The dark before the dawn?

A number of solar companies will report results over the next couple weeks.  Expectationsare very low–indeed there has been a steady and consistent drumbeat ofnegatives revisions and forecasts from "top" wall street analysts. Thiscould be a terrible quarter…typically Q1 is weak because it iswinter, then you add in the credit crunch, the global recession, and aninventory adjustment as companies react to lower silicon prices andresults could be awful. After holding steady for years, wholesaleprices for solar panels fell by 15-20% (possibly more) in the last 6months. There have been layoffs, "evolving" business models, and evensome consolidation in the solar sector this quarter as companies try toadjust to the new economic realities. But markets are supposed to beforward looking, so are we seeing dark stormclouds on the horizon or isthis only the darkness before the dawn?

Everything is relativeand relative to most industries solar is still looking good, especiallyin the US. Granted the US is much smaller than top solars markets likeGermany and last year Spain. California is the clear solar leader inthe US, historically representing more than half of the market (by MWinstalled) and installations in 2009 are running at twice the rate oflast year. Not bad considering we are in the midst of the worstrecession in almost 80 years.

Furthermore, it appears thatinstalled system pricing has not fallen as much as wholesale panelpricing would suggest. If wholesale prices fall $0.50/watt, I expectinstalled prices would also fall $0.50/watt (at least!). I looked atdata from the California Solar website andwas hard pressed to see any fall in the installed price. In partbecause a greater proportion of the installed systems are for homes(the average installation size is ~half what it was last year) ratherthan businesses. This makes sense since the feds removed a cap on thetax credit homeowners can get–late last year. Eliminating the Fed caplowers the homeowners cost by ~$2/watt for systems over 2kw in size,assuming an $8/watt installed cost.

It is possible that thecheaper panels are being offset by the higher expense of installingsmaller systems. Or the installers could still be working off theirhigher priced inventory. What is clear is that more of each solardollar is going to installers this year than last year. We will have tosee how and when/if lower wholesale prices get passed along toconsumers.

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

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



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