The solar market has seen ebbs and flows over the past decade, and right now, utility-scale solar appears to be the hottest business in town. According to the Q3 2019 U.S. Solar Market Insight Report from Wood Mackenzie and the Solar Energy Industries Association, the utility-scale pipeline has hit an all-time high of 37.9 gigawatts (GW), enough to power 6.2 million homes.
As the pipeline grows, developers and solar manufacturers have a lot riding on who is winning projects. Tens of billions of dollars are at stake over the next few years.
The solar industry's surprise windfall
Investors wouldn't have thought that the solar industry would be hitting records with a fairly hostile Trump administration in power, but that's what's happening today. Corporate buyers looking for stability in electricity costs and some green energy kudos from consumers and investors are signing projects at a record pace, and utilities are starting to see solar bids so low they can't be ignored.
In the first six months of 2019, 11.2 GW of utility-scale solar projects have been announced, and 17% of those were from corporate buyers. As recently as 2016, corporate buyers were only 10% of the market and passed just a bit more than 1 GW of projects, a level that's already been surpassed.
On the utility side, solar is winning on the price of electricity. Prices for power purchase agreements have ranged from $0.018 to $0.035 per kWh for electricity, according to the report, which would beat any new fossil fuel plant. Solar is now the most economical choice for utilities, and 55% of the 11.2 GW of new projects signed in 2019 are based on economic drivers for utilities.
Solar energy's winners are...
Two groups are emerging as winners in the solar market. One is the manufacturers that make the products that are going into these developments. First Solar's (NASDAQ:FSLR) take is almost entirely derived from utility-scale projects, and the U.S. is its main market, so the company should do well over the next few years. It's a little concerning that bookings were just 2.2 GW in the first half of 2019, the same as shipments, but bookings did pick up to 2.1 GW in the first few weeks of the third quarter.
SunPower (NASDAQ:SPWR) hasn't been a big name in utility-scale projects lately, but its newly acquired manufacturing plant in Oregon isn't hit by tariffs on solar imports, which should make it more cost competitive. Its P-Series product coming from China may also be able to compete in the U.S. utility-scale market in the long term.
Another big name to watch is Canadian Solar (NASDAQ:CSIQ), a maker of solar panels. The company is one of the biggest solar manufacturers in the world, and its growth depends on winning big contracts for utility-scale projects. If the U.S. is booming, it bodes well for the rest of the world.
The yieldco boon
Another beneficiary of a growing number of solar assets is the group of companies that finance solar projects, primarily renewable energy yieldcos. TerraForm Power (NASDAQ:TERP), NextEra Energy Partners (NYSE:NEP), and Hannon Armstrong (NYSE:HASI) are three of the biggest renewable energy project owners and financiers in the world, and they'll have a growing pool of assets to acquire.
Yieldcos need a constant flow of assets to grow their dividends, so this feeder system of solar farms will be good for them over the long haul.
The solar boom is here
Large-scale solar energy is growing at a time when the political winds don't favor renewable energy, and that's great news for the industry. Corporations and utilities are seeing the value and cost savings renewable energy brings, and that's what's driving the industry, not subsidies. Maybe this time around, the growth in solar energy will be sustainable.