Residential solar took some serious hits in 2023. There were endemic supply chain disruptions and savings for rooftop solar became less clear when utility electricity prices stabilized in 2022. Solar stocks plummeted, and the passage of NEM 3.0 in California significantly curtailed the largest rooftop solar economy in the country.
In this environment, some residential solar contractors folded or laid off employees. Last year, New Mexico Solar Group, a mid-sized rooftop solar installation company, laid off employees before officially going out of business in August. The company was not alone. Warranty company Solar Insure reported an unprecedented 100 solar bankruptcies in 2023. The California Solar and Storage Association (CALSSA) estimated 17,000 solar employees were laid off in the state alone in a six-month period, with some companies cutting staff headcount by half.
Rising interest rates have also caused solar financing terms to increase across the country. Spencer Fields, director of insights at solar marketplace EnergySage, noted that the average loan interest rate soared to nearly 6% in Q3 2023 (from 1.99% in Q2 2022), a significant development given that 70% of solar installations are financed with loans.
“When we recently asked a couple hundred solar installers how high interest rates were affecting their business, three out of four of them said these rates adversely impacted their business,” Fields said. New Mexico Solar Group cited the sudden rise in interest rates as one of the reasons for its closure.
Zoë Gaston, principal analyst of U.S. distributed solar at Wood Mackenzie, said high interest rates were “resulting in both loan and third-party ownership (TPO) product price increases and significant increases in loan product APRs. However, loan products are more sensitive to interest rate increases, and we are hearing that loan providers are finding it difficult to provide a compelling value proposition to customers in some states, depending on retail rates.”
Gaston said other major factors causing residential installers to close or lay off employees are higher cost of capital, significantly lower sales in some markets, higher customer acquisition costs and cash flow constraints from milestone payments being pushed later in the project lifecycle.
In this tough economy, Fields noted the shrinking demand for “big ticket item” discretionary purchases for the home, such as solar. He also suggested that companies had been overly optimistic about 2023 growth and may have over-hired or expanded too quickly, leading them to contract when the expected growth did not occur.
Residential solar installers are looking for remedies. Fields predicted that many solar installers would seek new financing options such as TPO offerings and more affordable solar loans with lower dealer fees or origination costs. Solar installer Palmetto recently started offering leases and PPAs in response to the rising interest rates.
“Installers are focusing more on operational efficiencies and making the most of their current markets instead of expanding,” Gaston said. “Others are experimenting with pricing and product-offering tweaks and emphasize that product optionality for customers has been vital for maintaining growth this year.”
She also noted that Inflation Reduction Act “adders” will increase the TPO share in the residential solar market over the next few years and potentially change the value proposition in some state markets that have historically been less suitable for residential solar.
“We can take a long hard look at the cost of solar, sharpen our pencils and find a way to design more compellingly priced solar packages that work for homeowners,” Fields said.
This story is part of SPW’s 2024 Trends in Solar. Read all of this year’s trends here.
FAQs
Wood Mackenzie forecasts a 13% year-over-year decline in installations in 2024 as consumer demand remains weak and California installations drop by an expected 40%.
Why is the residential solar industry in danger? ›
Big changes in California: Last year, the state of California -- the country's largest solar market -- instituted big changes to its solar net-metering policy, which made solar a lot less lucrative for homeowners.
What is the outlook for the residential solar industry? ›
After growing 31% in 2021 and 40% in 2022, residential solar will only grow by 13% in 2023 and then contract 12% in 2024, according to predictions from the research firm Wood Mackenzie. In part, that's due to higher interest rates than the industry has ever had to face.
Why is the solar industry struggling? ›
But U.S. solar companies say they are still struggling to survive as competitors in China and Southeast Asia flood the global market with solar panels that are being sold at prices far below what American firms need to charge to stay in business.
Will solar become 35 cheaper by 2024? ›
Solar Will Become 35% Cheaper By 2024
When the sun shines onto a solar panel, energy from the sunlight is absorbed by the PV cells in the panel. This energy creates electrical charges that move in response to an internal electrical field in the cell, causing electricity to flow.
What is the future of residential solar energy? ›
According to forecasts from Wood Mackenzie, California's residential solar market will see a 40% decline in 2024, and the state's commercial rooftop sector will decline by 25% from 2024 to 2025.
Are solar sales declining? ›
Since the change, sales of rooftop solar installations in California dropped as much as 85 percent in some months of 2023 from a year earlier, according to a report by Ohm Analytics, a research firm that tracks the solar marketplace.
Is the solar market saturated? ›
There are several reasons why California has soared to the top of the charts for solar saturation, some more obvious than others. California is an ideal place geographically and weather-wise for solar, with its vast supply of sunshine and generally low amount of shade.
What is the solar industry outlook for 2025? ›
As a result of new solar projects coming on line this year, we forecast that U.S. solar power generation will grow 75% from 163 billion kilowatthours (kWh) in 2023 to 286 billion kWh in 2025. We expect that wind power generation will grow 11% from 430 billion kWh in 2023 to 476 billion kWh in 2025.
What is the one big problem with solar energy? ›
Solar intermittency and storage challenges
Solar intermittency is the most obvious issue related to PV panel efficiency. The sun is not visible for 24 hours per day except for a short time each year at extreme latitudes.
1. The Rooftop Solar Industry Could Be On the Verge of Collapse — TIME. The residential solar industry faced challenges in 2023 due to inflation, higher interest rates, and new net metering rules in California that reduced earnings from sending power to the grid.
What is the main problem with using solar energy? ›
Solar panels are dependent on sunlight
They won't produce electricity at night when you need it for light and they can be inefficient during storms and gloomy days. Your solar energy system needs batteries if you plan to fully depend on solar energy to power your home.
What is the solar market forecast? ›
EIA projects the percentage of U.S. electric capacity additions from solar will grow from 46% in 2022 (18 GWac) to 54% in 2023 (31 GWac), 63% in 2024 (44 GWac), and 71% in 2025 (51 GWac). Other analysts' projections are lower, with a median value of 33 GWdc in 2023, growing to 36 GWdc in 2024 and 40 GWdc in 2025.
Will solar panels be cheaper next year? ›
Are Solar Panels Becoming Cheaper at All? While 2021 and 2022 saw higher solar panel costs due to rising material costs and supply chain issues, most experts predict solar will get cheaper.
Will solar prices continue to fall? ›
It expects prices to continue falling in the coming years, from an average of about $250,000/MW in 2023 to roughly $150,000/MW by 2028. According to S&P Global analysis, US solar levelized costs of energy are forecast to fall from $39.58/MWh in 2023 to $28.25/MWh in 2028.
Rising interest rates have also caused solar financing terms to increase across the country. Spencer Fields, director of insights at solar marketplace EnergySage, noted that the average loan interest rate soared to nearly 6% in Q3 2023 (from 1.99% in Q2 2022), a significant development given that 70% of solar installations are financed with loans.
