Over the past year, in the face of constant and unprecedented headwinds, ranging from COVID-19 to an unfriendly presidential administration, the solar industry has proved incredibly resilient, with home solar installations growing 7 percent in 2020. But what does 2021 have in store for solar? Will this growth continue? In this article, we look at the three areas that will determine the industry’s fortunes in the coming year: business trends, technology, and government policy.
Business trends
Declining prices
One of the biggest decision points for solar customers is price. For installers, the price they are able to offer depends on two main factors: hard costs and soft costs. Hard costs include the costs of materials, namely the solar panels and solar inverters. Soft costs include non-material expenses like customer acquisition, permitting, and the actual installation of your system.
The hard costs associated with solar have been falling steadily over the past decade, dropping 50 percent from 2015 through 2019, as equipment manufacturers have improved the efficiency and scale of their operations. This decline in hard costs has been a big driver of the decreasing solar prices in recent years.
Soft costs, on the other hand, have remained relatively constant, as skilled labor remains scarce and the permitting process remains mired in red tape. This holds huge potential for improvement in 2021, especially with the launch of instant permitting tools like SolarApp (which we discuss further below).
Digitization across all segments of solar is also driving decreasing solar prices, a trend accelerated by COVID-19. Although the solar industry centers on one of the hottest new technologies, nearly every part of the solar ecosystem has room for improvement and efficiency from taking everything online. By utilizing new tools like remote site visits, digital system design, and online sales, installers can reduce their own costs, which they can then pass on to home and business owners as savings. You can expect solar prices to continue to drop as the industry shifts towards further digitization and streamlined operations.
Small margins paired with large gains
The solar industry is fiercely competitive and expensive to participate in, making large profits remain difficult to come by in solar: to truly succeed in solar requires a sustainable business model and a commitment to the long-term.
Generally speaking, installation companies are split into two camps: small, local installers, and large, national businesses, both of whom face their own challenges. Small installers face tough competition, and for many, COVID-19 hit finances hard, driving some to bankruptcy. Large companies also experienced significant losses in 2020, with Sunrun and Sunnova, two of the nation’s biggest home solar companies, losing a combined $500 million in the first nine months of 2020.
Despite these difficulties, though, the industry still holds strong promise; according to these companies and their Wall Street backers, much of this spending represents upfront investment into a rapidly growing home installation market. Analysts believe this investment will pay off because it will allow companies to claim a greater share of this growing pie. These home installations will grow 7 percent in 2021, according to SEIA and Wood Mackenzie. Additionally, despite the economic crisis of COVID-19, default rates on solar payments have remained remarkably low, showing the stability of solar as an investment. Strong factors like these have increased investor confidence, with Sunrun stock up over 400 percent in 2020, and Sunnova up over 300 percent. Expect rapid sales growth and cheap access to capital to fuel solar in 2021.
Technology
The start of the “solar-plus” decade
On the EnergySage Marketplace and beyond, an emerging trend is pairing solar with complementary products, such as energy storage systems, EV chargers, or air source heat pumps (ASHPs), a form of electrified heating and cooling that can be powered with solar. This movement toward “solar-plus” makes sense–if you install a solar panel system, you’ll want to get the most out of it. Greater electrification helps to increase your solar savings, as it allows the electricity produced by your solar system to stretch further, lowering the cost you pay to power your various devices. This is also a boon for the environment, as electrification plus solar will significantly reduce carbon emissions.
We expect this trend to continue growing in 2021, as EVs continue to proliferate and as more home and business owners add storage, in particular, to their solar installations. Few solar companies offer all, or even most, of these additional technologies, but those that do (like Tesla) have found this to be a very successful strategy.
More efficient & higher wattage panels
Panel efficiency has been increasing steadily over the past decade, and we can expect to see this progress continue in 2021. Current panels on the market have efficiencies between 17 percent and 22 percent, producing solid power at a competitive price. But manufacturers and research labs continue to push the envelope, with records broken at breakneck speed. In fact, in 2020, a new panel produced at the National Renewable Energy Lab (NREL) hit 47 percent efficiency in the lab and 40 percent in real life conditions. Technologies like this are still largely in the prototype phase, but are a strong indication of the progress we can expect in panel efficiency. What does this mean for you? More efficient solar panels mean that you’ll get a greater “bang for your buck” when installing a new system: the more efficient the panel, the more energy you’ll produce with each one.
