The rooftop solar industry is no stranger to ups and downs, often referred to as the “solar mountain”. Despite these swings, the long-term story is one of growth.
In 2023, that growth continued, albeit more modestly than some previous years. Wood Mackenzie reported 24% growth in installations in the first three quarters of 2023. The 2022 supply chain constraints eased and California experienced a large increase in installations from customers looking to secure legacy NEM 2.0 tariffs. Below are four rooftop solar trends .
High interest rates
The U.S. Federal Reserve raised interest rates to levels not seen in many years in an attempt to curb the sharp rise in inflation. This was a particular challenge for rooftop solar, as many companies rely on loans to provide solar equipment to their customers.
High interest rates put pressure on solar financiers to either increase loan interest rates or assess upfront dealer rates. In both cases, these changes squeezed the value offered to customers, leading to a difficult year for solar company stock valuations and a slowdown in installations.
High utility rates.
While financing a solar project has become more expensive, so have utility rates, which puts another factor in the “why you should go solar” group. In California, electric rates have skyrocketed over the past three years, far outpacing inflation. Another 13% increase in utility rates is projected for California in 2024.
This has led to a shift in thinking about the benefits of solar plus storage. While customers often focus on payback periods or return on investment (ROI), this can be extremely difficult to calculate under changing utility electric rate assumptions.
Instead, solar installers are focusing the discussion on solar plus batteries being a hedge against unpredictable electricity rates, which have continued to rise sharply across the country. While solar and storage buyers typically use a rule of thumb of annual rate increases of about 3% to 4% by the utility to estimate long-term savings, double . . . digit rate increases are common now . Where will your electric rate be 25 years from now?
Policy Mistakes
There have been numerous policy changes across the United States, many of which have reduced the value of net metering, or the process by which solar customers export excess solar generation to the grid in exchange for credits.
Net metering has been central to the rollout of rooftop solar in the United States, and while net solar rates must take into account utility measures of cost to operate transmission lines, solar advocates argue that cuts to net metered rates fell too far and too fast.
The best example of this is California, where the sudden reduction of about 80% in net metering value led to an 80% drop in installations in the following months. The California Solar Energy and Storage Association (CALSSA) said that more than 17,000 jobs have been lost as a result.
Virtual power plants
Rooftop solar is evolving. In many U.S. markets, where net metering is being actively phased out, stand-alone solar panels cannot capture the same value they once did.
Home battery energy storage systems are increasingly connected to rooftop solar panels to ensure that homeowners can store and consume their locally produced clean energy, avoiding peak demand that occurs in the evening.
However, solar plus battery systems can do more than simply store and self-consume energy on a day-to-night cycle. These distributed energy resources can work together, along with HVAC systems and appliances, to smooth demand across the grid, create more stability in electricity markets, and eliminate the supply-demand imbalance phenomenon known as the “duck curve.”
Programs that coordinate these distributed resources are often referred to as virtual power plants (VPPs). By participating in a VPP, battery and rooftop solar customers can leverage their resources and receive payments from a VPP administrator.
In California, customers receive between $100 and $250 per year for enrolling their batteries in PG&E’s demand response programs. In Long Island, New York, PSEG customers are paid up to $6250 upfront for allowing the utility to tap their battery during ten peak demand events throughout the year.
Looking ahead
In 2024, some of the strong headwinds, such as high interest rates, are expected to partially abate. Manufacturers and distributors will try to clear excess channel inventories created by falling demand.
“I feel 2024 will be a year of recovery,” said Raghu Belur, co-founder and chief product officer of Enphase Energy in an interview with pv magazine USA . “I don’t see the market getting worse, but I don’t see it getting dramatically better either. We won’t get back to 2022-type growth. That will probably require one more year. But in 2024 we will see things start to change and already slowly recover.”