As the fourth and final subsector in William Blair’s energy and sustainability sector, we are adding energy generation and initiating coverage of three solar companies with market perform ratings. In Mixed Data Points and Rising Costs Bring Uncertainty to Solar Industry, and our companion report, The Power Behind Artificial Intelligence, our analysts outline how the solar markets represent a mixed bag of data crosscurrents, bringing uncertainty to the solar industry.
The solar market is experiencing a mix of positive and negative trends. For instance, a recent auction suggests that utility-scale solar may underperform expectations given headwinds in the U.S. utility-scale markets.
Meanwhile, residential and commercial solar markets in Europe and the U.S. have been under intense pressure due to the rising cost of capital and a weakening consumer. The market exuberance of 2022 and 2023 has seemingly created an inventory glut at wholesale distributors. While this narrative has been the focus of some investors, a drop in demand is at the heart of the destocking issue. While we attribute this to a higher cost of capital, it is also attributed to a drawdown in savings across all income brackets.
Additionally, the report also discusses broader challenges facing renewable energy, such as intermittency, low density, and differing asset life compared to fossil fuels, along with the issue of interconnection queue paralysis, where the time developers wait to interconnect has ballooned in some areas to almost a decade. As a result, William Blair analysts offer a cautious outlook for the solar industry, emphasizing the need for careful management of inventory levels and the potential impact of policy changes on the market.
For more information about our energy & sustainability research, please contact us or your William Blair representative.
Listen to the Plugged In With Jed Dorsheimer podcast episode: Solar Myths, Nuclear Truths, and the Future of Energy