Well as I sit here, wrapping up a nice year of growth in our industry and in our own company, I try to think about what this year (2022) offered (and affected) for the solar industry at large. Here are my take-aways:
This year (2022) brought with it a lot of Federal rate hikes for the basis borrowing rate.
A LOT of rate hikes.
This in turn has created a bit of a stormy path for some of the biggest lenders in the solar industry (think Mosiac, Sungage, Sunlight, etc). What used to exist were loans from these folks that would allow you to "trade your electric bill payment for a solar loan payment" with a low interest rate (and a VERY high "dealer fee" - learn more by reading this earlier blog post: https://www.dpisolar.com/post/why-won-t-dpi-solar-offer-me-0-99-financing-like-so-many-other-solar-companies-do).
The rate hikes that continue have effectively crippled these types of loans as the high fees compounded with average interest rates for solar loans culminate in a higher payment than you'd have if you brought your own loan to the table.
So - what about all of those companies who knock on your door and make promises to have you spend less money per month on a loan than you do on your current electric bill? Well dear friends - those folks are on the sidelines for the foreseeable future. The loans that offered a "lower than electric bill payment" won't be back until one of two things happen: the federal borrowing rate gets back down to at or near 0% like it was at the end of 2021 OR the lenders stop packing so many fees onto their loans, making them bloated and unaffordable. (to clarify - I've interviewed nearly all of the largest lenders to see where things might head and unfortunately, none of them seem interested in reducing their upfront fees to make their products worth-while).
As a point of reference (and a nod to the old adage: "those who choose to ignore history are destined to repeat it") - in the late 1970's and the early 1980's, basis rates and effective interest rates were in the double digits in a desperate attempt to cool inflation.
1979 began with the monthly average mortgage commitment rate at 10.39%. By the end of the year, it would be 12.9%. The rate hit a peak of 17.82% in November 1981, before beginning a long, slow decline through the rest of the decade.
It took over 10 years for the rates that buyers pay to drop back into SINGLE digits (meaning lest than 10% !!!)
The takeaway here is that the rates we see today are here to stay for a while. They're likely to keep increasing for at least the next six months, at which point we could see them level off while the economy adjusts and inflation subsides. The traditional wisdom here is that it will be quite some time before we see rates for new loans go back down to 2019 and 2020 levels. Again - this translates into only one of two options for the major lenders in the solar field (as listed above) and right now, none of them seem inclined to move to a more traditional lending style that is more sustainable for them and their industry.
Next - Supply chain for 2023 -
This one is interesting. We've had a lot of things transpire this year that will affect next year, namely the Federal government bolstering the renewable energy industry with a 30% federal tax credit available for the next 10 years. This was huge and the impacts will be felt much farther than most expect. With this legislation, the Fed made the installation of Utility scale solar farms a much more viable endeavor. That means that the limited amount of solar panels already available to the commercial and residential market will now be fought over for these revived utility scale projects. This in turn seems likely to keep price pressure higher on the solar module market for the foreseeable future. A few things could loosen up the pricing on modules - one of which is imports hitting our market again that have been held back for political or ethical reasons (read more about silicon sourced using slave labor in southeast Asia to get a real idea of the ethical part of that statement). The takeaway here is that I do expect the available supply of solar modules to increase (which normally brings lower prices back to the table) but with new large scale projects "gobbling" up the supply, we could find ourselves looking at today's prices being normalized for several more financial quarters until new manufacturing facilities come online to meet the need.
As for the other parts of a solar project - namely the inverters and racking - it's possible that we will see some price breaks here at some point - but only if there's a contraction in the market due to a slowdown triggered by the evaporation of the above-mentioned loans.
Labor prices went up substantially in 2021 and 2022: 33% year over year in most cases. The costs associated with these increases will directly impact the cost of goods sold by companies like us to buyers like you. These costs could eventually come back down in some places, but only when the unemployment lines start to build and the labor shortages that currently exist are no longer "a thing". What I'm saying here is that a time will come when business owners will be able to shed some of their more expensive employees in favor of equally qualified employees that will take a lower salary for the same work. This is not a ruthless way to operate - it's unfortunately a necessary way to operate as the goals of any business are to keep the things they offer affordable to the folks who are buying said things. This is survival of the fittest put into corporate modes of operation.
DPI Solar is a union contractor, therefore we won't be one of the companies who shed wages in favor of higher profits. Quite the opposite actually: we have absorbed a lot of these wage increases as they've climbed in order to keep our prices lower than our competition. The results are lower net profits to our company - but with an eye on the future to retain our quality help. We will always pay a good living wage and work to nurture the best out of our employees. But many of our peers will opt into replacing their most expensive employees with "new-blood" in an effort to drive up profits. What they fail to understand is that a good employee cannot be simply replaced with a new face; if there's loyalty from both sides, then both sides win. If, on the other hand, there is only loyalty to the bottom line, then neither side wins and the customer stands to lose the most with shoddy workmanship and nobody there to fix it.
Well - we've covered lenders, interest rates, supply chain, labor, and what to expect there.
I think the main summary I can make here is that we will see a lot of solar contractors close their doors due to a variety of reasons - from not being able to honor their price point on their contracts to inability to make sales without shady lenders to back their play. DPI Solar was built to last in times like this and we'll be here when all others fail. We've been through this and much worse in the last 15 years - because we operate "a little differently" than the rest. Our goal has always been slow, steady growth with an eye on the future, yet learning from our past.
I thank all of you who have helped us become the company we are and I also thank those of you who want to see us grow into the best version of ourselves.
Happy new year and thank you!