Solar is soaring, according to a new report released this week. But more surprisingly, it's increasingly expanding without the help of solar subsidies, a welcome signal that solar -- and companies like SolarCity Corp (NASDAQ:SCTY) -- is here to stay. Here's what you need to know.
Quite the quarter
Q2 2014 was another sunny spot for solar, according to the Solar Energy Industry Association's (SEIA) latest U.S. solar market insight report. Across the nation, solar installations shot up a seasonally adjusted 21%, clocking in at a 1,133 MW. For the first half of 2014, solar accounted for just over half (53%) of all new generation capacity, with natural gas (30%) and wind (14%) taking silver and bronze. America's total solar assets now sit at more than 15,000 MW.
And while more than half of those solar installations came in the form of scaled electric utility projects, the industry quietly celebrated a smaller success that could signify a turning point in the economics of solar energy.
According to the SEIA, the U.S. installed more than 100 MW of residential solar without any state incentives. For renewable energy optimists (and investors), that signals a golden opportunity for sustainable sales and growth. There are two main reasons solar is finally kicking subsidies:
1. It's cheaper
While residential systems still represent a costlier option than either commercial or utility scale projects, costs continue to drop. The SEIA's latest estimates puts $/DC watt costs at $3.74 for Q2 2014, down $0.09 from Q1 costs. The drop came primarily from declining labor costs, the primary reason residential systems can't compete with scaled options. The drop would've been more substantial if not for increasingly expensive polysilicon and module components. But with peace talks well under way in the U.S.-China solar trade war, component costs could enjoy a substantial cut in the near future.
2. More financing options
As is often the case in the energy sector, it's not what you buy, but how you buy it. Massive utilities have been balancing their debt-heavy books in innovative ways for decades, and residential solar sellers have been keen to pass the same benefits on to individual households.
Through financial products like lease-to-own setups, zero-money-down installations, bank partnerships, and third-party-owned systems, corporations like SolarCity have been expanding fast. Last week, SolarCity announced that from 45 operation centers in 15 states (plus Washington D.C.) as of July, it'll be adding on an additional 20 operation centers in seven new states. Essentially, SolarCity is telling America that its products are now affordable in areas as diverse as Arizona and New York.
Foolish bottom line
In the first half of fiscal 2012, residential solar installations added up to just 1,144 MW. For 2014's first half, installations are up more than double, clocking in at a substantial 2,700 MW. And for 2014 overall, the SEIA expects residential solar to grow at an astounding 55% annual rate, faster than utilities (37%) or non-residential systems (21%). For investors who can spot this trend today, there's unprecedented opportunity in this increasingly proven product, so make your solar pick soon.
Justin Loiseau has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.