U.S. solar soared in 2016, but investors still leery

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By Nichola Groom | LOS ANGELES

LOS ANGELES New U.S. solar installations nearly
doubled last year, but slowing demand for both residential and
large-scale systems, falling panel prices and concerns about
looming federal tax reform are still dampening investor appetite
for the sector.

Solar installations soared 97 percent to 14.8 gigawatts in
2016, according to a report released on Thursday by Wood
Mackenzie and the Solar Energy Industries Association. The
technology is cheaper than ever, with panel prices dropping 40
percent last year, and many utilities procuring solar on the
basis of cost alone.

But the dramatic drop in panel prices has hampered solar
manufacturers’ profits and ramped up competition for
utility-scale contracts among developers, companies said in
recent weeks while reporting fourth-quarter results. Add in a
slowdown in the residential market, tax reform pushed by U.S.
President Donald Trump, climbing interest rates and falling oil
prices, and stock market investors remain skittish about solar.

Credit Suisse analyst Andrew Hughes said in a client note on
Thursday that the key risk to his “outperform” rating on shares
of residential solar player Sunrun was “investor
sentiment, which in a rising interest rate and falling oil price
market obscured by tax policy uncertainty remains tepid.”

The MAC Global Solar Energy index, which tracks shares of
solar power companies, slid 43 percent in 2016. The index has
recovered to gain nearly 8 percent so far this year but remains
65 percent below its year-ago level.

U.S. module manufacturers and project developers SunPower and First Solar Inc are both viewing 2017 as a
transition year for their businesses, they said after reporting
in February losses for the fourth quarter of last year.

SunPower Chief Executive Tom Werner in a conference call
predicted “intense competition for the forseeable future in
mainstream power plants,” adding that some companies were
selling panels at below cash cost.

Indeed, the solar industry report released on Thursday
forecasts a slowdown in the market this year after last year’s
boom. Utility systems accounted for more than 10.5 GW of the
total in 2016, but are not expected to exeed 10 GW again until
2021, the report said.

The 2016 boom was largely due to a rush by developers to
claim a federal tax credit for solar systems that had been
expected to expire at the end of the year. The five-year
extension of that credit, however, has allowed projects to be
pushed into this year and beyond.

Though Trump has not called for ending tax credits for solar
and other renewable energy, he has expressed doubts about the
role of clean power sources.

On the solar residential side, installations grew 19 percent
to 2.6 GW last year, down from 66 percent growth in 2015. Growth
has slowed in major markets like California, where many of the
households most interested in solar have already put up panels.

Tesla Inc, which acquired residential market leader
SolarCity late last year, said last month that it deployed 201
megawatts of solar in the fourth quarter, a more than 20 percent
drop from the same period a year earlier.

SolarCity rival Sunrun reported a quarterly profit that
topped Wall Street estimates due to cost cuts, but said growth
would be subtantially slower in 2016. System deployments rose 40
percent in 2016, but are expected to rise just 15 percent this
year, Sunrun said.

“While it may be slowing, it is still growing. That is an
important piece of the story,” Abigail Ross Hopper, president of
the Solar Energy Industries Association, said in an interview. “Some of that resetting is to be expected.”

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