A Huge Solar Installer Consolidation Wave Could Be Coming Soon

• The end of the Investor Tax Credit will be a game-changing event in the solar industry.
• The expiration of the credit could trigger a massive wave of consolidation among installers.
• While 2017 could be a tough year for installers, falling costs will eventually eliminate any lasting effects of the expiration.

As the world’s demand for energy continues to grow, renewable energy sources are widely expected to contribute a growing share of global energy supply. However, with oil & gas prices collapsing in 2014 solar stocks have been under pressure in the market. In fact, over the past two years, the Guggenheim Solar ETF TAN has fallen 14.8 percent.

Benzinga recently had the chance to speak with Sam Beaudin, Head of Product at Wunder Capital, about what's been troubling the solar market and how big of a lasting impact it will have on the industry.

End Of The ITC

According to Beaudin, the biggest upcoming industry-changing catalyst will arrive at the end of 2016 when the U.S. solar Investment Tax Credit (ITC) is set to expire. Through the end of 2016, the U.S. government is incentivizing both commercial and residential solar projects by providing tax credits equal to 30 percent of the basis invested in eligible properties. Starting in 2017, this credit will drop to 10 percent for commercial projects and zero percent for residential projects.

Related Link: Wunder Capital Offers Investors Unique Exposure To The Solar Industry

Market Consolidation

Beaudin believes the expiration of the ITC will lead to a wave of consolidation among solar installers. "Right now, there’s about 7,000 solar installers that are registered nationally. Realistically, I think there’s probably 700 that are worth their weight," he told Benzinga.

The expiration likely means many installers will fall by the wayside, but it could also make other smaller installers potential buyout targets for large installers such as SolarCity Corp SCTY and Sunedison Inc SUNE.

Lasting Impact

When asked about the lasting impact that the end of the ITC will have on the solar industry, Beaudin explained that Wunder believes that the industry will normalize after 2017.

"I think the growth rate after 2017 will probably get back up to the growth rate we've seen in the past five years. The soft costs and also hardware costs of solar have been dropping so significantly year-over-year that they’re going to offset what we’re going to lose in the ITC expiration," he said.

Beaudin believes that the residential solar industry will be hit harder in 2017 by the ITC expiration than the commercial solar industry, which is the focus of Wunder's business, will be.

Disclosure: the author holds no position in the stocks mentioned.