The solar industry is growing around the world, but China is taking growth to another level. It recently set the most aggressive goal of any country by targeting 17.8 GW of solar installations in 2015. That's 19% higher than the proposed 15 GW goal, and 70% higher than the 10.5 GW installed in 2014.
Considering that around 46 GW of solar energy capacity was installed in 2014, China is leading the market in both market share and absolute growth. What's incredible is how good this could be for investors in solar companies.
Just how big is China's goal?
To put China's goal into some perspective, here is how 17.8 GW stacks up in the solar industry.
- 17.8 GW of solar energy would power 2.9 million U.S. households, or about 2.5% of the homes in the U.S.
- If built as a utility-scale power plant, 17.8 GW of solar energy would cover about 107,000 acres, or 167 square miles.
- Next year alone, China could approach the grand total of 18.3 GW of solar ever installed in the U.S.
The sheer numbers are mind-boggling, and given China's history of supporting the solar industry, there's no reason to think it won't hit its goal.
What's driving China's push into solar energy
There are three main drivers of China's push into solar: It is looking for ways to generate more of its own energy rather than relying on imported coal and oil, it needs to reduce the pollution that is literally choking major cities like Beijing, and installing solar projects supports a domestic manufacturing industry that has teetered on the brink of collapse for most of the past three years.
Given the vested interest China has in the solar industry, it's not surprising it will give this much support. For investors, the challenge is figuring out how to play this growth trend.
Who this will help
Clear winners in China's push to install more solar are the country's top-tier solar manufacturers. Trina Solar (NYSE:TSL), Yingli Green Energy (NYSE:YGE), and JinkoSolar (NYSE:JKS) should all benefit, not only from panel sales but also from building projects. SunPower (NASDAQ:SPWR) could also be a big winner, with its two joint ventures in China that will be building concentrated solar systems assembled within China.
But the benefits will be felt well outside of China. Growing demand could shift the balance of power from installers to solar panel manufacturers, who have been dealing with an oversupplied market since 2012. If demand begins to exceed supply, we could see panel prices inch higher, something we saw gradually in 2014.
At the very least, high-quality manufacturers like SunPower and First Solar (NASDAQ:FSLR) should see stable pricing and potentially increasing demand for their products. In SunPower's case, demand comes just as it begins a plan to triple manufacturing capacity by 2019, and First Solar rolls out more efficient panels that will compete in more markets. Neither of these companies have a big exposure to China, but as industry leaders, I think that's where investors should put their money, because they'll feel some of the side benefits as Chinese-based manufacturers.
One storyline to keep an eye on in 2015 will be the cost structures of U.S. solar installers. SolarCity (NASDAQ:SCTY.DL) and Vivint Solar (NYSE:VSLR) both buy most of their panels from Chinese manufacturers, and if prices rise as a result of China's growing demand, it will hit their bottom lines. For years, they've had the upper hand against panel manufacturers in an oversupplied market, but in 2015, the tables may turn.