The solar power industry is experiencing a growth spurt that's pushed industry players like SolarCity (NASDAQ:SCTY.DL) and SunPower (NASDAQ:SPWR) into the headlines. However, there's more to the solar industry than just these two installers. In fact, one of the most exciting solar changes isn't even taking place within the solar industry itself -- it's in home construction.
SolarCity installs solar panels on customer rooftops. SunPower, which historically made industry-leading solar panels, has also gotten into the space. There are plenty of others, too, including utilities like Edison International (NYSE:EIX), which has entered the rooftop solar industry to help protect itself from the impact of the solar trend. However, SolarCity is probably the best example of the growth the industry has experienced.
Since 2009, SolarCity's customer count has expanded at an amazing 100% a year. In fact, though almost laughable, you could argue that SolarCity has a growth problem. That's because it expects customer growth to slow 30 percentage points and expand at only about 70% a year between 2014 and 2018. SolarCity is the industry's largest player, with a 36% market share. That's up from December, when it held 26% of the market, more than the next 15 competitors combined.
No wonder other players are getting in, like SunPower and Edison International, along with many, many others. But these flashy numbers hide an important change taking place within an adjacent industry that could materially alter the solar landscape: homebuilding.
Before you even move in
There were nearly 600,000 new homes built in 2013. That comes from giant publicly traded builders like Pulte Group (NYSE:PHM), Toll Brothers (NYSE:TOL), and KB Home (NYSE:KBH), and smaller, private companies like Tim O'Brien Homes. These companies are creating the future of the U.S. housing market one new home at a time.
That's why it's so interesting that both SolarCity and SunPower are increasingly partnering with builders like these to include solar panels on the houses they put up. Other builders, meanwhile, are altering their construction plans so the houses they erect are at least solar ready. That's notable because solar panels require changes to the strength of rooftops, and direct access points to a home's power system.
Putting a solar panel array on a roof doesn't require big changes to a blueprint, but this developing trend on the new home side is a notable shift. And it's an important one because outfitting existing homes with solar is a house-by-house affair, with each installation facing its own installation uncertainties, permitting issues, and grid-connection efforts. It also requires working with each individual homeowner as a customer.
Enlisting the homebuilders simplifies the process materially. For example, the homes will be built from the ground up to handle solar. There's no need to figure out how to install the system; it's already in the plans. And because the homes are generally standardized, getting permits should be easier. Having all of the homes in one general location should help on that front, as well, because it reduces the number of municipalities that the solar company will have to interact with.
Moreover, while the financial interaction is still between SunPower or SolarCity and their customers, the sales process and contracting should be easier, because the big sale is being made by the homebuilder. When you're talking about a $500,000 investment in a house, adding a solar panel that doesn't cost anything up front and helps to reduce ongoing electricity costs starts to look pretty enticing. And if you're already taking on a 30-year mortgage, a long-term power supply agreement becomes just another paper to sign.
Is this the big shift?
If you're following the rooftop solar industry, it's worth taking a few moments to examine the subtle marketing changes taking place in the homebuilding industry. SolarCity has agreements with Pulte and Toll Brothers. SunPower, meanwhile, is working with KB Home. Even private builders, like Tim O'Brien, are at least making new builds solar ready. These aren't changes to blindly accept as a good thing. These shifts, and the many others taking place throughout the industry, could be the foundation for the mass adoption of rooftop solar.
In fact, the biggest change may not even be on the building front; it may be the perception of solar. What is an add-on today could very quickly be seen as a standard feature as customers become more accustomed to, and comfortable with, the idea of solar. The major builders pushing the technology will play a big role in fostering that broader acceptance.
Pay close attention to the U.S. new construction market to get a sense of how widespread solar power adoption could become. Eventually, solar may not be a building choice -- houses might just come solar powered from the get-go.