Please ensure Javascript is enabled for purposes of website accessibility

Why Solar Panel Prices Jumped in 2017

By Travis Hoium – Apr 9, 2018 at 7:19AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After decades of declines, solar panel prices jumped sharply last year.

One constant in the solar industry over the last 30 years has been the falling cost of solar panels. Core raw materials like silicon have become cheaper, manufacturing technology has made making panels faster and more efficient, and scale has helped lower costs. In almost every part of the value chain costs have been trending lower for decades. But in 2017, the trend reversed itself in the U.S. 

According to GTM Research, solar panel prices jumped nearly 25% in 2017 and global prices increased as well. There were a few factors that drove higher pricing, and if the trends continue, it could impact a wide range of solar companies in 2018. 

Solar panels on a residential roof.

Image source: Getty Images.

The rising cost of solar panels

The table below shows the rising cost of polysilicon (raw material), slices of silicon called wafers, solar cells, and ultimately an assembly of cells that make up solar modules, according to GTM Research. The rock-bottom prices in late 2016 and early 2017 reversed course in the second half of the year as installers rushed to buy solar panels. 

Table of solar panel component costs in the last five quarters.

Image source: GTM Research.

Supply and demand account for some of the increase in module prices, which allowed First Solar (FSLR -3.86%) and SunPower (SPWR -8.60%) to keep manufacturing plants running at full speed all year. As a result, margins and earnings were stronger than expected in 2017. 

First Solar and SunPower also have some company-specific tailwinds that will help them in 2018 as well. First Solar is the biggest solar manufacturer in the U.S., which gives it a unique position of avoiding the 30% tariff on solar imports implemented earlier this year. Until competitors build U.S. manufacturing (something they haven't seemed eager to do), the company should have a price advantage and will likely see strong margins as a result.

SunPower is a high-efficiency solar manufacturer, so it sells most solar panels into residential and commercial markets, which are less price sensitive to the solar panel itself. Rather, they want to squeeze more power from limited roof space. That makes SunPower's product attractive, especially as commodity solar panel prices rise. Referrning to margins on residential installations, CFO Charles Boynton said in the most recent conference call that "longer term, I think we still continue to believe it should be low-20%s to mid-20%s, and in some cases, low-30%s" and in commercial solar margins in the "low-teens to high teens" are expected. That's better than most of the industry because of SunPower's superior technology. 

Why solar manufacturers aren't getting a windfall

As we think about how higher solar panel prices impact the industry, we're not seeing benefits spread evenly. I outlined why First Solar and SunPower had better years than expected, but some manufacturers are seeing higher input costs squeezing margins. You can see below that gross margins for JinkoSolar (JKS -3.93%), JA Solar (NASDAQ: JASO), and Hanwha Q-Cells (HQCL) were all down in 2017, despite the rising panel price trends. 

JKS Gross Profit Margin (TTM) Chart

JKS Gross Profit Margin (TTM) data by YCharts.

Each of these manufacturers produces only some of the polysilicon in their solar panels. Hanwha Q-Cells had an estimated capacity of just 1.6 GW for polysilicon in Q4 2017 compared to 4.3 GW of solar panel capacity. JinkoSolar ended the year with 8 GW of panel capacity but bought most of its polysilicon and a large portion of solar cells as well. As a result, costs increased slightly late in the year and margins fell. 

These manufacturers give a glimpse of what the commodity solar panel market looks like given their large panel capacity. Even when prices are strong, it's tough to make money in solar manufacturing. 

Why higher solar panel prices won't benefit everyone equally

Demand and pricing for solar panels appear to be strong even into 2018, leaving very little excess supply in the market, especially from top-tier manufacturers. But that doesn't necessarily mean everyone will have a profitable year. 

In the U.S., First Solar is the only major manufacturer who is going to completely avoid tariffs, leaving the company with a windfall of profits over the next few years. But Asian manufacturers and U.S. based SunPower, who manufactures solar cells in Asia, will be hit by higher costs. Even if they import panels to the U.S. the margins may not be attractive to investors. 

High polysilicon prices will also hurt margins for solar manufacturers who don't have enough capacity in-house. Even if solar panel prices remain elevated in 2018, margins may not improve because raw material costs are negating the higher price. 

Solar panel prices will swing based on supply and demand and technology changes, but cost drops of 30% or more in a single year may be a thing of the past. For companies with a unique geographic advantage, like First Solar, or a technology advantage, like SunPower, the end of falling prices may leave them with a competitive advantage over commodity suppliers who didn't see higher profits despite higher prices in 2017. 

Travis Hoium owns shares of First Solar and SunPower. The Motley Fool owns shares of Verisk Analytics. The Motley Fool recommends First Solar. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

First Solar, Inc. Stock Quote
First Solar, Inc.
$130.93 (-3.86%) $-5.26
SunPower Corporation Stock Quote
SunPower Corporation
$22.54 (-8.60%) $-2.12
JinkoSolar Holding Co., Ltd. Stock Quote
JinkoSolar Holding Co., Ltd.
$52.06 (-3.93%) $-2.13
Hanwha Q CELLS Co., Ltd. Stock Quote
Hanwha Q CELLS Co., Ltd.
Verisk Analytics, Inc. Stock Quote
Verisk Analytics, Inc.
$173.55 (-0.10%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.