By Avi Salzman

Installing solar panels on rooftops may be a good way to get a tan, but it's been a miserable way to make money lately, and the problems started well before President Donald Trump took office.

The residential solar industry has unraveled, and it only seems to be getting worse. High interest rates make putting up the panels expensive, and some states like California have changed rules to make it less financially rewarding to do so.

SunPower, a solar stalwart for nearly 40 years, filed for bankruptcy in August. And just this past week, Sunnova Energy International, another leading rooftop solar developer, said it wasn't sure how long it could stay in business given the deterioration in its cash position, issuing a "going concern" warning. Sunnova CEO John Berger was blunt in his assessment of the industry's prospects.

"The overall environment is terrible," he told analysts on an earnings call. "I mean, it's the political environment, the capital markets, the equity trading off. And so that just gets everybody in a very bad mood, candidly."

This is not the moment to buy the dip. The pressure on these companies will almost certainly grow in the months ahead. Residential solar installments fell in 2024 and look set for another mediocre year.

But that doesn't mean that other kinds of solar companies are doomed. While the entire industry is impacted by potential policy changes under Trump, large-scale solar installations are still good economic bets. The U.S. is entering a period of higher electricity demand for the first time in more than a decade, thanks to new data centers and factories. Utilities have been turning to natural gas to fuel some of that electricity generation, but new gas turbines take years to install. Renewables can be available much sooner.

"It's going to be very difficult to get new-build natural-gas generation put in place to meaningfully contribute to the grid within the next four to five years," says Alex Kania, director of equity research at investment bank Marathon Capital.

Solar was the largest source of new utility-scale electricity generation last year, and is expected to account for 52% of electricity additions in 2025, according to the Energy Information Administration. Companies that are building out the grid for big utilities say they're not backing away from solar, even in the South. "Talking to the major utilities, I don't see any stop to that," says ABB CEO Morten Wierod.

It can be hard to invest in the companies deploying all that solar power, because many of them are privately held or small parts of much larger energy and investment firms like Shell or KKR. But there are a few options.

One is Clearway Energy, a Princeton, N.J.-based company that owns nine gigawatts of solar, wind, and battery installations around the country -- enough to power several million homes -- as well as more than two gigawatts worth of natural-gas plants. Clearway is considered a "yieldco, " which is a corporation that owns assets like renewable plants that generate a lot of cash over periods that span decades. It is controlled by a sponsor company co-owned by TotalEnergies and BlackRock that develops renewable projects and sometimes sells them to Clearway, though Clearway makes independent decisions over whether to buy them and at what price. Clearway also buys renewable projects from other developers.

Yieldcos tend to pay big dividends, and Clearway, trading at a recent $27, is no exception. The stock's dividend yield is 6.3% and has been rising steadily. The metric that investors look at with yieldcos is called "cash available for distribution," or CAFD, because it points to the direction and safety of the dividend. (Yieldco earnings are distorted by significant depreciation, which doesn't affect their cash returns). Clearway's CAFD rose 24% in 2024.

Clearway's returns for projects that are already complete look locked in, and there are even legal ways to "safe harbor" tax credits for future projects for up to four years.

Even as the political debate about renewables darkens, Clearway can navigate a path to profits.

Write to Avi Salzman at avi.salzman@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 07, 2025 10:16 ET (15:16 GMT)

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