A record amount of solar panels are expected to be installed in the U.S. this year, but the fate of companies in the industry has diverged.
The stocks of firms that focus on the utility market like
First Solar
(ticker: FSLR) and
Array Technologies
(ARRY) are soaring, but those that service residential rooftop customers, such as
Sunrun
(RUN), have struggled. New statistics released on Thursday show why.
In the second quarter, there were 5.6 gigawatts of solar capacity installed in the U.S., a 20% increase year-over-year, according to a report from energy research firm Wood Mackenzie and the industry group Solar Energy Industries Association. The industry is now on track to add 32 gigawatts of capacity this year, a 52% increase from 2022. U.S. government forecasters say solar is likely to account for more than half of new electricity capacity for the first time ever.
But not all segments of solar are growing at the same rate.
Utility solar—the arrays of panels installed on farmland or in other open spaces that send power to the grid and are generally sold to residential and commercial customers through utilities—is on track to add almost twice as much capacity this year as it did in 2022. The biggest segment of the market, utility solar is dominated by manufacturers like First Solar, which makes thin-film solar modules in the U.S., and equipment-makers like
Array Technologies,
which makes equipment that allows panels to track the angle of the sun throughout the day. Shares of First Solar and Array are up 22% and 26% this year, respectively.
First Solar in particular has benefited from the Inflation Reduction Act, which offers subsidies for domestic manufacturing. Solar developers have also figured out supply chain problems which made it more difficult to import panels from Asia in 2022. However, the utility market is facing some challenges from high interest rates and high hardware costs which have hurt procurements and could lead to slower growth in the future, the report’s authors wrote. That said, First Solar and Array remain in strong shape because of the large backlog of projects that still need to be installed.
The residential market has also been growing, albeit not as quickly as the utility segment: Wood Mackenzie expects installations to rise 9% this year. “Some installers report that it has been the slowest ramp-up to the solar sales season since 2019,” the report says.
The biggest culprit has been high interest rates, which have made it harder for consumers to finance solar installations. In some states, relatively low electricity rates have made solar less attractive, because consumers can’t save as much by putting panels on their roofs.
Another issue is that California has changed its solar rules in a way that makes it less lucrative for consumers to add panels. People booked solar orders before those rules went into place in April, so there’s a backlog of installations in California. However, residential solar could fall in 2024 once installers have worked through that backlog, the report says. Shares of solar developers like
Sunrun
and
Sunpower
(SPWR) have fallen 38% and 62% this year, respectively. Until interest rates come down, those stocks could have trouble attracting investors.
One company that’s focused on the residential market could fare better, because it’s been selling a growing share of its products outside the U.S. Equipment-maker
Enphase Energy
(ENPH) grew sales by 25% in Europe in the latest quarter, even as its U.S. sales fell 12%. Its earnings are expected to grow 10% this year and 30% in 2024.
Write to Avi Salzman at [email protected]
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