Where is the solar and storage residential market going?

By Jonathan Doochin, Soligent CEO

As we exit the first phase of COVID-19, we enter a new phase of business and life. In the solar industry, we are no strangers to change, and this period is no different.

How COVID-19 Has Changed our Landscape:

As an example, in April, the residential market saw a dip of roughly 50% compared to the same time the prior year. But we have seen a steady recovery with month over month gains in May and June, with the national level roughly recovering 15% of the year over year volume per month.  These aren’t exact metrics, but they are indicative of what we are seeing from our permit data, survey data, and conversation.  

The systemic shift that has occurred in our market is switching from door to door sales origination,to a virtual selling model, as well as a healthy dose of experimentation, with the evolution of installers and permitting jurisdictions alike. The acceleration of technology into companies and governments has taken longer to adapt.   

Bloomberg (BNEF), Goldman (GSe), and Greentech Media (GTM) also presented forecasts of 2020 solar volumes and the impact of covid below.  Estimates were cut between 1%-32% for 2020 by the analysts mentioned.

Source: Goldman Sachs June 22

Why Our Industry is Poised to Succeed:

Our industry has used a crisis to drive down the long-term cost of solar in total. Some of this comes from remote workforces, some from leveraging software, and some from the virtual permitting process.  Moreover, there is a demand generation that comes from having everyone at home, watching their power bills go up.  There is time on people’s hands to surf the internet or think about something other than what has become a more limited social life to say it lightly.  Coupled with potentially losing power from a storm, fires, hurricane, or blackout and the evolution of lower cost storage – you get an interesting positive shift in solar plus storage demand as a whole home backup typically with a positive return to the homeowner.  

The cost curve of storage is declining rapidly

Source: Goldman Sachs June 22

A Look into the Future: 

As we look into the future of residential solar, we see on average a return to last year’s volume in the August timeframe, though not in all markets.   We see a move toward a residential boom in storage and it moving from a niche play to becoming more mainstream as prices decline and large manufacturers continue to evolve offerings.  We see price stability in racking and inverters due to duopolistic market dynamics. 

Notice the duopolistic nature of the residential inverter sector which lends to pricing stability and maturity.

Source: Goldman Sachs June 22

The module world is much more fragmented than the inverter and racking world which lends to competition and price compression in oversupply scenarios like covid. And in the module world, we have seen a decline of pricing over the second quarter as demand dropped due to covid. Module factories are costly to turn off and for many module manufacturers, it is better economically to sell at close to cost and produce as much as possible in order to run through older higher cost raw materials while producing cash flow to avert further crisis.  

The below exhibit is an example of how the average selling price (ASP) of module components saw a substantial drop due to covid compressing demand and this signals which we watch weekly and they predate a drop in module prices which is what we saw in Q2 prior to COVID-19 recover.  

Source: Goldman Sachs June 22nd

That said, as demand comes back on line and China’s demand rises, we can see what you could call some potential bullwhip impacts with supply fluctuation.  

The world is changing, and solar and storage are changing with it.  It is a time of harnessing crisis to drive evolution and find that there are long term benefits if the short term hardships can be persevered.   The market is only getting larger and more inviting for solar and storage.

Note: permission granted from Goldman Sachs for uses of materials in this publication