GTM Research and the Solar Energy Industries Association (SEIA) have released their Solar Market Insight Report 2017 Q2 (which actually covers the first quarter), and it shows some interesting trends for the industry. The outlook for 2017 might not be as bad as expected, but installations are expected to fall 16% from a year ago to 12.6 gigawatts (GW). And new markets like commercial solar in Minnesota and New York are helping to offset some weakness in California and Massachusetts.
On the utility scale side, there's been a big slowdown, which isn't surprising, given the rush of projects built in 2016, when developers thought the solar investment tax credit (ITC) was going to disappear. Amid all the turmoil, today's solar market is more stable than ever, and it's less reliant on subsidies and state policies than it was in the past.
Here are a few highlights of the report that solar-energy investors should know.
The big trends in solar
The first number of note is that 2,044 megawatts (MW) of solar was installed in the first quarter, according to the GTM Research/SEIA report. That's down 2% from a year ago.
Residential solar installations fell 17% from a year ago to 563 MW, which isn't surprising given declines in volume from Vivint Solar (NYSE:VSLR) and Tesla (NASDAQ:TSLA). Sunrun (NASDAQ:RUN) was the one national installer to show growth, but that's an aberration right now.
Commercial installations were up 29% from a year ago to 399 MW. This is still a small market, but look for SunPower (NASDAQ:SPWR) to be a big player with its carport and large roof application called Helix.
Utility-scale solar has always been the biggest segment and that's no different in this report with 1,082 MW installed in Q1. Currently, 4.7 GW of projects are under construction and 2 GW are expected to come online in the second quarter. Strength in this segment is why First Solar (NASDAQ:FSLR) is still expecting a non-GAAP profit this year despite upgrading its manufacturing equipment.
In total, GTM Research/SEIA expects 12.6 GW of solar to be installed in the U.S. in 2017, down 16% from a year ago. But all things considered, that's not a bad result given the fact that installations could have fallen off a cliff had the ITC not been extended.
Beneath the headlines
There was some interesting data on component and system pricing in the report. Here are a few of the highlights.
- Solar panel prices fell 36.5% to $0.40 per watt, which is actually up a penny sequentially.
- Residential solar systems are on average $2.84 per watt, down 1.7% sequentially.
- Commercial system prices fell 4% sequentially to $1.56 per watt.
- Utility fixed tilt systems now cost just $0.99 per watt and a tracker system costs $1.08 per watt. Trackers are where First Solar and SunPower see the future of solar and with costs that low there's a lot of pressure on margins.
How far we've come
If you take a step back and look at the numbers above they're pretty astounding. In 2011, the SunShot Initiative's goal of $1 per watt for utility-scale solar by 2020, down from $3.80 in 2010, was a very aggressive goal. That goal was hit three years early.
The challenge for solar companies will be making money in the low-cost environment. I like what SunPower and First Solar are doing, moving to component sales rather than system development. On the other side, I think national installers in residential solar such as Vivint, Sunrun, and Tesla are at a huge disadvantage because they can't compete with the average solar installer on price.
Whoever can consolidate power in the next few years will have a lot of upside ahead. And even in a down year for solar in the U.S., there are a few bright spots for investors looking at the industry for the long term.