Solar energy makes sense when it’s not subsidized with net metering scams but sales dependent on those scams are being squeezed out as they are phased out.
Rooftop solar installations have seen explosive growth, but that growth explosion is expected to change this year. Bloomberg News Energy Finance projects a 2.4 percent decline in new residential installations. Driving the decline are a number of factors that include saturation in some markets, financial problems at several solar panel makers and a change in state net metering policies.
State net metering policies allow rooftop solar owners to sell their excess power to their utility company, generally at retail rates, allowing them free transmission and distribution services that other homeowners must effectively fund. The net metering policy also favors more well-to-do homeowners who can afford to purchase rooftop installations; this makes the policy regressive. Several states (Hawaii, Nevada, Arizona, Maine and Indiana) are phasing out retail net metering, although Nevada has reinstituted its net metering policy—adding some changes due to solar companies leaving the state for more lucrative markets.
Residential solar capacity additions in the United States declined 11 percent from the fourth quarter of 2016 to the first quarter of 2017. California, which makes up 45 percent of the U.S. residential solar market, experienced the decline most. The drop in residential solar installations in California was twice the decline at the national level and was due to an unusually wet winter, seasonal factors and market fundamentals.
Major residential solar installers, like SolarCity and Vivint, are changing their strategy and focusing more on profit and less on rapid growth: they are devoting fewer resources to making sales in mature state markets (such as California) and focusing more on emerging markets. They are also focusing less on door-to-door sales.
The cost of customer acquisition is the highest-cost component of an installation and is increasing because the lowest-hanging fruit has already been picked. As a result, SolarCity recently announced it is ending its door-to-door sales practice and plans to sell solar through Tesla’s retail outlets.
Financial Problems for Solar Manufacturers
Some residential solar companies are having financial problems. Residential solar company Sungevity and commercial solar supplier Beamreach have both filed for bankruptcy in 2017 while Verengo Solar and SunEdison went under in 2016. Yingli Green Energy, a former world leader in solar panel volume, lost $267.1 million in the fourth quarter of 2016 on $294.0 million in revenue.
Vivint Solar and Sunrun—the second and third largest residential solar installers in the United States—are on tenuous financial footing. They need a constant flow of project sales and financing to keep their business afloat. The failure of Verengo and Sungevity shows that financing may not be as easy to come by as it once was.
Net Metering Phase-Out
Indiana is one state that plans to phase out its net metering policy. Indiana generates less than 0.5 percent of its electricity from solar power and ranks 22nd in the country in terms of installed capacity, according to the Solar Energy Industries Association.
On May 2, 2017, Indiana Governor Eric Holcomb signed into law Senate Bill 309, which phases out the state’s retail net metering policy in 2022. The new policy grandfathers in solar rooftop systems installed by the end of 2017 at the current retail rate for 30 years. After that, the rate will gradually decrease for new customers until 2022 when retail net metering will end, and the customer will receive the utility’s marginal cost plus 25 percent for any unused power that it wants to sell to the utility company. The decrease in value that the homeowner would get for any excess solar power would be about 7 cents per kilowatt-hour—from about 11 cents per kilowatt-hour today to about 4 cents per kilowatt-hour.
Utility-Scale Solar Installations Are Expected to Decline Also
GTM Research and the Solar Energy Industries Association (SEIA) predicts that new solar capacity installations (residential, non-residential and utility-scale) will decline 10 percent in 2017 to 13.2 gigawatts from 14.8 gigawatts in 2016. The reason for the decline in utility-scale solar installations is a bit different from the factors that caused the decline in residential solar installations.
One reason for the decline is the rush to complete solar projects in 2016 due to the expected expiration of the federal Investment Tax Credit (ITC)—a 30 percent tax credit for solar projects. A build-up in solar projects occurred in 2016 despite the ITC’s extension passed at the end of 2015.
Because utility-scale solar projects were rushed to completion in 2016, there will be less solar installations in 2017—particularly in states where utilities have already met renewable portfolio standards requiring utilities to generate a certain amount of their electricity from renewable energy by specified dates. This phenomena was seen in the wind industry when the production tax credit for wind was set to expire.
It is expected new solar capacity additions will decline in 2017 for the first time. The reasons for the decline differ by market with residential solar facing market saturation in certain markets, financial problems for solar manufacturers and changes to state net metering policies to more fairly compensate homeowners for excess power that their solar panels generate. Utility-scale projects are expected to be down this year due to the build-up in solar projects in 2016 to capture the investment tax credit that was expected to expire. The solar industry, like the wind industry, needs subsidies and favorable policies to continue its expansion.
Editor’s Note: The implications are clear. Solar energy needs to stand on its own and compete if it is to be successful in the long run. Natural gas is a far better bargain today as states gradually adapt to reality and drop the subsidies that can no longer afford. New York State, of course, is different. There, Governor Corruptocrat is headed full bore toward increasing the subsidies so he can bankrupt the Empire State in pursuit of a Presidential nomination.