When the 30% federal solar tax credit was introduced back in 2005, it felt like the sky was the limit. The growth was undeniable from 27 MW of residential solar power in 2005 to a staggering 5.9 GW in 2022. The U.S. solar industry grew an additional 31% in 2021 and 40% in 2022.
When the solar tax credit was extended through 2033 under the Inflation Reduction Act (IRA), the industry expected total U.S. solar capacity to soar to 668 GW by the program’s expiration. But residential solar saw just a 9% bump in 2023. Worse still, 2024 is projected to close with a 4% installation decline.
What happened?
It turns out that timing is everything, even when the government is offering attractive tax incentives.
Months before the IRA was signed into law, the Federal Reserve unleashed a series of rapid-fire interest rate hikes to counter the nation’s crippling inflation, culminating at about 5.50% in July 2023. For homeowners considering a ~$20,000 investment in rooftop solar, those rates were enough to put their projects on hold, especially considering it can take about 12-14 years to see a return on that investment. And it placed solar entirely out of reach for low-income Americans.
The 50-point interest rate reduction in September 2024 gives the industry some hope that business will pick up, and analysts' predictions that another 50-point reduction is coming by the year's end further bolster those expectations.
However, the fallout from the rooftop solar downturn did not just impact homeowners. The effect on solar installers, suppliers, and manufacturers has been brutal. With demand plummeting, inflation climbing, and materials and labor costs spiraling, solar companies were caught in a perfect storm. Higher interest rates meant that securing loans to keep companies afloat were harder to manage, and some businesses didn’t survive the downturn. For instance, ADT quit the solar game entirely, while Titan Solar went under. SunPower and Lumio, both major players, filed for bankruptcy.
The interest rate reduction gives solar companies some hope. Still, it will take longer for them to feel relief as they manage costly inventory, continue addressing labor challenges caused by unstable workloads, and build up their installation pipelines.
But, as always, the solar industry is both resilient and unpredictable. The cost of solar components has never been lower, and the technology is better than ever, enabling industry to move into a new phase of residential solar use.
Traditionally, homeowners installed rooftop solar to lower their energy costs. They used the solar power harnessed during the day and added any excess solar energy onto the grid to earn net metering credits, which offset the cost of grid energy they used when solar was not producing.
In recent years, this model has completely changed. Utilities have greatly expanded their renewable energy portfolios with wind, solar, and battery storage systems, eliminating their need for excess energy produced by residential solar.
Today, the purpose of installing rooftop solar has shifted from “selling” excess energy back onto the grid to having more control over energy sources, use, and cost. With electricity rates increasing 15% to 20% annually, reducing costs remains a strong motivator. But the increasing number of brownouts and longer-term outages from severe storms are driving users toward solutions that provide energy security and reliability.
The increased availability and affordability of battery storage systems and solar hybrid inverters enable homeowners to create individual microgrids using solar power to generate reliable energy at the point of use. These are supported by innovations like Enteligent’s NMax photovoltaic (PV) module-level power optimizers, which are equipped with rapid shutdown safety capabilities and provide continuous maximum output from each panel. This is the only third-party module-level power electronic (MLPE) providing both rapid shutdown device (RSD) capabilities and panel-level performance data over power-line communication (PLC), yielding an average of 10% higher electricity output from rooftop solar installations.
So, while the solar industry is bruised, it’s not broken. With lower rates on the horizon and cutting-edge tech making solar more accessible and efficient than ever, it feels like we’re on the verge of the next wave of growth. Solar has experienced its share of highs and lows, but one thing’s for sure—it’s not going anywhere.
