both Trina and Yingli, is going to grow around 90% this year, and will nearly double installations again in 2015 to as much as 1 GW of solar projects. SolarCity's costs are still falling as it becomes more efficient at installing solar projects, something we're seeing across the industry.
Companies are also starting to build their own projects, which will add incrementally more value as well.
I wouldn't be shocked to see solar installations exceed 50 GW this year and grow another 30% next year, which would bring demand above capacity. That puts solar manufacturers in the driver's seat, as they'll be able to charge more for solar panels as demand around the world grows.
It's a good time to be a solar investor, and the ride shows no signs of ending anytime soon.
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