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 stranger 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 Sachs (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.
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. People have time to surf the internet or think about something other than the inconvenience of a limited social life. Coupled with potentially losing power from a storm, fire, hurricane or blackout and the evolution of lower cost storage — you get an interesting positive shift in solar + storage demand as a whole home backup typically with a positive return to the homeowner.
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.
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.
That said, as demand comes back online and China’s demand rises, we could see 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.
Permission granted from Goldman Sachs for uses of materials in this publication.