Although residential is the smallest U.S. solar sector, it’s the only segment that has growth consistently with no seasonality over the last few years
GTM Research Solar Analyst Nicole Litvak spoke this morning at Solar Power International‘s Industry Trends booth (#3038) and she showed the drivers for growth and the upcoming structural changes ahead for residential solar. Here are some of the trends she outlined.
Trend #1: Third Party Ownership versus DIrect Sales
Third Party Ownership (TPO) dominates the financing choices of residential solar customers, but things are changing. Although TPO represents 60 to 90 percent of the solar financing in California, Arizona, Massachussetts, and Colorado, there are signs of a shift. TPO appears to be leveling off or falling in popularity while there is a revived movement to pay for solar with debt.
Lease providers such as OneRoof and Sungevity are now offering loan options. Admirals Bank and Enerbank have entered the market and Sungage looks to be the SunRun of loans. SunPower and Canadian Solar are offering loan financing as well. As Litvak said, "We will see many more direct sales over the next few years."
Trend #2: A Focus on Customer Acquisition Costs
Reducing soft costs such as permitting and interconnection requires rule changes, government support and lobbying. Labor costs are not specific to solar. But there are aggressive moves by residential solar companies to tackle and tame the cost of customer acquisition.
It costs about 49 cents per watt (about 10 percent or $3,000 per customer) for a typical 5-kilowatt residential solar system. We’ve covered the flurry of acquisitions in the field: Solar Universe’s acquisition of Gen110, and SolarCity’s acquisition of Paramount, for example. Litvak suggested that the universe of solar lead generation will grow to include channel partnerships with car companies like Honda, Tesla, Nissan and Ford, as well as with utilities and cable companies.
Trend #3: Involvement of Utilities in Residential Solar
There is a love-hate relationship between utilities and residential solar — see recent net metering battles. Despite this conflict, utilities are finding ways to work with the residential the solar industry. Edison, Duke, and Dominion have invested in Clean Power Finance; SolarCity has a working relationship with Viridian; and NRG has a residential solar group. Expect to see more utilities entering into residential solar.
Trend #4: Downstream Consolidation
Vertical integration and consolidation is a natural trend within the fragmented residential solar value chain. We’ve seen acquisitions from SunEdison, SolarCity, Solar Universe and Real goods, to name a few.
Bonus: Residential Installation Forecast:
Note that the surge in 2016 and decline in 2017 is due to the presumed sunset of the Investment Tax Credit (ITC).