With the coronavirus straining health systems worldwide, compelling statewide shutdowns across the U.S. and confining workers to their homes, the name of the game for the solar industry’s immediate future is “downside risk.”
The effects of COVID-19 will impact each solar sector, but the residential market — which logged record installations in 2019, according to data from Wood Mackenzie Power & Renewables — is already hitting the skids.
“Residential is getting hit the hardest and fastest right now,” said Justin Baca, vice president of markets and research at the Solar Energy Industries Association, on a Friday call the organization is now hosting each week to inform members about how the virus is playing out in the industry.
But, Baca warned, “no one is immune from this, even if the hardest and soonest impacts have hit residential and [distributed generation].”
SEIA’s most recent call struck a decidedly more somber tone than the one held just a week before, as the industry grapples with layoffs, lost business and sick workers. Last week Tesla confirmed two employees had tested positive for the coronavirus, but the company did not name the facility where they work. SunPower cut executive salaries and withdrew the 2020 guidance it offered just last month.
Recent data suggests the U.S. solar industry is starting to reckon with the new reality. SEIA said the most recent responses to its ongoing COVID-19 impact survey cite a nearly 55 percent decline in new business for residential companies. WoodMac said it anticipates downgrading its 2020 forecast for the residential industry, released earlier this month, by 23 to 40 percent. And that’s just considering the near-term impacts.
“We're only taking into consideration…restrictions on mobility for the next two to three months,” said Austin Perea, a WoodMac solar analyst, during a webinar the firm hosted last week. “Obviously, things will be a lot more difficult if there's a broader global recession.”
“Worse and worse”
The coronavirus-related downturn could see the residential industry in particular fall from an unprecedented height. Overall, the residential market grew 15 percent from 2018 to 2019, installing 2.8 gigawatts of home solar systems last year. A new crop of states, including Texas and Colorado, rose into the top 10 state rankings as successful residential markets took root beyond traditional geographies.
In a consistently strong market, California’s requirement that all new homes come with solar attached helped push the sector along. Demand related to California’s utility-led public-safety power shutoffs also spread far afield, with installers in other states citing increased interest for solar-plus-storage.
In forecasts for the coming year, WoodMac analysts initially projected residential solar growth ranging from 9 to 17 percent. Now, that level of growth is almost surely out of reach.
Though Perea said the long-term fundamentals of the market are steady over the next five years, the market is murkier in the near term. Companies are already feeling a crunch linked to a pause on sales, installation and permitting activities, coupled with prevailing uncertainty about the economy and the future.
“Customer acquisition, sales and permitting have been significantly hampered because of the restrictions that governments and businesses are putting on their employees,” said Perea, referencing shutdown orders that have been placed across jurisdictions where a total of 228 million Americans live, including the solar strongholds of California, New York and Massachusetts.
Baca said the data SEIA has collected from businesses shows a “very clear trend over time that each day the impacts started to look worse and worse.”
“We are now focusing on just how much business has declined,” Baca said last week.
Less than 10 percent of residential companies that had responded to the survey as of Thursday reported that business was running as usual. Several companies were already considering bankruptcy. Most layoffs have been concentrated in the residential sector, according to the group’s analysis. “The number of companies reporting things getting worse is certainly increasing,” said Baca.
Local and small businesses will likely be the hardest hit, due to smaller sales backlogs to cushion an extended crisis.
Large-scale construction continues
The wave of cancellations and depressed business will crest later for utility-scale solar.
SEIA’s latest survey results show more than 30 percent of utility-scale companies still operating on a business-as-usual basis, with the remainder of respondents reducing their activity either “severely” or “somewhat.” Though companies cited construction delays as their most significant concern in SEIA’s first review of survey results, many project installations appear to be proceeding, under federal and state designations that construction and energy workers are “essential.”
“Talking to many folks in various state markets, we've heard that most construction has been able to move forward under Department of Homeland Security guidelines,” said Colin Smith, a WoodMac solar analyst who monitors large-scale markets, during the webinar last week.
Despite federal standards on essential sectors, guidelines vary by market, Smith noted. In the absence of national directives from the Trump administration, many states established their own COVID-19 responses. States such as Pennsylvania and Massachusetts have halted all construction, meaning some delays are likely for the sector as a whole as well.
Longer timelines mean projects could get back on track, though; several weeks ago, NextEra informed Wisconsin utility WEC that its Two Creeks project would no longer be delayed, after previously invoking the possibility of “force majeure” due to equipment shipping delays.
Any turnaround for large-scale solar would cut the sector from a new high. In 2019, annual procurement hit 30.6 gigawatts, the highest ever according to WoodMac tracking.
“This is by far the most new [power-purchase agreements] signed or new projects contracted in any given year on record,” said Smith.
More pain may come for all solar sectors when the economic picture clarifies.
Although industry stakeholders advocated for congressional stimulus packages to include an extension of the federal Investment Tax Credit and more flexibility around its implementation, lawmakers didn’t include any explicit energy provisions in their first three bills (solar companies can get some relief through the law’s small-business provisions, however).
Though additional legislation is likely, clean energy is more politicized than it was when it received a boost in the economic stimulus crafted during the Obama administration, said Tom Burton, chair of the energy and sustainability practice at Mintz.
Aside from policy, the trajectory of the last major economic downturn doesn’t bode well for large-scale solar development.
“If you go back to the Great Recession in 2008, 2009, what happened in the renewables space was an absolute dry-up of tax equity,” Burton added.
Burton’s colleague Audrey Louison, who chairs Mintz’s project development and finance practice, said banks are already starting to delay new commitments. But it’s unclear how deep the damage will go, or how quickly it may be reversed.
In the distributed space, though some residential companies are framing solar as a “countercyclical” product that can weather economic downturns, it’s unclear whether the demand will be there, even if solar can save residents money.
For now, the prevailing sentiment is uncertainty.
“I don’t think people are going to start saying the house is burning yet, and yet I think they’re also going to go slow until things happen,” said Louison. “Everybody wishes we knew what the outcome [will be].”
Two new research insights from Wood Mackenzie go into more detail on how COVID-19 is impacting the U.S. utility-scale solar market & solar PV supply chain and the U.S. distributed solar market.