A colleague recently asked if now is a good time to buy solar stocks. She noted that shares in several solar companies are at or near their 52-week lows, and yet at the same time new solar power installations are booming.
Clearly a buying opportunity, yes?
But that doesn’t mean there’s a problem with solar power itself — the economics just haven’t worked themselves out yet.
Both rooftop and utility-scale solar are growing rapidly in the United States. Over the last 10 years the compounded growth rate is 60 percent. This year is no different — photovoltaic solar installations grew 45 percent in the first half of 2016 alone.
But there are many different types of solar companies — panel makers, rooftop installers, builders of utility-scale solar farms — and each one has different challenges.
In rooftop, no one has really figured out how to make money. Much like tech giants like Twitter and Uber, solar companies like Solar City and Vivint have pursued growth over profits — using revenue and loans to acquire new customers rather than figuring out how to make money off a slow and steady increase in business. Plus, there’s a lot of competition and many new entrants, especially local installers wanting in on the action.
“In a volatile and fast-moving industry, market leadership is still up for grabs,” Ed Crooks wrote recently in the Financial Times.
For panel makers like First Solar, the issue is oversupply. Over the last several years, the Chinese government invested heavily in state-of-the-art solar panel manufacturing plants. These plants are continuing to churn out panels even as the Chinese and European economies slow and demand wanes.
This is good for solar power in general. Cheaper panels mean cheaper projects. This is partly why growth rates have been so robust. But it’s hard on panel manufacturers trying to turn a profit.
Utility-scale solar project developers risk borrowing too much money and expanding too fast. That’s what happened to Sun Edison.
These are the Wild West days in solar power. For an investor, it’s not unlike the early days of personal computers. The solar industry, like the computer industry, is sure to grow. But picking the winners is hard. Maybe you pick Apple. But maybe you pick Commodore, or Tandy, or any one of the dozens of other computer makers that are no longer around.
And then there’s Elon Musk. Last week the serial entrepreneur debuted a solar panel that looks and works like a regular roofing tile. Made from glass and solar cells, the tiles come in three different styles — Tuscan, slate and one that looks like a regular tar shingle.
Details remain scarce, including how Musk will market the tiles to skeptical builders, and their cost. He says they will cost less than a regular roof with conventional solar panels on top.
With new products, falling prices and rapidly changing market dynamics, this is an exciting time for solar power. But in the near term, betting on which firms will come out on top should only be done with money that’s safe to lose.