Residential solar is getting crushed by high interest rates and regulatory changes


People working in residential solar are familiar with the “solar coaster;” an experience of boom and bust the industry has experienced as market and regulatory changes cause wild oscillations in business results. The residential solar sector is currently suffering a deep drop on the “solar coaster.”

A few macro forces are crushing the sector today. High interest rates have worsened the attractive loan packages made available to homeowners, and loan dealer fees have skyrocketed. Utility electricity prices have stabilized and even lowered from last year, making the prospective savings for a rooftop solar customer murkier.

Major residential solar stocks have shed 30% or more of their value in a single day following a foreboding Tesla earnings call, and reports of bankruptcy filings have surfaced.

Most installers are increasingly moving towards a third party-owned lease or power purchase agreement model as loan terms have become increasingly unattractive to customers.

What’s more, California, which represents about half of the United States’ residential solar market, essentially set its residential solar market on fire with its new net metering rules. As the backlog of customers who rushed in to secure legacy Net Energy Metering (NEM) 2.0 rates dries up, the devastation of NEM 3.0 has begun to reveal itself.

NEM 3.0 slashed compensation for delivering local, clean electricity generated by a rooftop solar array to your neighbors. Rates paid by the utility for exporting solar were cut by about 80%. Installations have pulled back by 40% to 80% in California following the decision.

The onslaught may continue for California, as its commission mulls enabling investor-owned utilities to assign income-based fixed charges to its customers. It is also weighing a decision to limit the value of multi-family rooftop solar installations, despite spending the past two years justifying NEM changes based on a desire to make solar more accessible to renters and low-income customers.

Bernadette del Chiaro, executive director of the California Solar and Storage Association (CALSSA) said that the state’s utility commission has taken the approach of “the beatings will continue until morale improves” for residential solar.

Dan Javan, chief executive officer of installer Suntuity appeared on a Roth Capital Partners webinar, revealing that over 100 residential installers filed for bankruptcy over the past few months. This is six times the amount of bankruptcies filed by installers in the last few years.

Javan warned that the regulatory changes like the ones seen in California may just be the beginning of an assault on residential solar-supportive policies nationwide. Major markets like North Carolina, Arizona, and many others are already moving anti-rooftop solar policies through their regulatory commissions.

The “solar coaster” of residential solar is showing its downside under the unfriendly rate and regulatory environment. Ohm Analytics expects a 10% downturn in residential solar in 2024. For an industry that is buoyed by high valuations based on massive growth projections, a reversal of growth can spell doom for investors.

Following the Tesla earnings call, Tesla stock is down over 15%, major microinverter provider Enphase is down 25%, and SolarEdge fell over 30% in a single day. The two major inverter providers have fallen over 70% from their peaks last winter.

While the residential solar sector has survived the highs and lows of the “solar coaster” in the past, the hundreds of bankruptcies an unfortunate casualty of state commission boards like the California Public Utilities Commission (CPUC)  

During last week’s pv magazine Roundtables US 2023, Del Chiaro issued a warning to other states to not follow California’s leadership in the instance of rooftop solar regulation as the fallout from an aggressive and anti-consumer NEM 3.0 policy begins to reveal itself.

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