A steep drop in the price of solar panels has been a boon to the companies that install the renewable energy systems on rooftops, and it could set off a wave of consolidation in the sector.
Those installers number in the hundreds across the country, focusing mostly on residential and small commercial market rooftop arrays rather than large-scale multi-megawatt systems under development in the U.S. Southwest.
Photovoltaic panel prices have tumbled by more than 30 percent so far this year, making them far more affordable for consumers.
"We're the beneficiaries of a lot of the manufacturers' continuing cost reductions," said Bill Yearsley, chief executive of Real Goods Solar, a solar installer. "It has had a profound impact."
Real Goods is expected to see a near 63 percent leap in its full-year sales this fiscal year to $126 million, according to Thomson Reuters I/B/E/S. The company hopes to approach $200 million in sales within a year of its latest deal to buy a rival.
Privately held SolarCity, Mercury Solar, Sungevity, SunRun and Borrego Solar are also rapidly boosting their customer numbers.
"The average selling price declines (for panels) are absolutely a huge positive, driving in phenomenal returns for some of the installers," Raymond James analyst Alex Morris said.
The average installed cost of photovoltaic systems, which includes installation and financing costs as well as the panels, fell about 17 percent last year and an additional 11 percent in the first half of 2011, according to a Lawrence Berkeley National Laboratory report.
"As the pricing continues to go down ... customer demand is getting spurred in some markets even without incentives," said Barry Cinnamon, CEO of solar systems maker Westinghouse Solar.
Solar installations on homes and business rooftops remain the largest segment of the market, with 124 megawatts built on residential buildings during the first half of 2011, about 50 percent greater than utility-scale installation.
Installations on non-residential buildings were even higher, totaling 373 MW in the first half.
One megawatt is roughly enough to power 1,000 single-family houses.
A key driver for many installers has been the growth of leasing programs in which homeowners or businesses make monthly payments for a period of 10 years or longer to the solar financier for the systems on their roofs rather than buy them outright.
That allows customers to cut their electric bills using solar power without spending the thousands of dollars needed up front to build the photovoltaic systems.
Nearly all the major installers offer leasing plans, and companies such as Google Inc and Citigroup have joined US Bancorp in recent months in pumping in millions to back the leasing market.
The average installed price of a solar system is $6.39 per watt for residential projects and $5.20 for commercial -- still much higher than conventional grid power, according to the Solar Energy Industries Association, an industry trade group.
The U.S. solar installation market is highly fragmented, with more than 300 independent installers in California alone, according to a Real Goods regulatory filing.
Analyst Morris expects big installers such as SolarCity and Real Goods to roll up the market and become big regional companies.
"We're looking at different markets within the United States for acquisition," Real Goods' Yearsley said.
Domestic module manufacturers are also likely to look at expanding their own downstream business as margins get squeezed by the sharp decline in panel prices.
"There has been a push for the module manufacturers to move downstream to secure locked-in customers," analyst Morris said.
"U.S. manufacturers like First Solar and SunPower Corp are looking at it."
Analysts say Chinese companies such as Yingli Green Energy, Trina Solar and Suntech Power are likely to stay away, given that they would not have the advantage of low processing costs and easy access to capital.
"The installation business could allow solar module companies another channel through which to sell their modules, but the price of that is having higher capital requirements and lower margins from the installation side," Morningstar analyst Stephen Simko said.
(Reporting by Krishna N Das in New York; Editing by Steve Orlofsky)