Although the residential market is the smallest solar sector in the U.S., it's the only segment that has seen growth consistently with no seasonal booms or lapses over the last few years.
GTM Research Solar Analyst Nicole Litvak spoke this morning at Solar Power International's Industry Trends booth (#3038), where she identified drivers for growth and upcoming structural changes ahead for the residential solar space. 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 percent to 90 percent of the solar financing in California, Arizona, Massachusetts, and Colorado, there are signs of a shift. TPO appears to be leveling off or falling in popularity in the wake of 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. It's likely that we'll 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 underway by residential solar companies to tackle and tame the cost of customer acquisition.
Customer acquisition currently 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 recent 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, as indicated by, among other things, the ongoing net metering battle. Despite this conflict, utilities are finding ways to work with the residential 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 are natural trends within the fragmented residential solar value chain. We've seen acquisitions from SunEdison, SolarCity, Solar Universe and Real Goods, to name a few.
The Industry Trends booth is #3038, and the full conference agenda can be found here. On your way over, don’t forget to stop by the Greentech Media booth (#3041) and meet the team.