Wednesday, April 22, 2009

The dark before the dawn?

A number of solar companies will report results over the next couple weeks.

Expectations are very low--indeed there has been a steady and consistent drumbeat of negatives revisions and forecasts from "top" wall street analysts. This could be a terrible quarter...typically Q1 is weak because it is winter, then you add in the credit crunch, the global recession, and an inventory adjustment as companies react to lower silicon prices and results could be awful. After holding steady for years, wholesale prices for solar panels fell by 15-20% (possibly more) in the last 6 months. There have been layoffs, "evolving" business models, and even some consolidation in the solar sector this quarter as companies try to adjust to the new economic realities. But markets are supposed to be forward looking, so are we seeing dark stormclouds on the horizon or is this only the darkness before the dawn?

Everything is relative and relative to most industries solar is still looking good, especially in the US. Granted the US is much smaller than top solars markets like Germany and last year Spain. California is the clear solar leader in the US, historically representing more than half of the market (by MW installed) and installations in 2009 are running at twice the rate of last year. Not bad considering we are in the midst of the worst recession in almost 80 years.

Furthermore, it appears that installed system pricing has not fallen as much as wholesale panel pricing would suggest. If wholesale prices fall $0.50/watt, I expect installed prices would also fall $0.50/watt (at least!). I looked at data from the California Solar website and was hard pressed to see any fall in the installed price. In part because a greater proportion of the installed systems are for homes (the average installation size is ~half what it was last year) rather than businesses. This makes sense since the feds removed a cap on the tax credit homeowners can get--late last year. Eliminating the Fed cap lowers the homeowners cost by ~$2/watt for systems over 2kw in size, assuming an $8/watt installed cost.

It is possible that the cheaper panels are being offset by the higher expense of installing smaller systems. Or the installers could still be working off their higher priced inventory. What is clear is that more of each solar dollar is going to installers this year than last year. We will have to see how and when/if lower wholesale prices get passed along to consumers.

In CA individuals are increasingly investing in solar when their out of pocket cost falls under $5/watt. Utilities in the midwest seem willing to experiment with solar when their out of pocket cost falls under $4/watt (and financing is available). My take away is that a 30% increase in the solar energy yield doubles actual installations and/or a 6% energy yield is a threshold/hurdle rate for investing in solar.

A solar yield for those of you new to the concept is the per watt annual return (value of all energy produced by a watt in a year) divided by the cash/out-of-pocket investment cost of the watt. A solar yield is a way to easily compare your solar investment to other investments like stocks, bonds, etc.