How Trends in Solar Energy… Impacts Our Building Channel

Steve Kleber, founder of integrated marketing communications firm Kleber & Associates, and I recently discussed the growing momentum — and opportunities — for solar power and how they will impact the building industry.

~ Chris Luzar, Frohman & Associates

The recent passage of the Inflation Reduction Act is a big win for solar energy… and the industry that supports it.

The bill enables an extension of the 30 percent federal tax credit for the cost of installed solar equipment until 2032.

Importantly, the 30 percent credit also applies to solar energy storage… whether it’s co-located or installed as standalone energy storage. This allows a battery to be retrofitted to a solar array while taking advantage of the credit.

“With the passage of the Inflation Reduction Act, solar and storage companies are one step closer to having the business certainty they need to make the long-term investments that decarbonize the electric grid and create millions of new career opportunities in cities and towns across the country,” said Abigail Ross Hopper, president and CEO of SEIA (Solar Energies Industries Association).

Solar installers and distributors assert that the industry now will be more willing to invest in expansion. Despite stabilization, headwinds prevail.

Specifically, three challenges will impact near term growth.

Component shortage. Supply chains remain constrained due to the pandemic combined with extreme weather events. Quarantined production facilities in China, tariffs and the Forced Labor Act all play a part in constricting photo voltaic (PV) panel availability.

On the microchip side, competition is intense. Interesting, both solar power and electric vehicles use the same semiconductor chips. And in a limited supply situation, automakers such as GM and Ford tend to get the chips, rather than the manufacturers producing the inverters integral to PV solar systems.

Lack of master electricians. Installers in momentum regions led by California, Texas and Florida — and even emerging markets such as Ohio — agree that there simply aren’t enough licensed electricians. Without enough master electricians — to make the connections with the power grid — the number of residential installations that can be completed is limited.

Proposed changes to net metering rules in multiple states. Industry watchers are paying close attention to what is happening in California with NEM 3.0. The final version of the new rate structure is expected to be released later this year.

Anticipated reductions in net metering credits — and increased grid participation charges — will spur installers to market and offer solar roof and storage bundles. Instead of “selling back” unused power to the utility at reduced credits, homeowners will be able to store excess power for later use.

SEIA foresees that by 2025, more than 29 percent of all new behind-the-meter solar systems will be paired with storage… compared to under 11 percent in 2021.

Demand Side of the Equation is the Sustaining Game-Changer

Installers’ ability to generate sales might be hindered due to component shortage and labor constraints. Yet, consumer demand is expected to surge.

The motivation to “go green” is strong… and the shift to renewable energy is undeniable. Many experts forecast double-digit growth in the next five years. Some industry watchers project that traction up to 30 percent.

Millennials Expect High Performance Home Features

On March 15, 2022, SaveOnEnergy.com® commissioned a survey of 655 American adult homeowners to gauge their knowledge of solar panel costs and government incentives. Notably, millennial homeowners were almost six times more likely to own solar panels (29 percent) than baby boomers (5 percent). And were three times more likely to own them than Generation X homeowners (10 percent). Millennials make up the largest share of homebuyers today… and of course, their influence is growing.

Leading installers were asked to report on key attributes of customers who “go solar”:

• Want to be independent of the utility… not beholden to it. Solar households are not necessarily solely in blue states. Independence from the electric utility ranks high on the wish list of red households. And for anyone who wants security for themselves and their family.
• Many homeowners who install solar are tech savvy. They conduct their research. And as such, do not rely solely on the installer to specify the system.
• Households that install solar — not only know how much they will save on their utility bill — they also understand the trade-off between higher upfront, first-time costs vs. long-term energy savings.

Forward Momentum

Solar continues to gain ground. First Solar, a top U.S. solar panel manufacturer, will invest up to $1.2B to build its fourth factory. Responding to the shifts in homeowner demand, the new plant will bring First Solar’s total investment in U.S. manufacturing to approximately $4 billion. With more than 10 gigawatts (GW) of annual capacity by 2025.

GAF Energy envisions a future where every roof generates energy. “There’s no better time to go solar than when you are installing a roof,” says Rey Holmes, vice president of Services and Product for GAF Energy. “For homeowners, it’s a better solution to integrate solar into the roofing system — it delivers big and immediate value.”

To capture more of the roofing replacement market, GAF Energy launched Timberline Solar in January 2022 as an alternative to PV panels. Each shingle is a solar panel designed to look, feel and lay flush to the roof… just like an asphalt composition shingle. The product carries a 50-year warranty against leaks, and is installed with a nail gun.

The first Timberline Solar plant is up and running in San Jose, California. And GAF Energy broke ground on a second plant in July. Located In Georgetown, Texas, the 450,000 square foot facility will increase capacity by 500 percent and bring total production of solar shingles to 300 megawatts annually… making GAF Energy the largest producer of solar roofing in the world.

High Performance Builders Get Onboard

The economics of installing rooftop solar — as a standalone installation, or as part of a roof replacement — is compelling for homes built before 2000. These residences (which number more than 100 million) typically use twice the energy as a new home.

That said, the opportunity for solar is radically different in new construction. Why? New homes are built to be energy efficient. Solar, in new construction, is driven by future-proofing a house… so that its owners can seamlessly transition to Net Zero or Zero-Energy Living.

High performance builders can get ahead of the mainstream by driving Electrification and Net Zero Readiness in new home construction. To prepare builders for the increased uptick in solar adoption, the National Association of Home Builders (NAHB) has created a helpful Solar Toolkit for Builders.

Other Considerations

The push toward Electrification and Net Zero Readiness is not solely under the control of the builder, however.

The International Energy Conservation Code (IECC) plays a crucial role. The 2024 version of IECC is expected to be published in the second half of 2023. And considers for the first time… an expansion of scope to include PV Ready/Storage Ready provisions.

Compliance with the updated IECC codes varies by state and is mapped by the Department of Energy. States that comply with the latest codes are expected to adopt the 2024 version almost immediately.

Additionally, builders of homes certified to meet the DOE’s Zero Energy Ready Home program qualify for a $5,000 tax credit.

Bottom Line: Solar Is Becoming More Important

Anticipating market risks/opportunities — code mandates and incentives — high performance builders understand that the market for future-proofing homes is now. For others, it’s a future priority. Either way, the demand for highly efficient homes will continue to grow.

In fact, residential solar had its largest quarter in history Q1 2022 with 1.2 GWdc installed, a 30 percent increase year-over-year.

The return of tax credits included in the Inflation Reduction Act — for both homeowners and builders — explicitly supports investment in PV solar and storage for the next ten years. By stabilizing the incentives available to U.S. households… the residential solar PV market is projected to reach $14B in 2028.

There’s no question. Forward-looking component suppliers, installers and builders need to act now to connect solar to the core of what they do.