According to the "BP Statistical Review of World Energy," renewable energy use set a record in 2013. Digging into that number shows that solar capacity grew a massive 33% last year, easily outdistancing wind power's 20% growth rate. Although that type of growth can't continue forever, it highlights why you should take a look at SolarCity (NASDAQ:SCTY.DL) and SunPower (NASDAQ:SPWR).
Plenty of opportunity
Although renewable energy use set a global record last year, it only accounted for 2.7% of global energy consumption. That's just a tiny slice of the energy pie, but it is massive compared to the 0.8% renewables accounted for in 2003. There is, clearly, something going on in the space. The two most exciting areas have been wind and solar. Those two are big in the electric arena, where renewable use grew 16.3% and accounted for 5.3% of global power generation.
There are two takeaways from this set of facts. First, renewables are growing fast. Second, they are growing from a small base. That means this trend has plenty of room to run, even if oil, coal, natural gas, and nuclear aren't at any risk of being unseated from their dominant global energy market perches anytime soon.
For U.S. investors, solar is an exciting and increasingly commonplace opportunity. That's because companies like SolarCity and SunPower are installing solar panels on the rooftops of neighbors and local businesses. And this trend could potentially upend the power business. Why? Customers are reducing their purchases and, perhaps more importantly, they are selling electricity, by government mandate, back to the power companies.
The big and the growing
SolarCity is the larger of the two in this space, starting the year with roughly 550 megawatts of installed solar power. It expects to top 1 gigawatt by Jan. 1, 2015. Moreover, the company hopes to have a million customers by mid 2018, which would mean an annualized customer growth rate of 70%. Believe it or not, that's down from the 99% customer growth rate achieved between 2009 and 2013.
That's good news for long-term performance because SolarCity generally owns the solar systems it installs and leases them back to homeowners. SunPower's installation business is much smaller, entering 2014 with less than 150 megawatts of installed rooftop solar. However, SunPower is a much broader play on solar growth. The company's lease revenue was roughly 6% of its first-quarter top line. SolarCity's business is virtually all rooftop solar, though a recently announced acquisition will get it into the panel-making business once it's consummated.
That helps explain why SunPower turned a profit in 2013, after two dismal years of red ink, and SolarCity is still bleeding. SunPower's other businesses include making solar panels and installing utility-scale solar projects. It also has a global footprint that SolarCity can't match. Although there's been a painful price decline in the global solar panel market, SunPower is an industry leader and has obviously weathered the storm.
Losses, however, shouldn't scare you off from SolarCity if you have an adventurous bent. That's because the U.S. government is currently subsidizing solar power. Thus, SolarCity, and SunPower for that matter, must act while the iron's hot. Eventually, the government will expect solar power to stand on its own two feet, and this pair needs to get big before that happens.
Since SolarCity has already achieved notable scale, getting bigger just means getting better -- even if losses continue for awhile. When the government's largess falters, it should be able to handle the hit. On that front, SunPower has its work cut out for it on the rooftop front, but its other businesses should continue to shine so long as solar adoption continues overall. And as the "BP Statistical Review of World Energy" shows, there's plenty of room for growth.
Getting green and making green
SolarCity and SunPower are both good ways to play the greening of the energy market. Neither will power past the world's dominant global energy giants, but that doesn't mean there isn't plenty of opportunity. Oil, for example, will never see 33% growth in a year. And while solar's growth is likely to slow down from here, SolarCity and SunPower are raring to go along for a ride that will easily trump oil's above-average 2013 consumption growth of 1.4%.