Please ensure Javascript is enabled for purposes of website accessibility

Why Residential Solar Stocks Struggled in January

By Travis Hoium - Feb 5, 2016 at 4:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

New risks that no one planned for showed up for residential solar last month.

What: Shares of the country's biggest residential solar installers dropped in January with SolarCity (SCTY.DL) dropping 30%, Sunrun (RUN 4.46%) falling 19%, and SunPower (SPWR 5.80%) down 15%. And there may be good reason for the drop.

So what: In late December, the Nevada Public Utilities Commission (PUC) decided to change the way solar customers were compensated for electricity exported to the grid and it destroyed the value of rooftop solar. Instead of getting to net meter electricity, which basically compensates customers the full retail rate for exported solar, the utility will now only compensate this electricity at the wholesale rate. It also tripled the fixed charges  each customer will pay, which they pay whether they have solar or not. I went into the details here on the numbers but to understand how bad this is all you have to know is that every major solar installer closed up shop in Nevada within a week of the ruling.  

Image: SolarCity.

To pour salt in the wound, the PUC decision is retroactive to customers who signed contracts before this ruling came down. That may wipe out their savings for going solar, potentially leading to solar defaults or renegotiated contracts (this grandfather clause may be revisited in 2016).

Make no mistake about it; this is terrible news for the solar industry. Not only does it kill the #2 residential solar market in the country, it gives a blueprint for utilities in the rest of the country to follow when trying to fight rooftop solar.

Now what: The impact of the Nevada ruling on solar companies will be different depending each company's business model. SunPower has a presence in Nevada, but it sells through dealers and most of its business in the state is in utility scale projects that sell energy directly to NV Energy. It also has a much more diverse business than SolarCity or Sunrun, so the negative impact will be negligible.

SolarCity and Sunrun both made big, dramatic announcements about shutting down Nevada operations after the PUC decision so I think they'll both take it hard. We'll have to wait until first quarter earnings are released to see how big the impact is but losing one of the largest residential solar markets in the country can't be good news.

Residential solar stocks struggled in January, but some of those struggles are due to challenges that could persist for years. Keep an eye on how Nevada's ruling changes margins and growth rates because growth in the residential solar industry may not be as easy as many companies have made it appear.

Travis Hoium owns shares of SunPower. The Motley Fool owns shares of and recommends 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

SunPower Corporation Stock Quote
SunPower Corporation
$24.08 (5.80%) $1.32
SolarCity Corporation Stock Quote
SolarCity Corporation
Sunrun Inc. Stock Quote
Sunrun Inc.
$33.24 (4.46%) $1.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.