Homeowners in California, the largest US rooftop-solar market, raced to buy panels in the first quarter of the year. But the regulatory change that spurred that rush may slow installations later in the year, a prospect that has investors on edge.
(Bloomberg) — Homeowners in California, the largest US rooftop-solar market, raced to buy panels in the first quarter of the year. But the regulatory change that spurred that rush may slow installations later in the year, a prospect that has investors on edge.
Shares of Enphase Energy Inc., a solar equipment manufacturer and bellwether company for the rooftop sector, plunged more than 25% Wednesday, dragging down the industry after the company issued second-quarter guidance that missed analysts’ expectations.
And yet, the headwinds facing the industry may not affect all companies equally.
Sunnova Energy International Inc. increased its guidance, saying it now expects to add 125,000 to 135,000 customers in 2023, up from the prior forecast of 115,000 to 125,000. After dropping more than 8%, Sunnova shares rose in late trading following release of the company’s quarterly earnings and forecast. Investors now will be watching for guidance from Sunrun Inc. and SunPower Corp. on May 3.
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Overall, California residential solar installations should be 20% to 30% higher year-over-year in the first quarter, according to a recent investor note by Roth Capital Partners LLC. Most of those orders likely will be completed by September, but then installations are expected to fall by 30% or more by the start of the fourth quarter through much of 2024, Roth said in its note.
Under new regulations that went into effect April 15, California solar buyers get a much smaller credit on their bills for the electricity they feed back to the grid. The rules approved last year aimed to encourage pairing batteries with solar panels, allowing homeowners to store power and return it at the most optimal times for the state’s electric system.
Solar companies began offering batteries with panels in California. With first-quarter results, investors will be looking for indications of the kind of consumer demand for the combined systems, said Brett Castelli, a clean energy analyst at Morningstar Inc. The Biden administration’s Inflation Reduction Act will provide a potential boost, offering homeowner tax incentives.
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Enphase Chief Executive Officer Badri Kothandaraman said he is convinced the impact will be temporary and sees California’s regulatory change as a big catalyst for installing home batteries to back up rooftop solar arrays. That will be particularly true come August and September when California often flirts with blackouts during heat waves.
“At that time, the battery’s going to be your best friend,” he told analysts Tuesday during the company’s quarterly earnings call.
Still, rising interest rates and bank turmoil have stoked concern homeowners will struggle to afford rooftop solar, Castelli said. These challenges will likely be greater for medium to smaller installers, giving the bigger companies an opportunity to gain market share, according to Roth.
(Adds percentage drop in second paragraph and Sunnova’s guidance in fourth paragraph.)
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