2016 was a record year for the U.S. solar industry, installing 14.6 GW of new solar projects, nearly double the 7.5 GW installed the year before. But that's nothing compared to what China is doing.
In 2016, China installed 34.5 GW of solar, and in the second quarter of 2017 alone it may have installed 18 GW of new solar capacity. That's what independent solar analyst Corrine Lin reported in PV Magazine this week, or nearly one-fifth of all solar installed in the world in 2016. And China could be headed for a year with as much as 40 GW of new solar installations.
Why China is in a solar boom
China's solar installations have been driven by feed-in tariffs that set a price developers can sell solar electricity to the grid. And the country added new programs like Top Runner and a poverty alleviation scheme that have led to a surge in demand early in 2017. If the 40 GW figure is hit this year, it would mean China alone would install nearly half of the projected 85 GW of solar in 2017. That's an incredible feat, and could keep the industry afloat in a year that seemed like it would be very difficult just a few months ago.
Demand could fall off later in the year, but for now there's so much demand it's lifting the fortunes of the solar industry, particularly on the manufacturing side.
Who benefits from China's solar surge?
There's really no player in solar energy that won't benefit a little bit from the surge in China's installations last quarter. I mentioned recently that reports have suggested that panel pricing is up in 2017, and that should help SunPower (NASDAQ:SPWR), Canadian Solar (NASDAQ:CSIQ), and JinkoSolar (NYSE:JKS), three of the most valuable publicly traded solar companies. If they indeed saw higher solar panel prices, we should expect to see revenue and gross margin exceed guidance for the second quarter. First Solar (NASDAQ:FSLR) isn't as directly involved in China, but expect it to see some benefit in the U.S. as Chinese panel suppliers focus their efforts on their domestic market.
I'm most interested to hear what SunPower says about the market dynamics in its second-quarter earnings release. It was planning to cut production of its E-Series solar panel, a middle-of-the-road efficiency product, because of high costs to instead focus on lower-cost P-Series panels made in Mexico and China. If demand is up, it may keep plants running more than expected, and if its P-Series product is in high demand, we could see it push to expand more aggressively than it planned earlier in the year. Another factor to watch is the polysilicon SunPower is selling into the market at spot prices. If prices are up, it may not lose the $100 million it planned to lose on those sales this year, which would be another boost to the bottom line. SunPower reaches into so many parts of the solar market that it can be a bellwether for the rest of the industry when it reports second-quarter earnings in a couple of weeks.
Maybe 2017 won't be so bad after all
Solar stocks have struggled since early 2016, largely in anticipation of weak demand and falling panel and project prices in 2017. But this year isn't turning out to be as bad as expected, and if financial performance beats expectations, we could see stocks surge from lows earlier this year.
Despite the run-up in solar stocks over the last couple of months, there's still a lot of pessimism priced into these stocks. But that pessimism may be fading away, and as it does, I expect the solar industry to be one of the hottest on the market in 2017.