Per a recent report on 2017 data released by the U.S. Energy Information Administration, annual capacity-weighted average construction costs for solar photovoltaic (PV) systems continued to decline for newly constructed utility-scale electric generators in the United States. Notably, average costs for solar PV generators declined 37% from 2013 to 2017.
The contraction in input costs of the expanding U.S. solar market should pique investorsâ€™ interest. As it is, the solar market has witnessed splendid growth over the past year, when compared to the broader market. Its gain of 44.7% compares favorably with the S&P 500â€™s fall of 0.2%.
What Led to the Drop in Costs?
Declining prices of crystalline silicon axis-based tracking panels has been the primary factor that led to the drop in cost of solar photovoltaics. Notably, crystalline silicon axis-based tracking panels witnessed their lowest average construction cost of $2,135 per kilowatt (kW) in 2017, with these panels accounting for more than half of the solar photovoltaic capacity added in 2017.
It is imperative to mention here that over time, rapid advancement of technology has improved solar cell efficiency in converting sunlight to usable solar energy. The enhanced conversion capacity has been a dominant factor behind the fall in construction cost of solar panels.
To this end, the Massachusetts Institute of Technology (MIT) published a report last November which identified public and private research and development (R&D) and improvement in cell efficiency as the major factors resulting in a 99% reduction in solar module costs since 1980.
Also, the setting up of much larger factories for manufacturing solar cells and modules over the last few years has boosted economies of scale in the solar market. Considering this, significant growth in manufacturing economies of scale between 2001 and 2012 has been identified as another key reason behind the drop in costs of solar modules.
Will Costs Keep Declining?
Keeping the aforementioned factors in mind, cost of solar modules is likely to keep declining in the near future, leading to a further drop in the construction cost for solar PV generation. With consistent technology development, cell efficiency will continue to improve. Meanwhile, as corporate investments are on the rise in the U.S. solar space, the setting up of larger panel manufacturing factories is inevitable, thereby leading to expanded economies of scale.
In line with this, Wood Mackenzie forecasts that spot prices of solar modules will fall from 30 cents per watt-DC to 18 cents per watt-DC over the next five years, suggesting a solid 40% decline. Such impressive projections add to the lure of solar stocks at the moment.
With the help of the Zacks Stock Screener, we have identified three solar stocks that possess a favorable Zacks Rank and solid earnings surprise history. They are thus prudent investment choices.
SolarEdge Technologies Inc. SEDG, a solar inverter solutions provider, has exceeded the Zacks Consensus Estimate for earnings in the past four quarters, with an average beat of 1.23%.Â It currently sports a Zacks Rank #1 (Strong Buy). The companyâ€™s shares gained a solid 61.8% in past one year. You can see the complete list of todayâ€™s Zacks #1 Rank stocks here.
Canadian Solar Inc. CSIQ, a solar module producer, has beaten the Zacks Consensus Estimate for earnings in the past four quarters, the average beat being 115.66%. It currently sports a Zacks Rank #1. The companyâ€™s shares have gained a solid 59.6% in a yearâ€™s time.
Enphase Energy Inc. ENPH, a producer of solar inverters, has surpassed the Zacks Consensus Estimate for earnings in the past four quarters, the average beat being 16.28%. It currently carries a Zacks Rank #2 (Buy). The companyâ€™s shares have gained a massive 466.4% in the past year.
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