The solar industry is contracting in 2024.
"I would not say that we're expecting a collapse in the residential solar industry," said Zöe Gaston, principal analyst at Wood Mackenzie, a data analytics firm. "We are expecting a contraction."
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Here's what you need to know about the state of the solar industry right now.
Let's get one thing clear: While the solar industry isn't collapsing, it isn't at its peak.
"It definitely is a tough time for the residential solar market," Gaston said.
Gilbert Michaud, assistant professor of environmental policy at the School of Environmental Sustainability at Loyola University Chicago, sees this moment as a natural part of a cycle for an industry that has endured many ups and downs.
"The market is in a more mature stage than it was 10 or 20 years ago," he said.
Wood Mackenzie is predicting a 13% contraction in the residential solar market this year compared to last year. But Gaston says it's also expecting a rebound in 2025.
Gaston and Michaud see plenty of reasons for hope in the solar industry.
For one thing, interest rates are expected to finally come down this year, which would give a boost to solar sales and installations going into next year. Wood Mackenzie is predicting 13% growth in residential solar in 2025.
It's also taking some time to see the benefits of the Inflation Reduction Act, which showered big financial incentives on the solar industry, according to Gaston and Michaud. "That's a huge benefit, but the timing of it … the headwinds with interest rates are outweighing that," Gaston explained. By 2025, the IRA could give a more visible boost to solar sales. "There's kind of this lag for policy," Michaud said. "You've got to give it a year or two to see the fruits of that."
There's also the indirect benefit of rising retail electricity rates in some states, which often leads more homeowners to look into solar as a way of saving money. "Some states may see quite a bit of growth this year," Gaston said.
Taken together, Gaston and Michaud see 2024 as a bump in the road for the solar market, rather than an existential crisis.
"There's still so much potential for residential solar, I think interest rates are just causing a temporary slow down," Gaston said.
It might be a bit of a slow period for the solar industry, but that doesn't mean you should delay a solar installation on your own home.
"If you're a homeowner and you're thinking about this, I'd still try to get in there now and act sooner or later," Michaud said.
While it's possible that solar costs go back down next year with lower interest rates, there's a bit of uncertainty surrounding the presidential election, Michaud said. Some worry that a new administration could alter or reduce the available solar incentives.
"Do it now, if you're interested," Michaud said.
A report from marketplace operator EnergySage noted that average system costs are declining, and payback periods are improving. It highlighted a recent market share capture from Tesla in the inverter and energy storage market.
EnergySage operates an online comparison-shopping marketplace for solar, providing quotes to solar shoppers across 50 states and Washington D.C. The company released its October 2024 Marketplace Insights report, with data through the first half of 2024 on pricing, design trends, and more for the residential solar and energy storage sector.
The report noted that through the first half of 2024, residential solar prices on its platform averaged $2.69 per watt, declining 4% from the second half of 2023. This is only 1% higher than the all-time low of $2.67 per watt in the first half of 2021, when U.S. residential solar experienced one of its largest growth cycles in history. This marks the second consecutive six month period in which costs have fallen, following 2.5 years of cost increases amid pandemic-related supply chain constraints, said EnergySage.
EnergySage estimates that the average U.S. customer will reach a breakeven point on their return on investment at 7.5 years, based on an average system size of 10.9 kW. This is an improvement from the second half of 2023, when average payback periods were estimated at 8.1 years.
"Steady supply and cooling demand, stemming from policy changes like California''s Net Billing Tariff and high interest rates, are the likely drivers of the most recent price cuts," said EnergySage.
Despite cost savings being a top motivation for solar installations, EnergySage said that over 60% of shoppers did not select the lowest-price quote they received. The report noted that the range of prices being shown is tightening, with average minimum prices around $2.54 per watt and maximum average quotes around $3.08 per watt. Based on the average system size, average minimum and maximum quotes ranged about $6,000, said EnergySage.
The top four largest solar markets also have lower-than-average system costs. Florida averaged $2.20 per watt, Texas $2.10 per watt, California $2.39 per watt, and Nevada $2.18 per watt. Regionally, solar prices remain the highest in the Northeast and lowest in the West.
Quoted home battery storage prices also dropped, setting a record low of $1,133 per kwh stored.
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As for technological changes, the profile of a residential solar system continues to evolve. In 2020, 98% of all quotes on EnergySage included solar panels rated to provide less than 400 watts of power, and 340-watt panels were typical. During the first half of 2024, 97% of all quotes included solar panels rated to 400 watts or more. On average, homeowners are now offered about 20% more power per panel than four years ago.
The top most-quoted solar panel brands in order on EnergySage were REC Group, Qcells, Panasonic, Silfab, LA Solar Factory, and Hyperion Solar.
The top inverter brands quoted were Enphase, Tesla, SolarEdge, Hoymiles, and AP Systems. Enphase represented roughly two-thirds of all quotes on the platform, and Tesla''s string inverters rapidly grew from 2% of quotes in the first half of 2023 to over 12% in the first half of 2024. The report noted that Tesla inverter packages reduced quoted prices by about 15% compared to the average.
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