Solar power gets a lot of headlines. But to be honest, it's still not a big contributor to the overall power picture. Which is exactly why SunPower Corporation (NASDAQ:SPWR) CEO Tom Werner thinks the increasingly relevant technology is one of the biggest opportunities in the "history of the markets." If he's right, big players like SunPower and SolarCity Corp (NASDAQ:SCTY) have bright futures.
Isn't solar cute!
If you just read the energy headlines, you might get the impression that solar power is taking over the planet. But as a percentage of total power, the U.S. Energy Information Administration, or EIA, pegs utility scale solar at around 0.6% of the total power generated in the United States. In fact, solar is expected to produce about as much power in 2015 as burning trash does. And while fast-growing rooftop solar isn't included in the EIA's number, that source isn't enough to push solar into the big leagues.
But solar is growing fast. For example, in 2013, solar provided roughly 0.25% of the country's power according to the EIA, which means in around two years or so solar's contribution doubled. That's pretty quick growth, but from a small base. Which is why solar is such a big opportunity -- it's still a relatively new technology in the early stages of adoption. On a larger scale, SunPower estimates that solar provides less than 1% of the world's power. CEO Werner is right to be excited.
Proving the point
If you want to see how quickly people are catching the solar bug, look no further than SolarCity's customer count. In the middle of 2012, SolarCity had roughly 29,000 customers. By the third quarter of 2014 it had 168,000. That's a compounded annual growth rate of around 100%. The company's goal is to have one million customers by mid to late 2018, which would require an annual growth rate of 60%. And with control over about a third of the U.S. market for installing rooftop solar systems, there's every reason to believe the company can get there.
Equally important, however, is that SolarCity is trying to work with utilities to ensure that rooftop solar is an asset to their grids. Right now many utilities see rooftop solar, also known as distributed power, as a threat. SolarCity is working with Hawaiian Electric Industries (NYSE:HE) and the U.S. government to figure out how to make the integration of customer-generated solar power to the grid benefit utilities as well as customers... and installers, of course.
Cost is the key
One of the biggest issues behind solar's recent growth is falling costs. To be fair, solar has been around for a long time. But because it was so expensive in the early years, it was the purview of really dedicated environmentalists; the average Joe simply couldn't justify the expense. That's changed as prices have come down. Now, with financing, leasing, and power purchase deals pioneered by companies like SolarCity, it's within reach of everyone.
SunPower, for example, reduced its production costs by 20% or more in both 2012 and 2013, while improving the efficiency of its offerings. This year should see the company's fourth generation manufacturing facility open, which will increase production, reduce costs, and provide an even more advanced product. A fifth generation plant is slated for 2017.
In fact, the company sees so much opportunity that it plans to triple its production capacity over the next five years. SolarCity, meanwhile, recently entered the panel space, expanding its reach beyond installations. Shortly thereafter it announced plans for a new manufacturing plant in upstate New York.
So both SolarCity and SunPower have big plans. And the crux of that comes from the fact that solar is still a tiny contributor to the world's power picture. Add in falling costs and improving technology, and you can see why SunPower expects the world to see solar grow from providing 1% or so of the world's power today to more than 10% by 2035. Both SolarCity and SunPower are positioning themselves now to play staring roles in that growth.
Reuben Brewer 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.