The following is a summary of an article written by Avi Salzman for Barron’s May 14, 2018 edition. I found the information to be interesting and possibly some of you that reside in California will agree.
California Brightens Solar’s Outlook
Solar energy just got an enormous boost from California. A state energy commission has ruled that starting in 2020, developers will have to install solar panels on nearly every new residential building. Tiny and very shady roofs get a pass.
Californians have already installed far more solar power than residents of any other state, with 5.7 gigawatts of small-scale solar systems, accounting for 40% of the total in U.S. (A gigawatt can power about 750,000 homes.)
But the sun is about to shine even brighter on the industry. Last year, 1270,00 California homeowners installed solar, according to the Solar Energy Industry Association. About 15,000 of those systems were placed on new homes, says the California Solar and Storage Association. In two years, those numbers could skyrocket. The state energy commissions expect that 117,000 single family homes and 48,000 low-rise multifamily dwellings will be built in 2020. If those projections are correct, annual residential demand is likely to double.
Not everyone in solar will benefit equally. For one, the rule won’t do much for manufacturers. Most are based overseas and face challenges like a 30% tariff on imported solar modules.
The real winners will be in the solar installation and development industry. In California, that’s a few big companies and a lot of small players – “basically two guys in a truck” says Guggenheim analyst Sophie Karp. The mandate is much more likely to help the big companies, she says, because developers will probably buy the panels in bulk, contracting with companies that can outfit an entire project.
The new dynamics should favor companies like Sunrun, now the leading U.S. residential solar installer after passing Tesla-owned SolarCity last year. Sunrun is the dominant player in California and seems to have cracked the code to produce positive cash flow in a notoriously competitive industry. Karp expects Sunrun to gain more ground as the industry consolidates. She says the California solar mandate should boost its growth rate and lower its cost of capital.
SolarCity remains a major player in solar development and installation. And it could benefit from California rules that favor battery storage for solar systems. But with Tesla’s enormous valuation, the rules are unlikely to change the company’s prospects in the near term.
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