About two years ago, I wrote an op-ed in the Wall Street Journal, The Hole In The Rooftop Solar-Panel Craze, where I argued that the federal government should stop subsidizing the rooftop solar-panel industry because greener, more economic alternatives are available (like utility-scale solar).
The article struck a nerve among solar advocates (see, for example, here, here and here), but two years later, it looks like consumers and state regulators have finally caught on. The rooftop solar-panel craze can no longer be characterized as a craze, and there are ominous signs pointing to trouble ahead for the industry.
Let's start with the most obvious: demand for traditional rooftop solar systems is waning at a time when consumer confidence is high and the real estate market is—in most places—strong. Year-over-year growth for the rooftop solar industry was down to 16% in 2016, compared to an average year-over-year growth of 63% from 2012-2015. And according to a report earlier this month in the Wall Street Journal, installation of residential solar-electricity systems is expected to increase by less than 3% in 2017.
Demand is slowing. But that's not the industry's only problem.
Earlier this month, numerous media outlets reported that two of the largest rooftop solar companies—Sunrun Inc. and Elon Musk’s SolarCity Corp.—have experienced very high cancellation rates in 2016 and 2017. Apparently, as many as 40 to 50% of their customers are canceling orders for rooftop systems shortly after placing them. And this is all occurring at a time when the larger solar power industry is still humming along.
Nationwide, other types of solar power have generally continued to demonstrate strong growth, including utility-scale, commercial and community solar projects. In fact, utility-scale solar installations grew at an average rate of 72% per year between 2010 and 2016, according to the U.S. Energy Information Agency—faster than any other generating technology.
So, what's going on with residential solar, and will it ever be fixed?
A number of factors seem to be contributing to the rooftop solar industry’s troubles.
Although it's always difficult to tell whether customer complaints are actually widespread or comprise only a few overly vocal critics, either way there have been numerous customer service related complaints in the press about rooftop solar over the last few years. Customers have been reportedly unhappy with pushy salesmen, how their systems were installed and maintained, or, in many situations, unsatisfied with the degree of savings (or lack thereof) that their new systems provided. Unhappy customers talk.
State utility regulators haven’t helped the rooftop solar industry either. Dozens of state utility commissions have reduced the economic incentives homeowners obtain from rooftop solar systems, which has forced solar installers to change their sales pitches. They used to be able to sell new solar systems to homeowners with no money down and immediately lower the homeowner's monthly electric bill (even after financing and capital costs). Now, many of these nifty deals aren't available because state utility regulators have pared back the rates homeowners get paid when they sell power from their rooftop solar systems back to the grid.
Other greener and less invasive solar options are also popping up. Community solar programs—where homeowners pool their resources to collectively build and share a larger community solar system—have become more widely available. As have green power programs, where customers can simply pay a little more every month to ensure that they obtain some form of “green” power.
Turning the rooftop solar industry around will likely require new thinking, and potentially, new and better rooftop solar products.
Elon Musk’s highly publicized new solar roof tiles are exactly the type of innovate product that could revive consumer interest in the industry—especially given Mr. Musk’s track record of success. Instead of attaching large rooftop solar panels to an existing roof, solar roofing tiles effectively replace (or cover) the existing shingles. Of course, Mr. Musk isn't the first to wade into the solar roofing tile space. A few other companies have been selling different solar roofing tile designs for the last few years. And one such company - SunTegra Solar - has had a lot of recent success.
According to its CEO, Oliver Koehler, whom I spoke with this week: “the company is currently on an accelerated growth path, achieving over 300% revenue growth in the second half of 2016 and actively selling in 10 U.S. states.” Perhaps this is because SunTegra uses a different model than the larger rooftop solar companies: they provide solar kits to roofers and home builders, who then install them as an upsell when their clients need new roofs.
Other new products, like Totem Power’s smart hub, are distributed solar systems that are not even intended for existing or new roofs. Totem’s smart hub product would replace street lights with integrated communication, battery storage, and grid responsiveness towers topped with solar panels.
The rooftop solar industry isn’t dead. And it may not even be dying. But if it wants to survive and reach its prior levels of growth, it’s going to need to do something different, and quickly. Otherwise, the rooftop solar-coaster may not come back up again.
