After a Tumultuous 2023, What's Next for Rooftop Solar?

Was 2023 a good or bad year for rooftop solar? It depends on who you ask.

It was a year of massive changes for the industry. California, the nation's biggest residential market, cut the net metering compensation its largest utilities dole out by nearly three quarters, according to some estimates, and applications for connecting systems to the grid fell. High interest rates made financing systems harder for homeowners. Reports of heightened bankruptcy risk for solar companies circulated in December. At least one national company significantly scaled back its solar operations before closing completely in 2024.

"In the end, it will be judged as a very bad year for solar energy in America," said Bernadette Del Chiaro, executive director of the California Solar and Storage Association (CALSSA), an industry group.

Last year was also a year of positive change in the solar industry. It was the first full year after the enactment of the Inflation Reduction Act that the investment tax credit sat at 30% of the cost of a solar system, including batteries. Tax credits for complementary technologies -- like electric heat pumps, electric vehicle chargers and weatherization materials -- came online too.

"When you have these massive changes, there's going to be adjustments." Jennifer Granholm, the US Secretary of Energy, told CNET. "Companies have to adjust their business plans, they've got to look at how their strategy is evolving in the wake of the changing incentives."

Exactly how these massive changes -- some buoying, some depressing the industry -- will affect rooftop solar adoption in 2024 remains to be seen, although we can try to look ahead.

Changing the solar savings calculation

The long-standing, undisputed leader in residential solar has been California, but in 2023 its Public Utilities Commission decided to change its net metering policy to one that uses lower, variable rates to compensate solar owners for the electricity they send back to the grid. Interconnection requests -- utilities must permit solar installations to connect to the grid -- for residential solar installations fell between 66 and 83%, according to the California Solar and Storage Association.

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"Even though the rush to get in before the deadline here in California drove record sales, that boom and then bust is not good for anybody," said CALSSA's Del Chiaro. "It's not good for solar businesses. It's not good for consumers. It's not even good for utilities."

"California is extremely bad. Much worse than other states due to NEM 3.0," Ara Agopian, CEO of Solar Insure, which provides monitoring and warranties to the solar industry, said of the state's market.

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Rooftop solar can still save money with weaker net metering incentives -- especially with a battery attached -- "it's just going to be probably fewer people that we can make that case for right now," Agopian said.

Expect fewer residential solar installations in 2024 than there were in 2023, according to predictions in a September report from the Solar Energy Industries Association and Wood Mackenzie. That's largely thanks to an anticipated 38% reduction in installations in California, despite a 12% increase in the rest of the country.

California's solar companies are feeling the shock to the solar industry there, too. Companies have laid off 17,000 workers and 70% of the state's solar companies expressed concern over their financial situation, according to the CALSSA.

Even national companies are in trouble. ADT closed its solar arm, ADT Solar (CNET's former top pick for national solar companies) in January 2024, one of the highest-profile closures thus far.

The research and analysis firm Wood Mackenzie predicts that 2024 will show that, while the NEM 3.0 decision represents a significant challenge, "it is not a death sentence for distributed solar," as cheaper batteries, tax credits and new possibilities to get compensated for energy, like virtual power plants, make up some of the difference.

Elsewhere, it got easier to adopt solar. In Michigan, new laws raised a cap on rooftop solar and adjusted the state's net metering policies. That could boost the industry in a state that's set one of the most aggressive net zero goals in the country.

Other states where the residential solar industry expanded include Hawaii, Illinois, Massachusetts and Nevada, according to Solar Insure's data.

The biggest positive shift in the solar savings cost calculation last year was the increased solar tax credit, which sat at 30% for the whole year. You can get 30% of the cost back on your taxes for any solar system installed through 2032, thanks to the Inflation Reduction Act, which included the provision.

Making energy affordability a whole home affair

Factors not specific to solar could provide a boost to savings, though perhaps on a slower timeline.

The Inflation Reduction Act throws a lot of money at all sorts of cleaner energy and energy efficiency measures. The incentives -- typically in the form of tax breaks -- are uncapped except by their expiration date. Some estimates say the cost could rise to more than $1 trillion. 

Tucked in among the incentives for green hydrogen and carbon capture are breaks for at-home improvements, like new heat pumps, other electric appliances and energy efficiency materials like new windows and insulation.

Here's how electrification and energy efficiency could push the economic calculation in favor of adopting solar.

Electrification

Let's say you've taken advantage of the IRA's incentives and swapped your gas heater and stove for an electric heat pump and induction stove. You've eliminated your gas bill. Now, a solar array can take a bite out of your entire energy burden, including what it costs to heat your home and cook your food. 

The heat pump and stove aren't free, of course, and you may need to have a larger solar system installed to meet your increased energy demand, but offsetting more of your overall energy use should increase your savings from going solar.

Efficiency

Now let's say you've reinsulated your home and sealed up holes that leak air. Your heat pump doesn't have to work as hard to regulate temperature all year long. Decreasing the amount of energy it needs to operate will reduce your utility bill and, depending on the efficiency gains, could mean you can get by with a smaller solar system. 

Batteries

Pairing a solar battery with your solar panels is another possible path forward in a world with weaker net metering. With the value of the energy you send back to the grid lower, storing it to avoid buying electricity from your utility at the full retail rate is one way to save more. Batteries are an additional upfront cost, but can actually help your solar system pay for itself faster.

"If you add a battery, you can shave off a couple of years," CALSSA's Del Chiaro said of the payback period on a rooftop solar system in California. A steeper upfront cost could push solar further out of reach of low and middle-income households.

Best Solar Batteries of 2024 See at CNET

What's next for residential solar?

"Solar without incentives or solar without net metering -- it's still a very powerful case," Granholm said.

Solar panels haven't gotten worse at generating energy and electricity rates continue to creep up, but high interest rates and instability caused by them and major policy changes might make purchasing panels outright a harder choice to make, even if they'll still save you money.

It's possible that 2024 sees more people go solar via third-party ownership -- leases or power purchase agreements -- which return energy savings, but eliminate the upfront cost of a system. It's also possible that interest in community solar increases.

The savings you can expect from a rooftop solar system have always relied on your energy consumption, your home's suitability, your own finances and state, local and utility policies. That may be even more true in 2024.