The week in solar was a turbulent one, highlighted by a couple of bankruptcies from U.S. manufacturers. And multiple earnings reports showed a dire situation for many in the industry.
What's clear so far in 2017 is that the solar industry is going through a major transition. But for the companies that survive, there should be bright days ahead.
It was a big week for solar earnings, and there are some general trends we can pull out from recent reports. The first is that residential solar is having a down year, particularly for the big installers. Vivint Solar's (NYSE:VSLR) installations fell from 55 MW a year ago to 46 MW, and bookings dropped from 66 MW to 52 MW. This follows a decline of installations at Tesla's (NASDAQ:TSLA) SolarCity from 245 MW deployed a year ago to just 150 MW in the first quarter of 2017. As a supplier of components to these installers, SolarEdge (NASDAQ:SEDG) saw revenue fall 8% to $115.1 million, and net income dropped 32% to $14.2 million.
The one exception is Sunrun (NASDAQ:RUN), which grew deployments 21% to 73 MW in the first quarter. Sunrun has leveraged its multiple sales channels, and has been focused on its lease and power-purchase agreement model, which most other companies are moving away from. Right now it's a strategy that's working for the company.
SunPower (NASDAQ:SPWR) was the other big earnings report this week. The big takeaway is that it's seeing strength selling high-efficiency solar panels into the residential and commercial markets and struggling in utility-scale solar, but is transitioning its business model. But it could be worse for the solar manufacturer.
More bankruptcies in solar
This week saw the bankruptcy or insolvency of two more solar manufacturers: SolarWorld and Ten K Solar. SolarWorld had led the industry's efforts to get tariffs on Chinese imports, and it's unclear what will happen to its manufacturing facilities in Oregon and Europe. It may be in for liquidation because its cost structure in developed countries can't compete.
Ten K Solar, meanwhile, is a Minnesota-based solar manufacturer that tried to make solar more efficient by using reflection from non-solar parts of an installation onto solar cells. But performance issues were long rumored, and the reflection made for glare in urban areas (I personally experienced this). It's not surprising the company went under, but it's the latest in a long line of U.S. manufacturers to go bankrupt.
What the week in solar means
The solar industry is at a strange point, with poor financials from major companies and smaller, weaker companies going bankrupt. But amid those struggles the industry is growing and becoming more competitive with fossil fuels around the world. So the underlying fundamentals for the solar industry are good, even if the fundamentals for solar companies are terrible right now.
What I think we're seeing is a natural business cycle where companies on their last leg fight hard to survive before going out of business. That fight for business is what's led to solar panel prices falling by about one-third in the past year. The next phase will be a consolidation of power in solar, and in a few years I think there will be five to 10 companies that dominate the industry. And those companies will be the winners for investors long term. But getting to that long-term stability will include some rough weeks, and this was certainly one of them.