The solar industry got a peek at second-quarter results last week when First Solar (NASDAQ:FSLR) reported its earnings. Numbers themselves weren't that bad, but visibility in 2017 is weaker than investors would like. In the utility-scale solar business, next year is like a chasm companies need to get over before domestic and international markets open up in 2018.
Two more reports come out this week and they'll complete the picture of what's going on in solar right now. SunPower (NASDAQ:SPWR) will give an idea of all parts of the value chain and how demand for high-efficiency modules is shaping up and SolarCity (NASDAQ:SCTY.DL) will give its outlook on residential solar in 2016. Here's what to look for.
Where the residential solar market is headed
As recently as a year ago, the residential solar industry was as hot as it got in solar. Today, there's a lot of uncertainty about who exactly is making money in the industry.
SolarCity recently lowered its 2016 installation guidance to 900 MW-1,000 MW from 1,000 MW-1,100 MW. And that's a further reduction from initial guidance of 1,250 MW for the year. It's clear that SolarCity is growing slower than expected.
What needs to be answered is whether SolarCity is cutting costs as quickly as it needs to right now. First-quarter 2016 installation costs jumped to $3.18 per watt from $2.67 per watt a quarter before. And the reduction in guidance could mean that we're in for a rough year on the cost front.
One reason SolarCity is struggling could be the move of customers to financing solar through loans and choosing more efficient solar panels. And that could help SunPower. It was SunPower who had bullish comments on residential solar in the first quarter, which could be a sign that it's taking market share from SolarCity.
Look at the comments, installation trends, and guidance from both companies to see where the residential solar market is trending so far in 2016.
Will commercial solar fill the gap?
We know the utility solar market will be weak in 2017, and it's possible that residential solar is going through something of a slump, but commercial solar could have a great year or two ahead. These are the projects that go on warehouse rooftops, parking lots, or community solar projects that sell energy to customers who can't otherwise install solar.
Commercial solar hasn't grown as quickly as other segments because financing hasn't been readily available and commercial utility bills typically don't include high energy prices like residential solar does, which would make net metering a profitable way to offset the cost of going solar. But costs have come down and financing is opening up, which could make this a big growth market in the next two years.
SunPower and SolarCity could both be big players in community solar, so keep an eye on their comments there.
Who sees the most growth ahead?
The final thing to watch: Who sees growth ahead? SolarCity has been a growth company over the past five years, and SunPower has more or less held steady, but that could be changing. SolarCity is lowering guidance and SunPower is ramping up production in an effort to take market share.
Could SolarCity's growth story be fading as SunPower's is ramping up? Second-quarter earnings results and future guidance may tell us if a power shift is happening in solar.