The rooftop solar business will continue to grow rapidly in 2015, especially as we get closer to the 2016 ITC cliff. This year I’m adding a bit more specificity to my predictions. So without further ado, here are my ten predictions for rooftop solar in 2015:
- SolarCity will buy a module-level electronics company. In the past, the firm has not been shy in using its stock to buy products and technology to help scale – and to slow down its competition. By the time the giga solar module factory in Buffalo is up and running in 2016 or 2017, smart modules will be the norm. Having control over both the hardware and software in smart modules will be important for effective vertical integration, especially as storage and grid interface capabilities become necessary.
- SunPower will announce plans to build a large manufacturing plant in the U.S. Currently, the company makes most of its modules in the Philippines and Malaysia, with a relatively small plant in Milpitas. As demand for made-in-the-U.S.A. modules increases, SunPower will need domestic production to keep up with SolarWorld, Suniva, SolarCity, Auxin, Helios and others. Yes, it’s more expensive to manufacture modules in the U.S., but many residential and commercial customers will pay a slight premium for domestic production.
- There will be no extension of the ITC in 2015. I hope I’m wrong about this prediction, but with the GOP-dominated political landscape and presidential elections heating up, I’m not optimistic. Remember, the residential ITC (Section 25 of the tax code) goes to zero on 12/31/16, and the commercial ITC (Section 48 of the tax code) goes to 10 percent on 12/31/16. The ITC is the swing factor for homeowners – the plunge from 30 percent to zero will dramatically slow down sales for customer-owned systems. The drop will not be as precipitous for commercial and utility systems (including third-party-owned residential systems with leases and PPAs) since these systems will still collect the 10 percent tax credit and accelerated depreciation.
- The Republican-dominated congress will make efforts to sideline renewables and promote more fossil fuels, but they will not be successful in overturning key environmental policies. Many conservatives promote energy independence, lobby for jobs and strive to reduce energy costs. Bizarrely, low oil and natural gas prices will put a damper on job growth in the “drill, baby, drill” sector. With more jobs in the solar industry than the coal industry – and more solar jobs in California than in the utility industry – Republicans don’t want to be against renewables in upcoming elections.
- A big U.S. utility will create a standalone division to focus on solar, renewables and battery storage, while making specific plans to spin out its fossil fuel and nuclear assets. E.ON, Germany’s largest utility, announced plans to sell its fossil fuel and nuclear plants and keep the renewables business and distribution system (RWE in Germany made a similar announcement). Here in the U.S., NRG has already started to build a good collection of renewable energy assets, but also continues to expand its fossil generation capacity. German utilities know that renewables are the future, and having both fossil and DG generation assets under the same corporate structure creates internal culture clashes and external policy conflicts. Smart business-unit portfolio planning for utilities mean they should sell fossil-fuel assets, milk their distribution assets, and invest in clean energy generation.
- Small installers will gain market share, reversing the consolidation trend over the past few years. Installers that provide local installation services will thrive in mature markets and will be the first to enter new markets. Lease and PPA financing is no longer the key to residential sales, since loans, PACE and cash purchases are widely available and almost always provide better customer economics. Traditional solar distributors will benefit as they simplify the supply chain and provide paperwork outsourcing services for small installers.
- With unrelenting pressure to reduce total installed costs, pricing pressure on BOS suppliers (inverters, racking, roof mounts) will increase. These pricing pressures, coupled with growing numbers of BOS suppliers, mean that BOS margins will decline for commoditized segments such as string inverters, standard racking and standard roof attachment hardware. M&A activity will heat up, with one major inverter company and one major racking company being acquired.
- Congress will launch a formal investigation into alleged unfair consumer credit practices in the solar industry. When selling solar to homeowners at the kitchen table (whether a cash, PPA, lease or loan purchase), the motivation for salespeople to exaggerate is considerable. Almost all of the key ROI variables – utility rate increases, home resale value, maintenance costs, payment escalations, performance degradation and even system output – are difficult to quantify and easy to tilt in favor of closing a sale. Other consumer industries have experienced similar consumer credit issues. That’s why there is a dedicated financing specialist when you lease a car and a mortgage broker when you borrow for a house.
- New tariffs on Chinese and Taiwanese solar products will do little to improve profit margins for U.S. module manufacturers. Solar cells have become commodities and are being manufactured at scale in more than a dozen countries, and standard module manufacturing is relatively easy to ramp up based on demand. As a result, prices for tariff-compliant solar modules may increase slightly in the first half of 2015, but will resume their downward trajectory. The two best paths for U.S. module manufacturers are to reduce costs with low overhead operations, and to focus on differentiated products that can command slightly higher margins.
- California rooftop installations will be disrupted during the first six months of the year as installers and manufacturers try to achieve compliance with the new California Rooftop Fire Codes that go into effect on 1/1/15. There will be a temporary shortage of Class A fire-rated systems. Manufacturers of solar modules and racking will accelerate their development and testing programs to certify their products, and then rush them into production. Inspectors will stick to their guns regarding the new requirements (which have already been deferred for twelve months), and installers will scramble to finalize building permits for systems that were sold (and possibly even installed). The three ways to achieve compliance are with ordinary racking systems using Type 1 or Type 2 modules; with special racking systems that include a front edge deflector or perimeter fairing with any type of module (most commonly Types 1, 2, 4, 5, 7, 8); or with integrated module-racking systems that have been fire-tested together.
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