The residential solar industry could be in a prime growth spot, thanks to recent changes coming into effect because of President Joe Biden’s Inflation Reduction Act, or IRA.

Included in the sweeping $739 billion piece of legislation are several pockets of money devoted to renewable energy, such as tax credits for purchasing new or used electric vehicles and funds for home upgrades designed to make them more efficient. However, the one setting the solar industry abuzz involves the extension and improvement of the government’s residential clean energy credits.

Under the previous rules, residential homeowners would get a 26% tax credit on installed solar panels and only 22% in 2023, when the program was expected to sunset. As part of the IRA, the program will remain active through 2034 and boosts the tax credit to 30% of the total project cost. Homeowners can take advantage of the program at that level before the solar tax credit drops to 26% and 22% in 2033 and 2034, respectively.

As the United States leans more heavily into renewable energy sources, the door is opening up for the solar industry to spread its wings and take flight.

Solar Costs Drop, Installations Soar

According to a report from the Solar Energy Industries Association (SEIA) and Wood Mackenzie, the residential solar market saw encouraging growth to end the first half of 2022.

During the second quarter, homeowners installed 1,358 MWdc of power, setting a record for installations across any quarter. The authors suggested the spike may have resulted from higher electricity prices and an increase in severe weather across the country. For example, Texas saw a jump in solar power installations after severe winter weather damaged the grid and caused catastrophic power issues across the state in 2021.

The report also hints at an overall increase in residential installations, revising their estimates with the news of the Inflation Reduction Act’s passage. Though the number of installations in 2023 is expected to decline slightly, the upward trend will continue from 2024 through 2027, resulting in a 23% increase compared to earlier projections.

Meanwhile, solar costs keep sliding. The average cost of a residential solar installation was $2.71 per watt DC in 2020, according to National Renewable Energy Laboratory (NREL) data. The cost has slightly increased recently because of supply chain issues, the COVID-19 pandemic, and global politics, but the cost of a panel in 2020 is down nearly 65% since 2010.

So, why has the cost of solar electricity been coming down? There are several reasons behind the overall dip in prices, including better market penetration, higher adoption rates for renewable technologies, more efficient technology, and the continued influence of the government to promote the switch to renewable technology through a series of tax incentives and other breaks.

As a result, the Energy Information Administration (EIA) cited nearly 4 GWac of residential solar was installed in 2021, marking a 32% increase despite the pandemic and supply chain issues affecting the industry. Overall, 2021 was the best year for residential solar installations in the United States. Similarly, data from the SEIA solidifies the claim that solar is booming. According to the organization, 4.2 GWdc of residential solar energy was installed in 2021, marking a 30% year-over-year increase.

What We Can Expect from Residential Solar in 2023 and Beyond

By all accounts, the solar industry in the United States seems to be full steam ahead, though it’s mainly focused on utility and community-scale solar as opposed to residential installations.

Research from the U.S. Department of Energy (DoE) suggests solar energy could play a significant role as the country strives to reach net-zero carbon emissions by 2050. The agency believes that continued development and technology to improve efficiency could result in solar supplying as much as 40% of our electricity demand, if not more.

This isn’t to say solar is going to be a golden goose. In 2020, solar only contributed about 3% of total electrical demand. To reach net-zero by 2050, the U.S. needs to add 455 GW of solar energy annually through 2030. Granted, this number is typically tied to utility-scale solar projects, but residential solar installations reduce overall energy demand across the entire grid.

In the meantime, solar manufacturers are investing millions of dollars into producing more efficient products, from rooftop solar panels and battery storage to the PV wire and solar inverter cable used to transport electricity. Better efficiency means fewer panels will be needed to generate electricity, ultimately opening the door for more involvement across the board.

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