The solar industry continues to have a much better 2017 than most analysts expected, yet solar stocks have had a hard time recovering to the levels they reached in 2016.
Investors got another earnings report this week that showed both the progress solar manufacturers are making and the challenges they're facing. And news from one of the biggest solar markets in the world may foreshadow tough times ahead for solar in the U.S.
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A big earnings report
When the biggest solar manufacturer in the world barely squeaks out a profit in a quarter that was very favorable to its operations, you know there are challenges in the solar industry. JinkoSolar (JKS -1.13%) announced second-quarter results this week, and while it reported a 39.8% rise in revenue from a year ago to $1.17 billion, its gross margin fell from 18.1% to 10.5%, and net income plunged 83% to $7 million.
The results reflect the challenge commodity solar manufacturers face. Demand is strong, but there's little product differentiation -- a situation that leads to low margins and dims chances of making a profit in the long term. JinkoSolar's management is trying to address the financial pressures by upgrading 2.5 GW of capacity to mono-PERC technology that boosts module efficiency, but similar upgrades are taking place across the industry, and there is no guarantee they will lead to higher profits.
Speaking of new technology, JinkoSolar also announced a new partnership with Heraeus, a supplier of solar metallization pastes, to work on "Super PV Cells." The two have worked together on solar cell technology in the past, increasing efficiency and lowering costs, but like the upgrade plan mentioned above, such improvements aren't guaranteed to lead to financial success.
The downside of rising solar module prices
I've written a lot over the past few months about how strong demand for solar modules is leading to higher prices in the market. That can be great for manufacturers, but it can be devastating for installers, which are sensitive to module pricing. In India, rising prices could be terrible for the solar market overall.
According to PV Magazine, Indian credit rating agency ICRA has said a 15% increase in imported solar module prices to the $0.35 to $0.37 per-watt range could put 3.25 GW of solar projects at risk. Bids of as little as 2.44 INR/kWh (3.8 cents/kWh) made economics tight on projects, and even a small increase in module prices could batter the market. This is a noteworthy conclusion, as the U.S. faces a potential rise in module prices if Suniva/SolarWorld's Section 201 trade case moves forward. If President Trump imposes tariffs or a price floor on solar imports, the U.S. could see a lot more than 3.25 GW of energy projects dry up overnight.
News and notes
Here are a few more developments from the solar industry this week.
- JinkoSolar and Enphase Energy (ENPH -3.89%) announced this week that they will introduce a mono-PERC module with a microinverter attached. AC modules, as they're known, are intended to lower costs by shifting labor from the roof to the factory floor. SunPower (SPWR -4.84%) is another company that's making AC modules. If they become more prevalent, AC modules could reshape the dynamics of the solar industry by giving module manufacturers more ways to differentiate themselves and offer more value to installers.
- SunPower announced an updated power and product warranty this week, giving purchasers of its E-Series and X-Series a 25-year warranty with a maximum degradation of 0.25% annually after the first year (when they promise at least 98% of rated production). That's an incredibly low degradation rate, and it guarantees that customers will get 92% of their rated electricity production 25 years after the solar modules are installed.
- Canadian Solar (CSIQ -0.38%) announced that it acquired 80.6 MW of solar projects in Brazil that have a 20-year power purchase agreement to sell energy to the Electrical Energy Commercialization Chamber.
- ReneSola (SOL -7.46%), another embattled solar manufacturer, agreed to sell 24 MW of solar projects it built in North Carolina. The proceeds of the sale could help stabilize the company's finances as it attempts to lay out a more sustainable path forward.
That's all for this week in solar. Check back to fool.com next week for more solar analysis.
