Higher Rates and Shifting Economics Collide with the US Solar Boom

Residential solar will eventually be boosted by the Inflation Reduction Act, but macroeconomic conditions will hamper growth in the short term.

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The booming residential solar market in the US is at a crossroads right now. As a result of expanded federal funding, the industry is being held in higher esteem than ever before due to concerns about increasingly fragile grids and volatile fuel prices. In addition to rising interest rates and state subsidy reductions, solar faces a wide range of headwinds, from a weak economy to historic rainstorms to soaring interest rates and soaring interest rates. 

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A week-long period of earnings reports from three of the biggest US residential solar companies begins on Wednesday, in which investors will get a glimpse of which trend is winning out as SunPower Corp. kicks off a week-long period in which investors get a glimpse of which trend is winning out. All three of these companies, along with Sunrun Inc. and Sunnova Energy International Inc., have been bullish on the sector with strong growth recently. The market, however, has been less sanguine, as shares of each of these companies are down at least 30% since the Inflation Reduction Act was signed by President Joe Biden in August. 

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This bumpy start to the year follows a banner year for the company in 2022. It is most likely that the residential-solar sector in the US set an annual record for installations last year - potentially as much as 30% growth, based on Lezcano's research. It is possible that 2023 will top last year's deployment total, despite a possibility of a slowdown, though the decline will make it harder for the country to meet Biden's lofty climate goals even if the deployment rate does slow down.

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With Biden's new climate law, which is ushering in billions of dollars in new clean-energy funding, hopes for expanded deployment are being bolstered by the prospect of it expanding. As a result of fuel costs that are posing a serious threat to electricity prices in many regions, as well as potential energy shortages that have resulted in a greater likelihood of blackouts in grids in places like California and Texas, they are also being supported by rising fuel costs. 

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A statement sent out by Sunnova's chief executive officer, John Berger, stated that utilities continue to send Sunnova new customers through e-mails. “In the past year alone, the price of electricity has increased by more than in the previous ten years combined." 

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As the cost of financing solar panel purchases continues to rise, rising interest rates are causing a rise in the cost of the panels. This is despite the fact that California, by far the biggest market in the US, is facing a deep cut to subsidies, heavy rains that slowed installations in January, and widespread layoffs in the tech sector, the employees of which are ideal customers for solar installations. 

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Despite a weakening consumer market, Jeff Osborne, a Cowen & Co analyst, wrote in a research note last week that "concern is mounting over residential solar demand, especially in the US owing to a weaker economy." Despite all that, the macroeconomic drag is likely to prove to be more of a blip rather than a structural problem for the solar industry, he said in an interview on Monday.