Solar Coaster Continues: $Trillion opportunity ahead

December 27, 2023

Note: The following article was originally posted on LinkedIn by Enact CEO and Co-founder Deep Chakraborty on December 25, 2023.

We have seen some U.S. Solar setbacks recently, with revenue / earnings downgrades for top OEMs, and several installers pulling back. So it’s time for a short write up on this ‘Solar Coaster’ — why it’s no different from the few others I have witnessed in the last 15 years of my solar career.

We all know why we got here: Firstly, high interest rates dampened consumer sentiment (~50% of U.S. residential solar is financed). Secondly, in California, the new net metering policy requires storage paired with solar to retain paybacks — many installers struggled with the complexity of such projects and pulled back.

But let’s not forget, the number one driver for solar demand has always been electric bill savings, and there is no reason why people will stop saving money on their bills. Here’s three reasons why U.S. Residential Solar demand will still remain stronger than ever, as we head into 2024.

1 Utility electric rates continue to rise sharply

PGE just announced another rate-hike effective in January 2024 and we are seeing the same trend in other major states, including New York and Massachusetts. While inflation may have peaked, utility rates rises cannot stop, as consumers will have to foot the bill for aging infrastructure costs that make up a huge share of total retail electric price.

2 Unprecedented growth of EVs increases electricity demand

Electric vehicle sales crossed over one million new EVs per year in the US., for the very first time and an unprecedented number of new EV models launching ahead. We are witnessing a massive shift in consumer spend from gas to electricity. The first month’s electric bill after buying an EV is a shock that leads to a majority of such new EV buyers adopting solar.

3 Continued Drop in Solar and Storage prices

As of Q1 2023, we saw a 15% drop in residential solar prices relative to 2022, primarily driven by module / inverter price drops. Through the year, solar module price drops continued and Lithium-ion battery prices just hit another record low. This trend will continue as new manufacturing capacity come online in the U.S. and abroad. And in California, we forecast Solar paybacks to be restored to 2022 levels, or better, by Q3 2024 as the next batch of utility rate hikes and system price drops take effect.

The widening gap between solar and grid prices presents a very compelling arbitrage for homeowners in more than ten U.S. states, with 15-20% IRR on their cash investments, plus an attractive 30% tax credit (and rebates for more home electrification like electric water heaters, electric stoves and heat pumps).

Less than five million U.S. homes have solar today. With the mandate to net-zero buildings in many states ahead, and the increase in electricity demand driven by EV adoption and electrification, approximately 40 million more U.S. households are expected to make this transition to solar in the next decade — a trillion dollar opportunity.

Written by Enact CEO & Co-Founder Deep Charkabroty