In addition to increasing panel efficiency, manufacturers are hard at work developing more powerful panels. Last year, major manufacturers Trina, Longi, and JinkoSolar released panels with immense wattages nearing 600 W. For context, solar panels usually produce between 250 and 400 Watts of power. While these enormously powerful panels will reach commercial and utility scale projects before they find their way to homes, this trend will certainly percolate the market as the technology matures. For solar shoppers, these more high wattage panels will further increase the power output of your system, giving you more power and ultimately saving you money.
Government and policy
The Biden administration can drive the adoption of renewables
One of the biggest events coming into 2021 is the election of the Biden administration. This was a major win for the solar industry and clean energy in general, as now-President Biden campaigned on a very robust environmental policy. This pro-clean energy stance is in stark contrast to the outgoing Trump administration, which was adverse to clean energy reform. With Congress firmly divided, the Biden administration will likely have to act without congressional approval to fulfill its campaign promises. Here are a few reforms that do not require the approval of Congress, and can be enacted quickly:
1. Trade policy
The Trump administration imposed tariffs on imported solar cells, modules, inverters, and lithium-ion batteries. These tariffs taxed many of the biggest solar equipment manufacturing nations, including Taiwan, South Korea, and Canada, leading to higher prices across the entire industry. Although these tariffs helped a very small number of US manufacturers, they ultimately resulted in a tax passed on to US solar purchasers. The immediate removal of these tariffs would be relatively quick and uncontroversial, especially since their elimination would instantaneously help the American solar industry.
2. Wholesale market reforms
The Biden administration could also name a strong, pro-competition Federal Energy Regulatory Commission (FERC) commissioner to replace Neil Chatterjee, whose term finishes in June 2021. Over the past four years, the FERC has taken a heavy handed approach to market regulation, attempting to protect older fossil fuel companies and erect barriers to greater clean energy development. (Editor’s note: don’t even get us started on MOPR.) Replacing Commissioner Chatterjee with a clean energy advocate could increase opportunities for solar and other renewable resources.
3. Fuel economy standards
Finally, the Biden administration’s EPA could strengthen fuel economy standards for cars and trucks, accelerating the switch to electric vehicles. The subsequent growth in electricity demand from electrification of the transportation industry represents a major opportunity for solar and other clean energies.
Instant permitting (SolarApp) will cut costs
While hard costs have dropped steadily for solar, soft costs have remained unmoved. The costs of permitting, inspection, and interconnection currently add a whopping $7,000 ($1.00 per watt) to solar installations on average. With solar prices around $3 per Watt, this means soft costs are effectively the same as a 30 percent tax.
In 2018, the National Renewable Energy Laboratory (NREL) announced a project called SolarApp with the goal of digitizing these permitting and interconnection processes. The team leading this initiative expects to roll out SolarApp for widespread use in the spring of 2021, with a goal of nearly eliminating the $7,000 of soft costs by 2025. If successful, this could change the industry drastically, making it much quicker and far cheaper to install solar. Success largely depends on how fast NREL can recruit local governments to sign on to the program.
Extended investment tax credit (ITC) helps expedite solar adoption
At the end of 2020, Congress voted to extend the ITC, which was due to expire at the end of 2022. This was extremely positive for the solar industry, and allows for the continuation of current growth and pricing trends. The extension of the ITC means lower install costs for customers, and greater long term savings, with the average EnergySage Solar Marketplace customer saving nearly $9,000 on the cost of going solar because of the ITC. Thanks to the ITC, you can deduct 26 percent of the cost of installation from your federal taxes for two more years. The fate of the ITC was a big question coming into 2021, and the positive news should boost confidence in solar going forward.
Final takeaways
“Prepare for growth” should be the key headline in solar going into 2021. The industry could have been crushed by the less-than-friendly outgoing administration, by coronavirus lockdowns, or by the subsequent economic crisis, but instead it grew by 7 percent. The industry has proved to be very, very robust, and with more favorable conditions in 2021, things should only improve. For homeowners, these trends mean that going solar is an excellent choice in 2021, with low prices, reliable technology, and strong policy support. If you’re interested in taking advantage of this opportunity, don’t hesitate to sign up for the EnergySage Solar Marketplace, where you’ll find the best prices in the industry and be advised by our talented solar experts.
