Enphase points out rising interest rates and new net metering rules in California are casting a shadow over rooftop solar growth prospects
Higher interest rates have made rooftop solar a much harder sell in states with lower utility rates.
WSJ Jinjoo Lee, April 26, 2023
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 -25.73% 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 -10.43% were each down about 10% on Wednesday morning.
Cold PlungeStock price performanceSource: FactSet SunPowerSolarEdge TechnologiesEnphase EnergyApril 20April 26-30-20-10010%
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 by 20%-30%, 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.
The Inflation Reduction Act’s Bait and Switch
Sensible energy policies would avert the economic harm the measure’s climate extremism could inflict.
WSJ BY JOHN BARRASSO, APRIL 20, 2023 Promise one thing, deliver another. It’s a tactic Democrats have used time and again: the bait and switch.
Last year, Democrats enacted their reckless green spending spree, and labeled it the Inflation Reduction Act. Starting with the name, just about every assurance Democrats made about the bill is false. Among other claims, the White House asserted that spending a tidal wave of taxpayer money would reduce the deficit, lower costs for families, grow the economy and create jobs.
Will it? Thanks to recent modeling results from the U.S. Energy Information Administration, we can say with confidence the answer is no. The Energy Information Administration is one of the world’s premier energy modeling institutions. Every year it issues a “business as usual” reference forecast that includes, to the extent possible, all current laws and rules affecting the energy sector. It also issues forecasts based on different policy, economic and technology assumptions.
Among the many scenarios the Energy Information Administration just released was one without the Democrat law (“No IRA”) and one in which businesses and consumers make full use of the law’s provisions (“High IRA Uptake”). The one with the Democrats’ energy and climate plans fails to produce a stronger economy, more jobs or more disposable income. That’s not what the sales pitch said.
The good news is that there is a way to expand our economy, help American families thrive and begin to tackle our enormous budget deficit. The Energy Information Administration examined what might happen in a future with significantly greater oil and natural gas output (“High Oil and Gas Supply”).
Compared with the High IRA scenario, the results are astonishing. From 2023 to 2050, the high oil and gas supply case produces $35 trillion more in total gross domestic product. That’s more than the entire federal debt of $32 trillion.
The federal government typically collects about 20% of GDP in revenue. That greater growth would translate into an additional $7 trillion in federal tax revenue through 2050. That’s 2.5 times the amount in the Social Security trust fund at the beginning of 2023.
Compare this to the spending binge Democrats rammed through Congress. The Committee for a Responsible Federal Budget tallied up the costs and found the law will add more than $4.8 trillion to deficits between 2021 and 2031.
Despite Democrat promises, it turns out going green means going further into the red. With Social Security and Medicare facing fiscal challenges, climate extremism will only make addressing our fiscal problems worse.
The benefits of a robust oil and gas sector don’t stop with GDP and revenue. Energy Information Administration data show the average number of U.S. jobs would be 4.5 million higher each year compared with the High IRA case. Families and businesses would enjoy lower prices for electricity, gasoline, diesel, home heating oil, natural gas and propane. Disposable income would average $645 billion more per year. Carbon-dioxide emissions from energy would be 11% lower in 2050 than in 2022.
The president’s blind loyalty to climate extremists is driving him to shut down conventional energy production and deny the American people its benefits. The president let slip during his State of the Union speech that he believes we’ll need oil and gas only for another decade. His climate envoy John Kerry offered seven or eight years.
They’re living in a fantasy world. In the real world, every reputable energy forecast shows that people will use huge amounts of oil, gas and coal at least to 2050.
Someone will have to supply that energy to a growing world. America is perfectly positioned to do so. We can do it more cleanly, more efficiently and more securely than anyone else. Russia, Venezuela, Iran and Saudi Arabia will fill whatever void we leave.
Forecast models don’t provide answers. They provide insights. The key insight from the Energy Information Administration’s modeling—and one that has been consistent over the years—is that a strong, vibrant oil and gas sector is vital to a healthy U.S. economy. It underpins growth. It’s a source of revenue. It stimulates job creation. It lowers energy costs for families. It enhances our competitiveness. It advances our geopolitical interests.
The Biden administration brags about erecting obstacles to traditional energy production. It is trying to ban gas stoves, eliminate conventional cars, and end the use of fossil fuels. The goals are completely unrealistic, but the policies have dramatic and negative consequences for our economy and security.
The permitting reform and energy bills Sen. Shelley Moore Capito and I will introduce and similar legislation the House just passed will help revive the “all of the above” energy strategy that has served the country so well.
One of America’s biggest economic and geopolitical assets is its energy resources. It’s time we put them back to work.