Solar PV: 3 US Solar Residential Stocks To Watch Develop

 |  Includes: ENPH, RGSE, SCTY
by: Livio Filice


The solar PV market is quickly expanding through various innovative financing programs coupled with the decreasing cost of solar PV equipment.

US residential solar is the hottest trend in the solar PV market with 50% year over year gains.

3 U.S.-based stocks that service and supply the residential solar PV market.

2013 was another strong year for the U.S. Residential Solar PV market, while 2014 could become yet another record breaking year in terms of installed capacity. Growth in the space has been lead by lower system costs, primarily driven by lower PV module prices, and innovative financing models such as Third Party Ownership Leasing Programs (RTPO).

Residential Third Party Ownership (RTPO) programs have recently emerged in the solar PV industry and are growing in popularity because they allow homeowners to get into solar energy with "no money down." RTPO financing of solar energy takes place through two models: Power Purchase Agreements and solar leases. Based on available industry information, more than 50% of new residential solar capacity in states such as California, Colorado, and Massachusetts is being driven by a RTPO program. It is estimated that the market for RTPO will grow from $1.3 billion in 2012 to $5.7 billion in 2016.

The quarterly SEIA/GTM Research U.S. Solar Market Insight Report shows the major trends in the U.S. residential solar PV industry. The most significant was that 2013 was a banner year for solar in the U.S. Installations surpassed the 10GW cumulative mark, with 400,000 individual solar power projects operating across the country. Residential solar is the hottest trend with an impressive 52% growth rate over 2012. The residential market continues to see the most rapid growth of any segment in the U.S. solar market. As the USA moves away from a centralized energy model to a distributed energy production and storage model, investment opportunities exist. It is a matter of recognizing and understanding the trends which may show the winners from the losers.

3 US solar stocks that will benefit from the boom in the US residential solar PV market

Enphase Energy:

Enphase (NASDAQ:ENPH) designs, develops and sells microinverter technology which is best suited for the residential solar PV market. A microinverter is a DC to AC conversion hardware device that is installed directly on the back of the solar PV module which provides key technology advantages over standard string inverters such as those provided by SMA Solar Technologies (OTCMKTS:OTCPK:SMTGF). Enphase's microinverter increases energy production, simplifies system design and installation, improves system uptime and reliability, and provides maximum system safety. Higher energy production is a key advantage of this inverter topology. Microinverter allows each solar panel to operate independently of each other. Should there be any real world issues with the solar array, such as module mismatch, snow, shade or coverage, then the modules that are harmed by the issue are isolated rather than reducing the overall production of the PV array. With a distributed energy module, Enphase allows for higher overall system performance.

The downside is the microinverter technology is more expensive than traditional string inverters which therefore limit its use to small residential installations. This could be because they are a newer technology with a relatively unproven track record or it simply could be that they can get lower prices by going with standard string inverters.

SolarCity Corporation:

SolarCity (NASDAQ:SCTY) is possibly the most distributive renewable energy company focused on the design, installation, sale or lease of solar energy systems through Power Purchase Agreements (PPA) to residential and commercial customers. The company also offers energy efficiency and electric vehicles services. SolarCity is best known for its SolarLease program, which allows home owners to participate in its residential program which makes it possible for home owners to go solar for a very insignificant monthly payment. SolarCity recently introduced the program to home owners in Oregon for as little as $20 per month, with no upfront cost due to the available tax credit. The company is targeting to have 1,000,000 solar rooftop customers by July 4, 2018. In September 2012, SolarCity acquired the assets of Paramount Solar and in December 2013 acquired Zep Solar Inc., a leading solar racking manufacturer. At present the company's SolarLease program is offered in 15 states and recently made significant expansion in Nevada and Delaware & East Shore. In California, the heart of the U.S. solar market, SolarCity has made an announcement that it is significantly increasing its operations in the state. The plans call for the opening of ten new operations centers throughout California, which nearly doubles the company's locations in California. The outcome of the expansion is reduced installation wait times, while supporting local economies through the creation of at least 260 new jobs in addition to the existing 2,100 employees in California. SolarCity projected by the end of 2013 it would have in place locations within 30 miles of more than 90 percent of the state's population

With an innovative financial product, a growing customer base, coupled with multiple successful acquisitions, a growing strong staff, SolarCity is quickly becoming a household name who will benefit as the residential solar industry continues to boom. In 2013, the company deployed 278MW of installations, while its 2014 fiscal forecast is projected between 475 and 525MW indicating that SolarCity could nearly double its installations year over year.

Real Goods Solar:

Real Goods Solar, Inc. (NASDAQ:RGSE) is one of America's pioneers in the solar energy installation business offering a full scope of installation work to commercial, residential and utility customers. RGS has an impressive track record which dates back to 1978 and has seen them install more than 19,000 solar power systems representing well over 170MW. Customers of RGS include small to large businesses and corporations, universities and schools, and government agencies. In recent news, RGS was selected for a $22 million contract with the Stockton Unified School District in California which will see it deploy 6.7MW of solar PV power to 22 sites. Keeping up with industry trends, RGS and Altus Power American Management partnered together to form a joint venture, RGS Energy Asset Management. The purpose of the joint venture is to develop, finance and manage up to $150 million of commercial solar projects. Since the announcement in February 2014, RGS closed on the first sale for the joint venture. RGS will design, install and operate a 2.6MW ground-mount solar PV system near Auburn, Massachusetts. Further, RGS recently announced that they are acquiring Sunetric, a leader in the Hawaiian solar PV installation business. Sunetric has installed more than 3,500 solar projects in Hawaii representing an aggregated sum of 65MW. Sunetric has an extensive backlog and pipeline of commercial and residential projects, with 2013 revenues topping $38 million. The price on the transaction had a total consideration of $16 million. This is comprised of $7 million in cash and $9 million in unregistered Class A common stock, along with an additional $3 million in potential earn-out payments.

According to GTM Research, RGS was ranked third in the USA in the overall market, with a market share of 4.6%, compared with SolarCity who held 12.4%. RGS has shown that it is capable of shifting with the market through innovative financing tools, new orders, and acquisition into hot spots such as Hawaii. RGS has proven that it can capture market share through existing sales networks or acquisitions, and stay with industry trends through innovate financing models while servicing various corners of the nation. NRG Energy (NYSE:NRG), the largest independent U.S. electricity producer, has recently took over Roof Diangnotisc Solar, the eighth largest solar installer in the U.S. This is a clear signal that there is significant appetite for companies with channels into the market. RGS may be positioned as a takeover candidate.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.