After a rough couple of years, the solar industry has been an extremely hot segment of the stock market in 2019. First Solar (FSLR 2.54%), SunPower (SPWR 2.59%), Sunrun (RUN -1.67%), and Vivint Solar (VSLR) are all up over 40% as of this writing, and Chinese manufacturer JinkoSolar (JKS 5.36%) has nearly doubled.
Some of the optimism is based on improving performance, but some is based on projections for long-term growth. If that growth materializes, the industry's stocks could continue climbing.
2019 should be a big year
Measurements of solar installations are opaque because countries don't track installations effectively, but most analysts are expecting a record year. Bloomberg New Energy Finance expects solar installations to grow from 109 gigawatts (GW) in 2018 to 125 GW to 141 GW in 2019, or enough to power 23.1 million U.S. homes.
China continues to be the biggest story in solar, but it's supposed to fall from about 55% of the market in 2017 to 19% by 2023, according to Wood Mackenzie. It isn't that China is giving up on solar, but rather that the technology is becoming more economical in other countries. Saudi Arabia, India, Chile, and parts of Africa are finding that solar energy is the cheapest form of new power generation, making it an easy choice.
Manufacturers finally see a ray of hope
For manufacturers like First Solar, SunPower, and JinkoSolar, there's finally some hope that growing demand will result in rising profits. Price pressure tends to ease when the industry grows, and it helps that very few manufacturers have the scale to compete with these large rivals.
Differentiation is also starting to become more important because developers are trying to squeeze more power generation from each acre or rooftop. First Solar is upgrading to a Series 6 technology that lowers costs and squeezes slightly more power from each solar panel. SunPower is expanding A-Series production, which makes panels as efficient as 22.8% when turning the sun's energy into electricity, and is also expanding commodity cell-based P-Series panels, which have achieved over 19% efficiency consistently.
In China, JinkoSolar will upgrade nearly all of its cell capacity to produce PERC technology panels, which creates a more efficient cell than older technology.
All of these technology improvements will help expand differentiation, increase margins, and if all goes well increase profits.
Residential solar becomes big business again
Residential solar continues to expand its market as more states find solar economical. Florida, Texas, and Nevada are growing, and establishing policies that should keep the industry growing for years to come.
Installations have grown each quarter, rising 520 megawatts (MW) installed in the third quarter of 2018 to 640 MW installed in the fourth quarter of 2018. And with SolarCity's rapid decline under Tesla's (NASDAQ: TSLA) ownership, Sunrun, SunPower, and Vivint Solar are gaining market share. If industry growth continues and these installers gain share, they will be set up for a great 2019.
Bright skies ahead
If the solar industry does hit record installations in 2019 and companies can outline differentiation as highlighted above, it could keep solar stocks pushing higher. There's always the risk of a large market cutting subsidies, but we're seeing solid policy momentum globally in favor of solar, and that's a big turnaround from the last few years. This all spells good news for solar stocks.