A perfect storm of low-cost loans, low-cost components, and expiring tax credits looks likely to propel the United States into third place among nations installing solar power capacity in 2014. The big question, however, will be: What happens next?
A recent report by NPD Solarbuzz notes that the pipeline of large-scale solar power projects in the process of being built in the U.S. will hit 43 gigawatts his coming year. That's 7% more sun-capturing firepower than was in the works in 2013, and sufficient to move the U.S. into third place after China and Japan, in its solar ambitions.
The rapid rise of solar power is doing wonders for U.S. homegrown solar-power companies such as SolarCity (NASDAQ:SCTY), which builds rooftop solar arrays, then leases them out, rather than selling them, to its customers -- and First Solar (NASDAQ:FSLR), one of the pioneers of thin-film solar modules.
What's really interesting about the growth spurt, though, is what's behind it. Loan costs in the U.S. remain close to historical lows, thanks to a still-accommodating Federal Reserve. The cost of the solar power modules needed to build large solar power projects are also hitting rock bottom. Last week, PVInsights.com reported that certain Chinese module makers have cut their prices "dramatically in order to reach their annual sales target" -- resulting in the sixth straight week of declining module prices.
Meanwhile, PV Magaizine notes that "a 2017 deadline to qualify for full Investment Tax Credits (ITC) of 30%" is pushing developers to focus on (relatively) smaller, 30-megawatt-and-under size projects that can be completed in time to qualify for tax credits. NPD notes that such "projects with capacity below 30 MW have blossomed in recent months, increasing by 33% to now number approximately 2,100 – representing nearly 50% of the entire U.S. pipeline." And this growth is translating into blockbuster sales for companies like Solar City and First Solar, each of which posted sales growth in excess of 50% in their (respective) most recent quarters.
Clearly, conditions look favorable for solar power in the U.S. today. Barring a sudden spike in interest rates or solar module costs, this should remain true in 2014, when we'll "take the bronze," finishing third after China and Japan in the race to "go green." Predicting trends out to 2016 is trickier ... but at least we should be able to count on the tax credits. Where things get tricky is after 2016.
Crucially, in 2017 the government plans to slash tax credits for solar power installations by two-thirds, from 30% to 10%, removing a big part of the financial incentive to building these things. Potentially worse, it would be logical to assume that companies which were planning to build solar plants ... eventually ... may have shifted their projects forward in time to qualify for the juicier tax credits available pre-2017.
What it means to you
This could turn out to be a "rob Peter to install a solar plant for Paul" kind of a situation. Projects that were pulled forward into 2014, 2015, and 2016 to capture tax credits, could give rise to a plunge in projects needed to be built in 2017 and beyond. This would be good news for rate-payers, who could benefit from a surfeit of solar-induced electrical capacity in the very near future. It won't necessarily be good news for solar power investors, whoever -- who should get increasingly nervous, as 2017 draws near.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.