GTM Research can always be relied upon for for an interesting, in-depth analysis of the solar industry. At this year’s Solar Summit, Shayle Kann started things off by looking at the state of the industry with a particular focus on utility-scale solar.
On the second day of the summit, Cory Honeyman continued the story of the solar market with a focus on the residential sector.
Honeyman noted, as we all know, that 2016 was a big year for solar. Overall, the industry grew by 95% in the United States. But it didn’t grow evenly across all sectors. Residential solar’s growth rate slowed significantly, unlike commercial and utility-scale solar, whose growth rates both spiked.
What happened to residential solar?
It can be easy to see the slowing growth rate of residential solar and worry. Between that and the struggles of large national installers, it would seem that the market is unstable. But there’s more to it than meets the eye.
Honeyman noted two themes in the residential market. The first is that the market is quite healthy in developing states. The second is that it’s finding it harder to scale in states with high penetration rates, like California.
There was a slowdown in several states last year, but in California it was huge. Basically, California is at a whole new level of growing pain that most of the country hasn’t reached yet. As you can see above, residential solar in California only grew 5% last year. And Honeyman predicts that it will remain basically flat this year.
The struggle of national solar companies
There’s been all sorts of news surrounding national companies recently — most of it bad. But it’s not all gloom and doom for these companies.
The big three, Tesla, Vivint, and Sunrun, have begun to transition from a mindset of rapid growth to decreased acquisition costs and increased profits. This has skewed the growth of the sector. If you remove these three companies, the sector grew by more than 40%.
Looking at the annual growth rates for the past few years makes this even more clear.
In addition to switching their focus to profitability, the big three are switching from third-party ownership (TPO) to a focus on loans and cash sales.
While they’ve begun offering loans, you can see how far behind they are compared to other installers. And as the cost of solar continues to decline, Honeyman believes customers will increasingly want to own their systems to maximize their savings.
A look ahead
There will continue to be hurdles for residential solar looking ahead, but the market is still in a good place, according to GTM Research.
When discussing the state of the market, Honeyman said, “It’s challenging to actually sell residential solar right now … but underneath that, the market fundamentals have never been stronger.”
This is probably best represented by the fact that GTM predicts that by 2018, solar will reach grid parity in 36 states.
Now, there are still some uncertainties here. For example, if Suniva’s minimum price proposal is approved, the number of states at grid parity would drop to 27. And there are a number of states debating net metering changes that could affect this as well.
This will mainly be due to the big three not focusing on growth. Long-tail installers should still see growth in the 15-25% range.
That growth likely won’t be in California, though. Honeyman predicts a decline in California starting in 2018. Instead, he believes developing states in the Southeast and Midwest will pick up and grow much more quickly.
So, despite all of the hiccups in 2016, the industry still stands on firm ground, says GTM Research. And 2017 looks to be shaping up to be a good year for residential solar installers.