Solar Concerns Turn from Credit Crunch to Price Plunge

real-goods-solar-installOne year ago, two key trends dominated the solar industry: economic uncertainty and scarce credit. If solar companies were to survive, they needed to scramble to adapt their strategies to both. Today, the economy is more stable and credit is freer, and so the industry faces two different trends. The first — a supply glut of solar products — has been in the making for years, and it keeps pushing prices down. The second is only beginning to emerge, but could take root: Demand has picked up for solar installations, especially in homes.

That’s the picture being portrayed in solar earnings reports, and the conference calls to discuss them this week. Real Goods Solar said on Thursday that its revenue in the third quarter rose 122 percent compared with the same period last year, including the addition of companies it’s acquired in the past year. Excluding those acquisitions, revenue still grew 41 percent. John Schaeffer, Real Goods Solar’s president, said a lot of the increase came from homeowners. In a statement, he noted that the company saw “the return of strong demand for residential solar” during the third quarter.

Real Goods, whose stock rose 12 percent Thursday, is a relatively small company in the solar industry, with $60 million in revenue expected this year. But it’s one of the bigger players in the highly fragmented market for selling and installing solar systems, which offers it a good perspective on overall demand, supply and pricing.

In Real Goods’ earnings call Thursday, executives said that manufacturer prices had plunged 35-40 percent in the past year. Smaller solar installers bent on increasing volume have added fuel to the price drop. Real Goods maintains that it kept its margins higher than competitors, helping it to snap up other solar installers who priced themselves into losses.

Even so, margins dropped at Real Goods to 21.8 percent from 27.2 percent for the same quarter a year ago, partly because it acquired lower-margin companies. But as module manufacturers clear out their inventories, CEO Erik Zech said:

“It’s beginning to stabilize, and we are beginning to slow down [the dropping of] our prices as well. We’re not trying to race to the bottom as some smaller companies out there are doing. We’re trying to keep [average selling prices] up higher to benefit from margin expansion. But we are beginning to get to pricing bottom for the next three to six months, and what happens after that is anyone’s guess.”

In fact, Real Goods has shifted from a just-in-time strategy with suppliers such as Sharp and SunPower — which has cut its inventory in half in the past nine months — to rebuilding enough of a backlog that its installers can draw from it. “Supply and demand in the market has radically changed,” Zech said.

That should come as somewhat good news for solar module manufacturers, but not all are feeling so good. Evergreen Solar saw its stock rise 9 percent as it beat analyst expectations. But the company had to reassure investors that it had “significant cash to meet our operating needs” — which is like reminding someone you have enough blood to keep your heart going.

Evergreen also said it cut manufacturing costs by 17 percent to $2.24 per watt in the quarter. And it plans to do so further by outsourcing more of its work to Chinese manufacturers. But some analysts worried whether it could cut costs as fast as prices were falling.

Photo courtesy of Real Goods Solar


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