SolarCity leapt into the spotlight several weeks ago when it announced the acquisition of Silevo -- a solar panel manufacturer, whose modules, according to SolarCity's press release, "have demonstrated a unique combination of high energy output and low cost." This announcement drew considerable attention because SolarCity has sourced its solar panels from third-party vendors -- namely Chinese manufacturers like Trina Solar and Yingli Green Energy.
Is SolarCity done making acquisitions? I don't think so. What else the company has up its sleeve is a mystery, but below I've presented two companies I believe would add substantial value for the leading residential solar installer. 
Source: SolarCity
Potential target #1 -- To string invert or microinvert
One company that may attract SolarCity's attention is Enphase Energy (ENPH 0.62%), a leader in microinverter solutions. Presently, SolarCity relies on central inverters, otherwise known as string inverters in its systems. Provided by SolarEdge, ABB's Power-One, Fronius, and SMA, central inverters are connected to multiple PV modules, converting the generated-power from DC to AC. Debate regarding the use of string inverters and microinverters is quite common in the solar industry; nonetheless, SolarCity has taken the string inverter route. There are several drawbacks of this type of systems, namely, should there be an inverter failure, all of the electricity generated by the "string" of panels would be lost. With microinverters, however, the power loss would be mitigated -- limited to the one panel to which the microinverter is connected.
Source: Enphase Energy
Currently, Enphase sports a market cap of about $400 million -- twice as much as the $200 million in stock which SolarCity shelled out for Silevo. However, using microinverters would presumably be an effective cost-cutting measure. SunPower (SPWR -3.09%), one of SolarCity's main competitors, uses SolarBridge microinverters with its E18 and E19 solar panels. Recognizing the value in using microinverters, SunPower finds that, "Microinverters are integrated with SunPower's solar panels at the factory level, reducing installation time, complexity and overall cost of the system."
Enphase would not only add value to SolarCity's operations, but it would, in time, be its own source of revenue growth. At the moment, Enphase is unprofitable, but the company's financials are improving. In the first quarter, the company's revenue of $57.6 million represented 26% improvement year-over-year, and its 32.7% gross margin, a 570 basis point year-over-year improvement, was a company record. An acquisition of a microinverter manufacturer would not only complement the Silevo deal but also the $158 million acquisition of Zep Solar, a leader in residential PV module mounting systems. Touting the value of the acquisition, SolarCity stated that "Zep Solar's product portfolio works as a comprehensive system that reduces the cost and complexity of designing, shipping, warehousing, and installing PV systems."
Potential target #2 -- A real good idea
Another possible, less-expensive, yet equally interesting acquisition would be RGS Energy, which has a market cap of $120 million. Formerly known as Real Goods Solar, RGS Energy is one of the leading residential solar installers in the nation.
Source: RGS Energy
RGS Energy operates in 12 states. According to GTM Research, RGS accounted for 2% of residential solar installations in 2013, making it the fifth largest installer. SolarCity was the leading residential solar installer with 26% of installations. For 2014, RGS Energy is guiding for installations to fall in the range of 50-55 MW, while SolarCity is guiding for installations to come in at between 500 and 550 MW.
RGS Energy operates in most of the same states as SolarCity; however, RGS Energy has a presence in some states in which SolarCity doesn't, like Missouri, New Hampshire, Rhode Island, and Vermont. Although New England may not seem like the most logical region in which to develop solar resources, in actuality, the Northeast has been quite popular. In the map below, the darker shades of brown represent the areas with the greatest solar power production potential, while the yellow circles represent currently installed solar power plants.
Source: EIA
This year has been a bit bumpy for RGS Energy' stock, offering SolarCity an opportune time to consider making an offer. Most recently, shares dropped nearly 10% when the company announced that it had entered into an agreement to raise $7 million in private equity. Currently, shares are down about 46% from its 52-week high of $5.65.
The Foolish takeaway
Although they both operate in the solar market, Enphase Energy and RGS Energy are two vastly different companies; nonetheless, they both represent strategic value for SolarCity. Even if SolarCity never makes any overtures to these companies, investors may want to dig deeper to see if they warrant acquisition for their own portfolios.
