6 Risk Factors That Could Destroy SolarCity

Solar energy is one of the hottest sectors in the market, and for good reason. The long-term market potential of solar power numbers in the trillions of dollars, and SolarCity has an ambitious goal to become America's solar utility. However, there are risks that threaten to destroy SolarCity's business model and cost investors dearly.

Jul 24, 2014 at 10:38AM

Solar power is one of the most promising industries of the next few decades -- potentially transitioning the world toward sustainable, clean, and renewable energy. Environmentally friendly and cheap electricity promises to create jobs, fuel economic prosperity, and make long-term investors rich. 

US Solar Energy Production Chart
U.S. Solar Energy Production data by YCharts.

U.S. solar power production has grown at 20% annually over the past decade, and the potential worldwide is even better. For example, IHS estimates that global solar installations through 2020 will total 537 GW, an estimate that is up 13% since last year and represents $1 trillion in investment in just the next six years. 

Companies like SolarCity (NASDAQ:SCTY) and SunEdison (NYSE:SUNE) offer distributed solar systems that could make them into the solar utilities of tomorrow. They promise to let investors cash in on what may be one of the largest long-term energy bonanzas in history and have become Wall Street darlings.

SCTY Chart
SCTY data by YCharts.

Although the potential for SolarCity is indeed massive, investors should be aware of six major risk factors that threatens not only SolarCity's short-term share price but its entire long-term business model. SunEdison is also affected by several of these; however, thanks to the IPO of its yieldco Terraform Power Inc (NASDAQ:TERP), I believe SunEdison makes a more promising long-term investment -- at least at the moment. Check out the slideshow below to see why. 

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Adam Galas has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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