Rooftop Solar: Ain’t No Sunshine

Enphase points out rising interest rates and new net metering rules in California are casting a shadow over rooftop solar growth prospects.

By guest author Jinjoo Lee from the Wall Street Journal.

April 26, 2023

Higher interest rates have made rooftop solar a much harder sell in states with lower utility rates. Photo: Rick Bowmer/Associated Press

The U.S. rooftop solar business has grown with two essential catalysts: Low interest rates, which make such installations affordable for consumers, and state-level policy that handsomely rewards households with such solar systems for selling excess solar energy back to the grid. Both of those are going in exactly the wrong direction at the moment.

Enphase ENPH 1.18%increase; green up pointing triangle

Energy, a company that manufactures micro-inverters for rooftop solar panels and energy storage systems, confirmed their direction on its earnings call late Tuesday. Its stock fell 24% in morning trading, dragging down other solar company stocks. SunPower and SolarEdge Technologies SEDG 2.36% increase; green up pointing triangle were each down about 10 % on Wednesday morning.


The company itself had solid high-level numbers to report for its first quarter: Total revenue was roughly flat compared with a quarter earlier, largely as Wall Street analysts expected. Net income was 46 % higher than what analysts had penciled in. Revenue guidance for the second quarter, though, was weaker than their expectations, and commentary about the U.S. market was a sobering reminder of near-term challenges for the solar industry.

Enphase said its sell-through of micro inverters in the U.S. was 21 % lower in the first quarter compared with the previous quarter, which was worse than the typical seasonal decline of 15 %. Sell-through was particularly weak in states with lower utility rates such as Texas, Florida and Arizona, according to the company. In such states, higher interest rates have made rooftop solar a much harder sell to households compared with states in the Northeast where utility rates are higher. The recent banking turmoil has also raised financing costs and tightened credit standards for solar loans, according to a recent report from Zoë Gaston, analyst at research firm Wood Mackenzie.

Another source of uncertainty comes from California, the largest rooftop solar market. The state last year changed the way rooftop solar customers get compensated from selling excess solar energy back to the grid. The new rule—known as net energy metering 3.0—effectively reduced the amount rooftop solar customers get for selling excess energy to 20%-30% of the previous rate, according to ClearView Energy Partners. In the near-term, the change actually boosted demand in California as customers rushed to install solar systems before the new rules kicked in for solar systems. The older, more generous solar rates still apply to systems for which interconnection applications were submitted before April 15. Wood Mackenzie expects the U.S. residential solar market to contract by 3 % in 2024, which would be the first full year affected by California’s new rules.

Enphase thinks these challenges are temporary and said California’s policy change should boost its energy storage business over the long term. Notably, under the new rules, the rate that solar or solar-plus-storage customers receive is based on the avoided cost to utilities, or the marginal cost utilities would avoid if these home energy systems provided power instead of themselves. In peak air-conditioning months, such as August and September, when energy demand stays high in the evening while supply is tight after the sun goes down, homes with battery storage would benefit from higher compensation.

That may be true but, as Enphase itself says, it could take time for customers to realize that benefit. Meanwhile, there is no visibility on when interest rate hikes will pause. As long as those two shadows persist, investors will find it difficult to focus on the glimmering, long-term promises to solar offered by the Inflation Reduction Act.

Corrections & Amplifications
ClearView Energy Partners estimated that the new rule known as net energy metering 3.0 effectively reduced the amount that rooftop solar customers get for selling excess energy to 20 %-30 % of the previous rate. An earlier version of this article incorrectly cited ClearView as estimating that the rule effectively reduced the amount rooftop solar customers get for selling excess energy by 20 %-30 %. (Corrected on April 27)