The rooftop solar industry is facing significant challenges that are eating into profits as panel inventories accumulate, and consumer demand weakens due to increased borrowing costs and inflationary pressures. SolarEdge Technologies Inc. sounded the alarm after the market closed on Thursday, unexpectedly reporting that its third-quarter revenue would fall well below its previous guidance and warning of a slowdown in installations. This Israel-based solar equipment manufacturer’s shares tumbled by as much as 37% on Friday, marking a record drop that erased nearly $2 billion of the company’s market capitalization.
Rival company Enphase Energy Inc. also saw a drop of as much as 16%, while shares of rooftop solar installers like Sunrun Inc., SunPower Corp., and Sunnova Energy Inc. faced declines. Citigroup Inc. analyst Vikram Bagri cautioned about a “rough third-quarter earnings season” for the solar industry, with companies in this sector set to report their full quarterly results in the coming weeks.
The reduction in SolarEdge’s profits serves as a warning for the residential solar sector, according to Rob Barnett, a senior analyst for Bloomberg Intelligence. “SolarEdge and other companies focused on residential solar may be experiencing a slowdown driven by higher interest rates, and elevated inventories in Europe seem to be causing a pullback in demand as companies work to balance their stockpiles,” Barnett explained.
These disappointing results highlight investor concerns about the future of rooftop solar installers that were once riding high but have seen their share prices decline due to weakening demand. The Invesco Solar ETF, which tracks the solar industry, has fallen by 40% since the beginning of the year. Several analysts have downgraded SolarEdge’s shares, cautioning that the downturn may extend into the next year. Wall Street analysts have also revised their price targets for Enphase Energy, SunPower, and Sunnova.
While 2022 witnessed significant growth in the residential solar industry, demand has now slowed. However, the overall market is expected to continue expanding, as noted by BNEF solar analyst Pol Lezcano. He pointed out that “large solar installers using expensive business models will struggle to reduce costs to counter higher financing expenses and slowing demand.”
