2 Challenges Facing Solar Installers in 2014

Now that the global solar industry is growing again -- with 37% growth expected in 2014 to 50 GW -- the industry's supply and demand imbalance could quickly shift positions. As recently as last year, the solar industry only used about half of the 70 GW of solar panel capacity available in the world, and today that excess is quickly being soaked up.

For solar manufacturers, this is good news. It's the tide lifting all boats effect, so even if a certain customer isn't looking to buy from China, for example, the fact that there are more customers to compete for is good for everyone in the industry.

Solar panels like these may soon be more expensive for SolarCity and others. Source: SolarCity.

On top of that, solar manufacturers are quickly becoming project developers themselves. U.S. companies like SunPower and First Solar have long built their own projects with in-house panels, but Yingli Green Energy , Trina Solar , and many others are also beginning to see the value in building systems instead of just selling panels.

This brings us to an interesting dynamic that could significantly impact the two largest residential solar installers in the U.S. -- SolarCity and Vivint Solar -- as soon as this year. What happens when suppliers have the upper hand, and suddenly solar panels experience greater demand than there is supply in the market?

A challenge for U.S. solar installers
SolarCity and Vivint Solar are currently reliant on suppliers for the most important product they install: solar panels.

Vivint Solar relies on Yingli Green Energy and Trina Solar for nearly all of its panels, and SolarCity has only recently begun diversifying away from Chinese manufacturers to REC Solar, and in around two years, its own in-house solar manufacturing. This reliance on suppliers has been a boon for them in recent years because solar panel prices have come down rapidly, making for more economical solar systems.

But falling prices were driven by the supply glut of the last three years. In 2015, we could see demand exceed supply, and panel prices could rise significantly, something we've already seen with panel costs rising from $0.68 per watt to $0.73 per watt over the past year, according to GTM Research.

Source: SolarCity.

The second half of the year is usually where there's a spike in panel demand, and that could be a challenge for SolarCity and Vivint Solar, because their profits would be directly affected by higher component costs.

The ever-evolving solar industry
Companies are taking different approaches to vertical integration in solar, so investors need to know where their companies stand. SolarCity has made efforts to nearly vertically integrate, something SunPower and First Solar have done as well in their markets. Vivint Solar, on the other hand, remains reliant on suppliers for key components, which could impact its cost structure if solar panel prices rise significantly.

I wouldn't be alarmed by higher prices for solar panels over the next year, but know that it takes away some of the value these companies can generate. Reducing costs are key to staying competitive in solar, and there's a possibility that even by the end of this year, these companies will see costs go higher for solar panels because demand exceeds supply.

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The article 2 Challenges Facing Solar Installers in 2014 originally appeared on Fool.com.

Travis Hoium manages an account that owns shares of SunPower and is personally long shares and options of SunPower. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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