Is the solar sector finally bottoming out?

What happened

This week, the RE+ conference, North America's largest clean energy event, took place in Anaheim (CA), bringing together more than 40,000 industry participants. Key players in the solar industry gathered to unveil new products and share insights on market trends. Despite the industry's recent challenges, a recurring theme at the conference was optimism about the future of both utility-scale and residential solar.

In the U.S. residential solar segment, companies largely believe that demand bottomed out in the first half of 2024 and is now gradually recovering. Most now expect low double-digit growth in 2025 (following flattish to negative 2024), driven by rising power prices and the potential for lower interest rates. U.S. manufacturers are also set to benefit from expanded domestic content tax credits under the Inflation Reduction Act (IRA), which is expected to further boost demand.

On the U.S. utility-scale solar side, sentiment was similarly positive, with most companies projecting double-digit YoY growth in 2025, also fueled by higher power prices and greater policy clarity, particularly around the IRA’s domestic content provisions (ITC adders). While challenges such as interconnection delays and transformer shortages remain, most participants expect a more favorable environment next year. Companies like First Solar and Array reiterated strong growth expectations for 2025, reflecting the sector's overall momentum.

Impact on our Investment Case

We’re starting to see the first signs that the solar industry is bottoming out after a challenging three-year period marked by supply chain disruptions, tariff uncertainties, and financing hurdles. Both the U.S. residential and utility-scale segments have shown improving sentiment, with companies now forecasting a return to double-digit growth in 2025. This recovery, combined with clearer policy support, signals that the worst may be behind us.

The IRA, passed two years ago, is now materializing with clearer guidelines for both the production and deployment sides of the industry. On the manufacturing front, the impact has been significant. Solar manufacturing investments have surged tenfold, from $890mn in the two years before the IRA to about $10bn since the law’s passage. This reflects the growing confidence and commitment to domestic solar manufacturing, particularly as companies capitalize on the manufacturing tax credits and deployment incentives like the ITC domestic content adders.

Solar remains a rate-sensitive industry. In the residential segment, many homeowners rely on loans to finance their solar installations, while utility-scale projects are capital-intensive and financed largely through debt. As a result, any reduction in interest rates will likely provide a meaningful tailwind for the sector, potentially lowering financing costs and spurring further growth in both segments.

Additionally, while U.S. elections are often seen as a binary event for clean energy, the solar industry has historically performed well even during the Trump administration. Much of the sector’s deployment and manufacturing occurs in red states, and we believe that even in the event of a Republican victory, the IRA is unlikely to be fully repealed. Domestic manufacturing subsidies, in particular, are expected to remain, ensuring ongoing support for U.S.-based solar production.

Investing in solar requires a deep understanding of the value chain. The global solar market is in a supply glut, with polysilicon prices at $4.9/kg and solar modules at $0.096/W, down ~50% and 25% respectively since the start of the year and both near all-time lows. This has created severe margin pressure for Chinese upstream manufacturers, many of whom are operating at a loss to preserve market share. In contrast, non-commoditized sectors like inverters (e.g. Sungrow, a leading Chinese inverter maker that we own), trackers, and project developers are better positioned to weather these conditions, benefiting from lower solar panel prices.

Our Takeaway

The solar industry is showing signs of recovery, with a noticeable shift in sentiment at the RE+ conference towards optimism. This contrasts with the hurdles highlighted at Europe’s Intersolar conference in May, where high inventory levels, low electricity prices, and political shifts, particularly in the Netherlands, pointed to a tougher environment for growth. In the U.S., clearer policies and IRA support provide stability moving forward.

Despite positive tailwinds, the sector still faces challenges notably due to interconnection and permitting delays  which are causing project backlogs. The limited availability of power transformers, critical for connecting solar plants to the grid, remains a key bottleneck, impacting the pace of utility-scale project completions.

Currently, we maintain ~20% exposure to the solar sector, which is at the lower end of our historical range. This focus is primarily on U.S.-based companies that benefit from full IRA support, including domestic solar module makers, trackers, and microinverters. As the positive sentiment and key catalysts materialize, we are set to rebuild our exposure and increase our positions.