Despite the rising demand in photovoltaic panel installations, investors are not seeing the forest for the tress and are pressuring solar-sector exchange traded funds due to the cheaper energy prices.
West Texas Intermediate crude oil futures was up 0.5% hovering around $63.6 per barrel. Lower energy prices diminish the economic competitiveness of solar panels as an alternative energy source, and investors are still holding onto some psychological correlation between solar and oil.
On Tuesday, the Guggenheim Solar ETF (NYSEArca: TAN) was up 0.2% and Market Vectors Solar Energy ETF (NYSEArca: KWT) was down 1.0%. Over the past three months, TAN declined 25.3% and KWT decreased 23.7%.
However, according to the Solar Energy Industries Association, U.S. consumer demand for solar panels remains high. Third-quarter solar installations in the U.S. surged 41% year-over-year, the second-largest quarter for solar installations.
Specifically, solar developers added 1,354 megawatts of capacity in the third quarter, with over 300 megawatts of residential systems installed. There is now over 16 gigawatts worth of solar installations across in the U.S. [Improving Fundamentals Keep Solar ETFs Powered Up]
“Residential solar has become a remarkably consistent, growing market” Shayle Kann, Senior Vice President at GTM Research, said in a press release. “By the end of this year there will be more than 600,000 homes outfitted with solar, and we see no signs of a slowdown next year. By 2017, we expect the residential sector to be the largest in the U.S. solar market.”
SEIA calculates that the U.S. could install 6.5 gigawatts of solar capacity this year, or 36% more than 2013.
“The fastest growth will come from the residential segment (49% year-over-year), followed by the utility segment (45%),” according to the SEIA report.
Looking ahead, political and regulatory factors will shape the direction of the market. For instance, the federal investment tax-credit, a major incentive for the U.S. solar market, will expire December 31, 2016 and will drop to 10% for commercial projects and zero for directly owned residential projects.
On the other hand, the solar industry could capitalize on greater demand from states as the country scrambles to new EPA standards for carbon emissions in the power sector under the Clean Air Act.
Guggenheim Solar ETF
For more information on the photovoltaic panel industry, visit our solar category.
Max Chen contributed to this article.