The U.S. residential solar market is enjoying unprecedented growth. Here are three key factors driving the home solar power boom.

1. By Brian Sodoma
© 2015 CIT Group Inc. CIT and the CIT logo are registered service marks of CIT Group Inc.
Why Residential Solar Is Having
A Powerful Impact
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For decades, home solar systems were a great idea that
fell short of economic viability, an indulgence only a
select few could afford. But today, the U.S. residential
solar market is enjoying unprecedented growth. It saw a
second straight quarter of record expansion in Q2 2015,
according to the U.S. Solar Market Insight report released
in September by the Solar Energy Industries Association
(SEIA).
The report highlights several significant residential
solar milestones. Residential installations in the second
quarter topped the first quarter by 6 percent and were
70 percent higher than the second quarter of 2014.
California installations account for 49 percent of the
residential solar power market, but more states are
entering the field. Ten states each installed more than
10 megawatts (MW) of residential solar, a significant
milestone, according to the report. (On average, 1 MW of
solar power produces enough energy for 164 U.S. homes.)
1. Cost Control, Incentives
The declining cost of photovoltaic (PV) panels is a major
contributor to the solar boom. Since 1998, residential
system prices have dropped from $12 per watt to $4
per watt and continue to fall, according to the U.S.
Department of Energy.
“On the cost side, solar panels, not unlike flat-panel TVs,
have become commoditized and their production costs
have come down,” said Mike Lorusso, group head and
managing director of CIT Energy Finance, which finances
energy projects across the United States.
The lower costs come paired with federal, state and utility
incentive programs. The most popular and well-known
incentive is the 30 percent federal tax credit, which
is set to step down to 10 percent for third-party owned
systems and expire for customer-owned systems at the
end of 2016; it had been renewed by Congress in 2008,
and solar industry leaders are lobbying for another multi-
year extension.
The majority of utilities also use “net metering,” which
allows residential users to sell back excess solar power
produced during peak production times, and use energy
from the grid during down times. In addition, Renewable
Energy Certificates allow utilities in certain states to
buy credits from solar customers to help them meet
renewable energy portfolio requirements.
Such incentives, in addition to overall lower system costs,
have made the solar proposition more attractive to the
American homeowner.
2. Financial Innovation
Even with these incentives, most residential system
purchases still range between $20,000 and $30,000,
making for a long payback period of usually seven to
eight years.
In the past five years, however, financing options have
reduced upfront costs and been a huge driver for
residential solar power growth. One of the primary
factors accelerating the uptake of home solar overall is
savings relative to conventional utility bills. Leases, power
purchase agreements (PPAs) and loans offer immediate
savings to those who sign on for what are commonly 15-
to 20-year financings, with no out-of-pocket costs.
With leases and PPAs, the installer holds ownership of
the solar system and charges the host rent or volumetric
payments for energy produced monthly, usually at a
discount of 5 to 25 percent or more from current utility
rates, according to Rhys Marsh, director, CIT Energy
Finance. The system owner, not the homeowner, is also
responsible for maintenance. With a loan, the homeowner
owns the system and makes monthly payments, also
generally at a discount to utility rates, and can contract
with a network of providers if repairs are needed.

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“It’s one of those situations that builds momentum. Once
you see a few people with solar, or neighbors getting it,
you can really see accelerated growth,” Lorusso added.
With leases and PPAs, the owner of the system uses
the 30 percent federal tax credit and other available
incentives, instead of the homeowner. “While the
company as system owner does take the tax credits,
it allows the solar provider to offer a lower rate to
customers on the financing contract,” Marsh explained.
Conversely, with loans, the homeowner takes the credit
and can pay down the debt related to the system.
3. Disruption, Storage
California and Nevada take the No. 1 and 3 spots for
installations in the second quarter of 2015, while eastern
states North Carolina, New York and Massachusetts make
up the second, fourth and fifth spots. The growth on
the East Coast can be attributed to consumers seeking
alternatives to high utility costs, especially in the cases of
Massachusetts and New York, Marsh said.
Arizona, whose ranking slipped a spot from fifth to sixth
in 2015, may have experienced a decline because of
the state’s utilities tacking on extra fees for those with
solar systems. Utilities contend that there are fixed costs
associated with solar owners accessing the grid both at
night and when solar customers sell back their power
during peak sun times over the system’s distribution lines.
It’s a price that traditional electric users pay, and solar
customers should too, they say, though solar companies
contend that such analyses ignore other cost benefits
that solar can offer the grid as a whole.
“It’s an example of how policy really can impact
outcomes,” Marsh said. But he also warned utilities of an
“unintended consequence.”
“Artificially slowing the growth of solar doesn’t reduce
demand for solar. Disruptive technologies like battery
storage can release pent-up demand by reducing solar
customers’ need for net metering and the grid,” he said.
Some people with solar could disconnect from the grid
entirely if the fixed fee charged by utilities is higher than
the cost of installing battery storage units, he added.
Battery storage units like Tesla’s Powerwall currently
sell for roughly $7,000 fully installed, which makes
the grid the more economic “storage” option for most
American solar households. But both Marsh and Lorusso
believe growth in the market, including new supply from
Tesla’s Gigafactory 1 in Nevada, will lead to a drop in the
Powerwall’s price. They estimate a decline of anywhere
from 30 to 50 percent in the next five years.
SEIA’s Solar Market Insight report forecasts more record
residential growth for the coming year. Even with the
potentially moderating effects of reduced incentives or
new fees, solar still broadly offers customers cost savings
and remains the most economically viable of residential
renewable energy sources out there today, according to
Lorusso.
“In theory, yes, you can get power from a wave or
wind, but it all comes down to economics, and those
technologies are just not practical at small scale,” he said.
Brian Sodoma is a Las Vegas–based freelance writer with
a focus on health, business and real estate. He has written
for several publications, including Vegas Seven, Las Vegas
Review and Vegas Inc.