Why The U.S. Residential Solar Market Has Slowed Down

by Trefis Team
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Demand growth in the once-booming rooftop solar market in the United States appears to be leveling off, despite a reasonably healthy real estate market and strong consumer sentiment. During 2016, year-over-year installation growth slowed down to just 16%, compared to an average year-over-year growth of 63% over the three preceding years. Installations in the residential market could slow to as little as 9% this year. SunPower (NASDAQ:SPWR), the second largest U.S. solar player, which produces high-efficiency panels suited for rooftops, saw its Q1 2017 residential sales decline by 28% sequentially and by roughly 16% year-over-year. Below we take a look at some of the potential reasons for the slowdown in the residential solar market.

See our complete analysis for SunPower and First Solar 

Regulatory Headwinds In Several States, Lower Electricity Prices

Utility companies have been pushing back against residential solar in multiple states, citing the higher effective costs of catering to customers with residential installations. In states such as Nevada, residential and small-scale commercial solar users face higher electricity rates, along with reductions in the credits they receive for sending their unused solar generated electricity back to the grid. California has also tweaked its regulations, with its “Net Metering 2.0” regulation, which brings about time-of-use (TOU) rates which could effectively reduce the net value of solar power systems to homeowners. Under the TOU, solar electricity generated by customers in the afternoon – when supply from installations is abundant – is credited at lower rates than during the evening.

Average residential electricity rates in the U.S. have also softened on account of cheaper fossil fuels (particularly natural gas). In 2016, residential prices saw a slight decline, compared the average 2.2% annual increase over the previous decade. This has reduced the economic incentive for customers to go solar. Separately, community solar programs have also been gaining some traction, with the market expected to almost double this year. Under these schemes, homeowners pool their resources to build and share a larger community solar system, allowing people who cannot or prefer not to install solar panels on their rooftops to derive the benefits of solar power.

Why The Outlook May Still Be Bright

Solar panel prices have been declining rapidly, and the overall cost of systems is also coming down, due to higher panel efficiencies and lower balance of systems costs. Easy to install pre-engineered systems are also helping to bring down the time of installation and labor costs.  Moreover, the dependence of residential solar customers on the grid and policies such as net metering could come down going forward, as behind-the-meter storage becomes more affordable and efficient with improving battery technology.  For instance, GTM research estimated that storage in residential and non-residential solar installations stood at just 15% of installed capacity in megawatt terms. By 2021, however, the behind-the-meter segment will account for about half the U.S. market.

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