A few words from President Donald Trump about putting solar panels on the proposed wall at the U.S.-Mexico border sent solar stocks sharply higher on Thursday. SunPower (NASDAQ:SPWR) and Canadian Solar (NASDAQ:CSIQ) led the way, but First Solar (NASDAQ:FSLR) was also up as the whole sector seemed to be a bit cheerier being on Trump's good side for once.
I first saw the idea of the "Solar Wall," if you will, floated by SunEdison co-founder Jigar Shah on LinkedIn and it's not at all a crazy idea if the wall is actually built. Unproductive space on the top or sides of the wall could generate hundreds of millions of dollars in electricity each year and pay for part of the wall's cost. Trump says they're working out the details and that makes it worth looking at how big the solar opportunity is on the wall and why Mexico and Canada could be the real winners if it's built.
What if a wall is really built?
A solar-power system on the proposed wall could be worth billions to the companies that supply solar panels and other components. Elemental Energy estimates the array could be 1.4 gigawatts while Shah estimates it could be 5 GW. To put those numbers into perspective, 1 GW of solar will power 164,000 U.S. homes and the entire country installed 14.6 GW. From a financial standpoint, the lowest cost solar installations are about $1 per watt, but a solar wall would likely be more like $1.50 to $2 per watt, so there's potential for as much as $10 billion in revenue if a 5 GW solar power system is put on the wall. This could be a significant project for the industry if it's built.
Despite the market's excitement, a wall on the U.S.-Mexico border seems unlikely. Trump's own party hasn't supported spending billions on the wall and there's no support from the other side of the aisle. But if political will changes and a wall is built there could actually be a big opportunity for the solar industry.
Solar companies could make millions on Trump's wall
The wall's scale for potential suppliers could have a really big impact on their businesses. SunPower projects deploying 1.3 GW to 1.6 GW in all of 2017, so even on the low end of estimates the wall could be a year's worth of supply if it is the solar supplier. First Solar projects shipping 2.4 GW to 2.6 GW in 2017, so again up to 5 GW of demand could be a significant impact on the business. Canadian Solar, the other stock that popped, expects to have 7 GW of capacity at the end of 2017. If it were the solar supplier the impact of Trump's solar wall would be big, but not the game changer it could be for SunPower and First Solar.
What's notable here is that First Solar and SunPower, the only two U.S. based manufacturers with anywhere near the manufacturing capacity to build the solar wall, could actually see a meaningful impact on their business if they won the contract to supply panels for the wall. But the irony of the wall has just begun.
Irony that's too good to be true
One thing that First Solar, SunPower, and Canadian Solar have in common is that they manufacture a vast majority of their solar panels in Asia. First Solar has a plant in Ohio that makes about 550 MW of solar panels, but that's not nearly enough to supply Trump's solar wall with the solar panels it needs. SunPower only has a small pilot line in California, but it has 400 MW of capacity in Mexico at a plant that could be expanded in the next few years if demand picks up. Canadian Solar has 500 MW of solar panel capacity in Canada, but it's primarily a Chinese solar manufacturer.
Unless any one of these companies built a plant in the U.S., the wall could be providing jobs for Mexico and Canadian factory workers. The irony is almost too much to handle.
Could a "deal" be made
What could be fascinating to watch is whether or not someone who loves deals like Trump can make a deal on the solar wall. It's possible solar panels could finance part of the wall and if he uses the energy revenue to finance the project he may not need money appropriated from Congress. Could the solar industry be the ultimate financiers of the wall with Mexico?
Another deal I could see happening is Trump urging manufacturers like First Solar and SunPower to expand production in the U.S. Both have talked about it, but haven't announced any major expansions yet. But if they win a contract to supply panels for a solar wall under the condition that panels are made in the U.S. they may have an incentive to build here. And if Trump can line up subsidies to build a plant (and hire workers) that make building a solar plant in the U.S. feasible, companies like First Solar and SunPower would have to listen.
What is the real impact of this solar wall speculation?
The big question for investors here is if Trump has turned a corner on solar energy. During the campaign he blasted solar for being too costly (based on very old data) and too filled with subsidies. But the solar industry provides more jobs than coal and energy from solar is cost effective in many locations in the U.S., something he alluded to at the sunny border with Mexico.
If these comments mean Trump is starting to look more positively on the solar industry it could be good for solar stocks. That's ultimately what the market is speculating. Whether or not that speculation is followed by a surge in solar demand or profits for solar manufacturers will take some time to sort out.