Steadily declining price of solar photovoltaic (PV) modules over the past decade has played the role of a key catalyst driving module shipment in the United States. Per a report by the U.S. Energy Information Administration (EIA), the average value of solar PV module shipments, used as a proxy for price, decreased from $3.50 per peak watt in 2006 to $0.40 per peak watt in 2019.
Resultantly, U.S. solar PV module shipment touched a record-high level of 16.4 million kilowatts (kW) in 2019, which was 2.9 million kW more than the record of 13.5 million kW set in 2016. With analysts predicting such price decline to continue and even sharpen, in some cases, the U.S. solar market should be a safe abode for investment.
Reasons Behind the Decline in Price
Factors like higher module efficiency, improved labor productivity and lower supply chain costs primarily resulted in the decline in average value of solar PV modules. Notably, module efficiency improvements have reduced the number of modules that were earlier required to construct a solar system, thus reducing hardware costs. This trend has also reduced soft costs from direct labor and related installation overhead.
On the other hand, rapid technological progress in the solar market and increased investments have boosted labor productivity. Moreover, rapidly declining manufacturing cost of solar modules, coupled with technological advancement and enhanced module efficiency have reduced supply chain costs associated with solar PV module shipment. Also, increased cost-competitiveness within the industry along with global oversupply resulting from decreased demand in Chinese solar market, reduced value of solar PV modules.
Notably, such module price reduction led to a rapid decline in construction cost for solar PV systems. From 2017 to 2018, the average construction cost of solar in the United States fell 21% to $1,848 per kilowatt (kW).
Other Factors Boosting U.S. Solar Market
Apart from declining PV module prices, increasing investment in solar market of late has also been boosting the industry’s growth. As more Utilities are inclined toward adopting clean energy, with solar being one of the mostly used renewable resources, along with corporates immensely supporting this transition, demand for clean electricity across public and private sector has been increasing rapidly.
Moreover, strong federal policies like solar investment tax credit have encouraged more investors to contribute to this industry. Impressively, in 2019, the solar industry generated $18.7 billion of investment in the American economy.
All the aforementioned factors have cumulatively resulted in more than 85 gigawatts (GW) of solar capacity being installed nationwide, enough to power 16.1 million homes, per the latest data released by the Solar Energy Industries Association (SEIA).
Will the Solar Boom Continue?
Although the COVID-19 pandemic did deal a blow to the U.S. solar industry, following government mandated restrictions on selling and installation of residential solar, installation activities have resumed lately and we expect the market to end the year on a growth trajectory.
To this end, Wood Mackenzie forecasts 37% annual growth for the solar market in 2020, with over 18 GWdc of expected installations.
Stocks to Buy
Considering the aforementioned discussions, investors might want to choose some favorable ranked stocks from the solar space, which boast solid growth prospects. These are:
Azure Power Global AZRE: This solar power developer delivered an earnings surprise of 130.43% in the last reported quarter. The Zacks Consensus Estimate for fiscal 2021 indicates an annual improvement of 21.3% and improved 38.3% over the past 60 days. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Renesola Ltd SOL: This solar wafer manufacturer and project developer delivered earnings of 8 cents against an estimate of break-even earnings in the last reported quarter. The Zacks Consensus Estimate for 2021 earnings indicates an annual improvement of 21.1% and improved 100% over the past 60 days. It currently carries a Zacks Rank #2 (Buy).
SunPower Corp. SPWR: This solar panels manufacturer posted an earnings surprise of 47.62% in the last reported quarter. The Zacks Consensus Estimate for 2021 earnings indicates an annual improvement of 165.1% and has risen 53% over the past 90 days. It currently carries a Zacks Rank #2.
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