Rooftop solar has been a hot topic in 2014, but it hasn't produced the best performing stocks. Image source: SolarCity.

As we near the end of 2014, let's take a little time to review what happened in the solar industry this year.

Solar installations are expected to grow 35% to 50 gigawatts, enough to power 8.2 million homes. But that doesn't mean that solar stocks had a particularly good year. You can see below, Trina Solar (NYSE:TSL) is down 24%, Canadian Solar (NASDAQ:CSIQ) is down 7%, and SunPower (NASDAQ:SPWR) and SolarCity (NASDAQ:SCTY.DL) are essentially flat for the year. 

SCTY Chart

SCTY data by YCharts

The one outlier is SunEdison (OTC:SUNEQ), who is up 75% this year. The driver has been a rapid expansion in emerging markets and the launch of a YieldCo to capitalize on the long-term value of solar energy.

This year's top stock

SunEdison has quickly become one of the largest renewable energy developers in the world this year, buying First Wind for $2.4 billion, signing a 5 gigawatt memorandum of understanding in India, and agreeing to build 1.7 gigawatts of projects in China.

A SunEdison solar project built for the Air Force. Image source: SunEdison.

Interestingly, SunEdison has grown in an unusual manner in the solar industry. It doesn't make its own panels, instead having third parties process polysilicon and wafers it makes into solar modules. For the most part, SunEdison is a construction and finance company rather than a technology company.

This strategy has played into SunEdison's hands this year because solar panel costs are low and financing costs are low. The market has also been in love with YieldCos, or companies who own renewable energy assets and then pay a dividend to investors. SunEdison was one of the first to launch a YieldCo when it formed TerraForm Power (NASDAQ:TERP) earlier this year to capitalize on that sentiment. The result has been the top stock in the solar industry. 

What went right and what went wrong in solar

For solar investors, 2014 could have been maddening. The industry is expected to grow around 35%, companies are becoming more profitable, and as solar energy passes grid parity around the world we should see demand grow exponentially in the next decade.

Yet, solar stocks have traded lower on the price of oil rather than the strong fundamentals in the industry. The price of oil really has nothing to do with the demand for solar energy, but the market seems to think all energy is correlated and recently stocks have gotten crushed.

That's the downside this year, but as I said, the industry is doing very well if you take a more fundamental look.

Large scale projects from First Solar are still driving industry leading profits. Image source: First Solar.

SolarCity has grown installations 84% to 326 megawatts in the first three quarters of this year and Vivint Solar (NYSE:VSLR) has grown 165% to 106 megawatts. The residential solar market has ballooned as lease and loan costs have become competitive with electricity from the grid and these are the two market leaders in the industry.

SunPower and First Solar (NASDAQ:FSLR) have been able to maintain profits in 2014, another sign the industry is reaching a level of maturity. In the past few years solar companies have lost hundreds of millions of dollars and now that there's some sort of steady state, profitable industry leaders are emerging.

Will 2015 be more of the same?

Solar project developers have been winners on the solar market recently, but it's unknown if that position will last. Long-term, I think manufacturers will start playing a major role in development, taking power away from developers buying panels on the open market. SunPower, Trina Solar, and Canadian Solar have all moved downstream to capture project value from their panels and I think that will continue long-term.

Another thing that will be interesting to watch is whether or not SunEdison can profitably execute on its growth plans. If panel prices rise or financing costs increase these projects could be in question. Keep an eye on execution because that's the biggest question mark facing this year's hottest solar stock.