After nice stretch of sunny weather, the last few months have clouded over for big solar. Declining prices for photovoltaic cells are hurting panel manufacturers and stressing solar installation businesses. This situation was in sharp relief this week in Tesla's (TSLA) earnings, as its solar installation business, SolarCity, disclosed a big slowdown in builds. SolarCity commands 41 percent of the residential solar installation market, according to GTM. In its latest earnings, the firm revealed that it had installed 150 MW of panels in the first quarter, down nearly 39 percent y/y.

“Rather than prioritizing the growth of MW of solar deployed at any cost, we are selectively deploying projects that have higher margin and generate cash up front. Consequently, solar energy generation deployments in Q1 2017 declined year-over-year, but had better financial results,” said the earnings release.

The Curious Logic of the Solar Market

Industry body Solar Energy Industries Association (SEIA) reports that installations for the past year actually went up. In 2016, the U.S. saw 14.8GW solar capacity installed with a new installation taking place every 84 seconds.

There are companies that are doing well. First Solar (FSLR) just reported strong earnings while Vivint Solar (VSLR) announced is expansion into Rhode Island and is expected to announce financial results next week. However, the list of struggling companies in the sector is longer.  

SunPower Corp. (SPWR) reported its sixth consecutive quarter of losses and laid off 25 percent of its workforce. Verengo Solar filed for bankruptcy last year, while Sungevity and Suninva did the same earlier this year. 

But if solar energy is seeing such high demand, why are the companies feeling the heat?

The Price Is Not Right

The cost of the production and installation of solar panels has dropped dramatically and that is driving demand. According to SEIA, the cost to install solar capacity dropped 29 percent in the final quarter of 2016, compared to the same period last year. Over the past 10 years, installation costs have come down by nearly 60 percent.

There is more than one reason for price suppression in the solar industry.

“Driving the cost reductions were lower module and inverter prices, increased competition, lower installer and developer overheads, improved labor productivity, and optimized system configurations,” a National Renewable Energy Laboratory report states.

At home, the government tried to promote solar energy to consumers by making it affordable. One such initiative was the Solar Investment Tax Credit for residential and business solar installations, adopted in 2006 and extended in 2015.

In the international arena, U.S. solar companies blame declining panel prices on foreign imports, especially from countries like China, Mexico and Canada. Suniva recently implored President Trump for protectionist policies for the sector.

However, as the big ones struggled, someone made hay as the sun shone. According to GTM research’s U.S. Residential Solar Update 2017, many of the larger firms struggled to do well while smaller, local companies thrived.

 

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.