The residential solar market’s woes continued into the first half of 2024 as the Federal Reserve delayed the much-anticipated interest rate cut until September. Weak consumer demand, a high cost of capital, and cashflow constraints continue to plague many industry players. While some companies started to experience sales recovery, the impact of the last two challenging years was too significant for others, as two of the top five national installers from 2023 filed for bankruptcy this summer.
Over the past few years of intense growth, questionable practices became more frequent, like aggressive sales tactics and loan products with high hidden fees. As the residential solar market looks toward recovery, an industry reset is occurring. With more laws and regulations emerging on fee disclosure and sales tactics, and companies shifting away from a short-term growth mindset, many are optimistic that the residential solar market will be healthier and more sustainable in the long term.
Wood Mackenzie’s US residential solar finance update H2 2024 delves deep into these trends and lays out the state of residential solar consumer finance in the US. The report highlights the key players, trends, and forecasts of the third-party ownership (leases and power purchase agreements) and customer ownership (cash and loan purchases) markets. Fill in the form to access a complimentary extract from the H2 2024 report and read on for some key highlights.
Residential solar market turmoil is contributing to our expectations of a 19% year-over-year contraction in 2024
There has been plenty of attrition in the residential solar market, especially in the past two years. However, this year has been notable because Titan Solar Power and SunPower, leading national installers, filed for bankruptcy. These bankruptcies leave thousands of customers in limbo at every stage of the project lifecycle and will impact national installations.
Based on these exits, low installed capacity in the first half of the year, a weaker seasonal uptick in sales, and fewer interest rate cuts than expected, Wood Mackenzie expects a 19% year-over-year reduction in residential installations in 2024. But we do expect a market recovery in 2025, with 14% growth primarily driven by the momentum in the third-party ownership (TPO) segment and investment tax credit adder (ITC) qualification.
The TPO segment surpasses 40% market share as the domestic content ITC adder drives the industry
Although the overall market will contract, TPO is on track for a record year in 2024. The segment set a record for quarterly installation volumes in Q2 2024, reaching 42% market share. Notably, the capital markets also reflect this shift toward TPO. Leases and PPAs comprised the majority of asset-backed securitizations issued so far in 2024, which has not occurred since 2018.
While TPO has historically been dominated by a few players (primarily Sunrun and Sunnova), the financing landscape is shifting. The high-interest rate environment and ITC adder advantage has drawn new TPO providers to the space, with newer or smaller players gaining traction with their offerings this year. While Sunrun and Sunnova continue to make up the majority of the TPO market, their combined share in H1 2024 (65%) has dipped to its lowest point since 2018 as other companies catch up.
While the energy communities and low-income communities ITC adders are motivating, the domestic content adder is getting the most industry attention because all projects could qualify. There is a mad scramble to procure qualifying equipment despite confusion around the logistics of qualifying for the adder and who will receive the benefits.
The loan segment resets as high dealer fee products receive more scrutiny, and lenders focus on long-term viability
While interest rates dropped 50 bps in September, it was not enough to spur notable movement in loan pricing and consumer activity. Most major lenders do not expect to grow funded volumes this year as they focus less on volume and more on quality dealer partners and consumer protection. As high hidden dealer fees raise concerns, products with higher interest rates and low to no dealer fees are gaining popularity across the industry.
After an expected 27% contraction in 2024, we expect the loan segment will recover in 2025 and 2026 but grow slower than the rapidly increasing TPO market, falling to 48% share in 2026. However, the customer-owned market will maintain the majority share throughout our five-year outlook as many customers will always want to own their system.
The residential solar market still has vast potential
While the industry will contract this year, significant untapped potential remains. Although some states, like California and Hawaii, are reaching higher levels of market penetration, national residential solar market penetration will only reach 8% by the end of 2024.
Wood Mackenzie’s analysis indicates that the residential solar market has potential for more than 1,500 GW by 2050. Factors such as rising retail rates, technological advancements, and increasing energy resilience concerns will all contribute towards to the long-term growth of the residential solar market.
Zoë Gaston
Principal Analyst, US Distributed Solar
Zoë’s areas of focus include residential solar policy and project finance
