Vivant Solar (VSLR) is another residential solar provider likely to benefit from the recent legislative changes.
The residential federal Investment Tax Credit (ITC) will expire in 2022 and the commercial ITC will drop to 10% but the gradual nature of the phase-outs should protect against cliff-like scenarios, the SEIA predicts.
The Invesco Solar ETF (TAN), comprising 22 solar industry companies, is up 27.7% year to date, and that trend seems likely to last. By the end of the calendar year, total U.S. solar installations are expected to be up 25% from 2018, adding up to 13 gigawatts compared with last year’s 10.6 gigawatts, according to the SEIA and Wood Mackenzie report.
he U.S. solar-energy market just had its strongest first quarter yet, and rooftop power has emerged as the most promising growth sector.
Though it represents a small portion of the overall market, residential solar power has a lot of potential to grow, experts say. Strong customer demand, a handful of recent policy developments, and opportunities in battery storage are working in its favor.
In the first three months of 2019, the U.S. installed a record 2.7 gigawatts of solar photovoltaic cells, marking the most solar installations in the first quarter of a year, according to a report released Tuesday by the Solar Energy Industries Association (SEIA) and Wood Mackenzie. Rooftop residential solar made up 22% of the installations in the last quarter, and that percentage is on the rise.
“We are incrementally positive on US residential solar stocks and see a number of tactically attractive buying opportunities ahead of [second half 2019] volume tailwinds and amidst recent signs of ongoing strength in the financing environment,” wrote Goldman Sachs analyst Brian Lee.
Key drivers of growth include South Carolina’s removal of its net-metering cap, which limited the amount of energy that solar system owners could exchange on the grid, and Maryland’s recent bill that requires the state to generate 50% of its electricity from renewable energy by 2030.
The market for rooftop solar will continue to rely on regions where installations have been strong, such as California and the Northeast, but large solar players are turning their attention to emerging markets. Almost a third of new residential capacity during the first quarter came from markets outside the top-10 in cumulative capacity, the highest share ever, according to the report.
Both Lee and Wood Mackenzie analyst Austin Perea like Sunrun (ticker: RUN) as a national provider that is expected to benefit from the recent policies. While Tesla (TSLA) has cut prices for its solar panels, it has pulled back in active customer acquisition, so it seems unlikely to gain new market share in solar, which makes up only 5% of its business. Sunrun stock is up 55.7% year to date.
In California, every new home built after 2020 will have to have a solar system, leading to a 15% to 30% year-over-year increase for residential solar, according to Lee. “We are expecting an increase of over a gigawatt from 2020 to 2024,” Perea said, “which basically makes California’s new home solar market, if it were a state, one of the biggest states.”
SunPower (SPWR), which both supplies and installs residential solar systems mostly in California, expects to capture more than 50% of the market created by California’s mandate. The company has a backlog of 33,000 new homes, enough to carry it through 2020 and indicating a leadership position in the industry, according to Lee.
“Their model is sustainable because they don’t rely on a national installer presence. They are localized and have better sense of customer acquisition,” Perea said. Sun Power stock is up 63.3% year to date.
Increased demand for battery storage connected to solar systems also bodes well for both Sunrun, which entered the residential storage market early with Brightbox, and SunPower. Solar storage systems have become economically competitive in states like California where electricity is expensive.
“Storage is definitely going to be a part of that equation,” says Wood Mackenzie analyst Colin Smith. “There’s a tremendous demand for more battery storage. You can pair batteries with wind and solar, and more often that not, it’s going to be solar plus storage because it’s going to be more financially more feasible.”