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Podcast Episode #315
Real Estate Investing News

Why the Slowdown in Solar?

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Learn > [REN #315] Why the Slowdown in Solar?

Published: July 28th, 2017

The solar industry is experiencing some growing pains! For the first time in 16 years, the industry is experiencing a slowdown, with the biggest decline in sunny California. The industry is maturing, and undergoing several changes that are affecting the way utilities and installers do business, and the cost of solar for property owners.

Solar power is an attractive energy source for many reasons, especially if you live in a place where you get a lot of sun. You reduce your carbon footprint which is a great contribution to the fight against global warming. You also reduce your dependency on big energy companies and your monthly energy costs.

Bloomberg writes that solar companies have grown too big too fast, and that many are revising their sales strategies to focus on profit. That’s reducing the cost-saving benefits for consumers, and contributing to a decline in solar installations, along with other factors. But the decline isn’t expected to last for long.

Bloomberg reports that installers will only add 2,263 megawatts of home solar systems this year. That’s a drop of 2.4% from last year and follows two years of phenomenal growth in solar installations. 2016 saw 20% growth in installations, and the year before that, in 2015, residential solar use grew 48%.

New York-based analyst, Hugh Bromley of BNEF, told Bloomberg: “The residential market is undergoing a ‘retooling’ period.” He says: “Sales are down across most major markets and fragmentation is occurring as the national vendors lift their foot off the gas pedal to focus on profitability.” BNEF is an energy research organization.

 

Changes in Net Metering Programs

Bloomberg says the pullback is especially noticeable in California, which is the nation’s largest solar market. The market has reached a certain level of saturation, but in addition to that, utilities are changing the terms of their so-called net-metering programs. And due to the extension of a federal tax increase for solar installations, consumers are not feeling the pressure right now to get those systems installed.

Changes to the net-metering programs have created a lot of debate over the last few years. These rate systems require that utility companies buy surplus energy produced by rooftop systems during the day. The customer gets credit for that surplus energy, and can use it to buy energy at night or when the system is not producing energy. But the value of that homegrown electricity has been under debate, and utilities are transitioning to programs that they say is more fair.

One of the issues is that utilities need revenue to maintain the grid. They say as solar becomes more popular, and more and more people are producing their own electricity, there are fewer customers to pay for power lines and circuits, used by everyone. And, they say non-solar users end up paying a disproportionate amount for maintenance of the grid.

 

Net Metering 1.0 vs Net Metering 2.0

Net Metering 1.0 is the original rate system. It’s a straightforward exchange of energy produced for energy needed. Property owners who produce extra electricity during daytime hours get credit for that energy that they can use to buy electricity at night, when their systems are dormant.

California recently shifted to what it calls “Net Metering 2.0”. That policy incorporates two big changes to the net metering idea. One is called a “non-bypassable charge” which reduces the amount of credit that solar users get for energy returned to the grid. The other is a “time-of-use” rate which charges a higher rate for electricity used during peak hours, hopefully encouraging people to do things like “charge their electric cars” at non-peak hours. NEM 2.0 also includes a small solar connection fee and other rate complexities you won’t see in NEM 1.0.

But the net difference in savings is not a lot. According to an analysis by Aurora Solar, the difference between NEM 1.0 and NEM 2.0 is about 3.5% in savings. Under NEM 1.0, solar users get an 89.5% reduction in their utilities bills. Under NEM 2.0, they get an 86% reduction. So that’s not going to have a “huge” impact on whether people choose to “go solar”, although the more complex formula for determining the savings may scare some people off.

Several other states are also changing their solar incentive policies, including Hawaii which did away with its net metering program altogether. PV magazine writes that Hawaii already has highest percentage of rooftop systems, but since the elimination of the net metering program in 2014, installers have experienced a big drop in business.

PV magazine called Hawaii a worst-case scenario for solar installers, but says solar is still a popular option in the Aloha State. It said in an article toward the end of last year, that 15% of all residential and commercial electric customers in Hawaii have solar. That’s about 20 times the national average.

 

New Solar Products

Some potential customers may also be sitting on the sidelines as they evaluate new products that are just coming to market. Tesla just began selling roofing shingles and tiles that have built-in solar generating technology. Instead of mounting bulky solar panels on your roof, a roof made out of these solar shingles will look like any other roof. From the sky, you might see that built-in solar circuitry, but from the street, the roof looks normal. Tesla just began selling its new solar shingles last month.

And that technology could grow and become less expensive as other companies compete with Tesla. Construction Drive writes about a California-based startup called “Forward Labs” which has emerged as a Tesla challenger. It’s offering solar shingles that allegedly produce “twice” the energy at two-thirds the cost of the Tesla shingles. The blog writes that Forward Labs is accepting pre-orders now, but the product won’t be available until next year.

 

Solar Rebound Next Year

All these changes are probably just a few passing clouds. Bloomberg cites Bromley as saying: “The market is far from dead. It needs time to right-size itself and refine the sales proposition, as it’s shifting from selling urgency to bill savings.”

BNEF is predicting a 22% rebound next year. But it also says the industry could run into other issues, such as federal tax reform that could change the government’s solar tax deduction. Right now, the federal solar tax credit will chop 30% off the cost of installing a system. That tax savings is reduced incrementally over the next several years. And there could be price changes for solar panels that are imported, if the Trump administration “ups” the import tax.

With the rising cost of fossil fuel, global warming, the federal tax credit, and the fact that solar panels will add resale value to your home, there are still plenty of reasons to “go solar.” Aurora Solar has an in-depth report on how California’s new net metering policies will affect your cost savings. We’ll have a link to that report, and a few others on the blog page for this podcast.

Aurora Report:

http://www2.greentechmedia.com/l/264512/2017-07-18/2lfcg?_ga=2.143544626.689292762.1500495168-28548125.1500495168

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Author

Kathy Fettke

Kathy Fettke

Kathy Fettke is the Co-Founder and Co-CEO of Real Wealth Network. She is passionate about researching and then sharing the most important information about real estate, market cycles and the economy. Author of the #1 best-seller, Retire Rich with Rentals, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR and CBS MarketWatch.

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