REUTERS/Yuriko Nakao
The residential solar company Sunrun this month hit some milestones in what's otherwise been a bleak year for the industry.
The company on Tuesday said it had 1 million residential solar customers and accounted for one in five home solar systems installed across the country. On a recent earnings call, Sunrun's CEO Mary Powell also said the company was selling a record amount of battery storage. More than half of new US sales in the latest quarter included solar and battery storage — what the company calls an "attachment rate." That figure is up from 12% a year ago.
Still, the company isn't immune from a major slowdown in home solar sales. The slump was enough to force a competitor, SunPower, to file for bankruptcy protection this month. SunPower cited a combination of high interest rates and a policy change in California, the country's largest solar market. The company was also highly leveraged and struggled to raise more capital after some financial-reporting errors.
In June, analysts at Wood Mackenzie forecast that homeowners nationwide will install 14% less solar power in 2024 than they did in 2023, marking the first time the market has contracted in five years. Zoë Gaston, a principal analyst on Wood Mackenzie's US distributed solar team, said the drop will likely be even larger following the exits of SunPower and another top installer, Titan Solar, from the industry.
Driving the downturn is a new "net-metering" policy in California, where homeowners are getting paid less for sending electricity to the grid. The analysts estimate that California's market will contract by 40% this year, following a mad dash to install solar before those changes took effect in April 2023.
High interest rates aren't helping either. Most homeowners finance their solar systems with a lease or a loan from companies like Sunrun. Higher rates on those long-term leases and loans mean less money saved on monthly utility bills, making solar less appealing.
"The days of easy money and low interest rates provided a lot of stimulus for demand," Brett Castelli, a clean-energy equity analyst at Morningstar, told Business Insider.
Those days are over, he added, so some residential solar companies are focusing less on growth and more on cash flow after operating in the red.
Powell told Business Insider that Sunrun had been focusing on boosting cash and a "battery-first" strategy in order to weather the solar-market headwinds. Sunrun is aiming for $200 million to $500 million in cash flow this year; historically it's been negative.
She described the residential solar market this year as "distorted" because of the massive run-up in demand last year in California. But she speculated that it would adjust and then grow by at least 10% a year.
"Utilities don't have a solution for the future," Powell said, adding that customers are paying more for power but reliability is getting worse. "That creates a systemic demand for solar and battery storage."
Powell said regulators were pushing utilities to leverage residential renewable energy to stabilize the grid during periods of high demand, while homeowners want to have backup power as outages become more frequent because of extreme weather.
Powell pointed to Sunrun's pilot projects in Texas, California, and Puerto Rico, where the company is monitoring its customers' stored solar power and sending it to the grid in times of high demand. Customers get paid for the energy, while Sunrun is paid for dispatching the batteries. In Maryland, Sunrun has partnered with three owners of electric Ford F-150s who charge at home to test how EV batteries can serve as back-up power.
Castelli agreed with Powell's prediction that residential solar will grow in the long term, pointing to rising utility rates, the falling costs of equipment, and the likelihood of lower interest rates. But if states follow California's lead by making it less lucrative for homeowners to send electricity to the grid, demand could slow.
"The bottom line is the rooftop-solar industry needs to become more efficient," Castelli said. "The US has by far the highest cost for rooftop solar in the world. Through these changes and headwinds, companies are going out of business, and that's making the industry more efficient."
