Ohm Analytics: Residential solar growth in Q1 led by California NEM 2.0 rush

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Ohm Analytics sent over highlights from its Q1 2023 distributed generation market report. The U.S. residential solar market experienced 21% growth in Q1 2023 driven by California’s NEM 2.0 demand pull as well as growth in the Northeast, which offset slowdowns in Southern states.

Divergent Regional Growth: California grew at 19% YoY in Q1 due to the flood of customers signing up under NEM 2.0. In fact, the strength of the demand pull from NEM 3.0 after the December/January rain outpaced installer expectations and Ohm’s forecast.

“We now project the backlog of projects under NEM 2.0 to support the residential solar market into early Q4-23, despite a higher-than-average cancellation rate due to longer project timelines. The impact of this change on our full 2023/2024 outlook for CA will be included in our upcoming forecast release.”

Northeast states (New Jersey, New York, Massachusetts and Connecticut) continued to grow at 35% YoY in aggregate (vs. 35% in Q4-22) due to higher energy costs, higher TPO share and generally supportive state incentive programs. Southern belt markets (Texas, Florida, Arizona and Nevada) installed capacity growth slowed to 19% in total vs. 42% in Q4 as financing issues begin to flow into final interconnection data.

Financing: Interest rate increases and tighter lending standards have impacted the sales process (particularly in states with lower energy costs). Installers are feeling this impact to demand while also facing working capital constraints due to a decrease in advance payment availability.

Third-Party Ownership (TPO): An uptick in third party ownership financing shares seen in recent months is driven primarily by higher interest rates.

Pricing: Median installed residential price per watt increased 8% YoY to $4.27 but showed signs of leveling off as with the impact of high module inventories/lower prices flowed through to the consumer.

Flat attachment rates:  National residential energy storage growth in Q1 2023 was flattish at 1% YoY with a slowdown in California offset by Hawaii, Arizona, Puerto Rico and Utah. Residential ESS pricing showed early signs of plateauing with preliminary Q1-23 pricing at $1,335 / kwh, down -1% YoY (vs. +3% YoY in Q4-22).

California is seeing a decrease in attachments on backlog of NEM 2.0 projects that can add storage later. But Ohm says “Attachment rates are projected to spike in Q4-23 as NEM 3.0 projects begin to see meaningful interconnection volumes. Some channel contacts are seeing ~100% attachment rates for NEM 3.0 projects.”

New incentive programs in Maine, Puerto Rico and New Jersey should add to growth in 2023-2024, while legislation in Maryland will support storage growth in the state in the long term.

C&I growth suppressed: Q1 installed volume was 395 MW in the non-residential market (excluding community solar), down 7% YoY. Permit data is showing continued demand in the market looking forward. However, availability of equipment (including inverters), long lead times due to supply chain issues, and interconnection studies continue to delay project timelines and affect interconnected volumes.

Final installed non-residential PV pricing increased 5% YoY in Q1-23 to $3.02 per watt DC. Pricing in the light commercial market is trending up, whereas larger projects are seeing signs of a downward pricing trend.

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