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2022 Residential Solar Update

February 17, 2022
All, Solar FAQs, Solar Incentives, Solar News

For the past two decades, residential solar energy has become more and more viable at a breakneck pace. And if you’re one of the many people thinking about adding solar panels to the roof of your home in 2022, there are a couple of things you need to know about the current state of the industry. Not to worry, though, as we’ll give you all the data you need to make an informed decision below!

The state of the industry

We’ll start off with a bit of not-ideal news first — as you’re undoubtedly aware of, the pandemic has upended pretty much every facet of our daily lives in the past two years. And it’s also affected all service and manufacturing industries throughout the world. In practice, this has meant manufacturing shortages and delays, whose butterfly effect resulted in subsequent delivery delays as well.

Unfortunately, solar service providers were hit by this wave as well. And sometime around mid-2021, the prices of solar panels increased in the United States for the first time in almost a decade — specifically due to the low supplies of key panel components like semiconductor chips.

However, there’s a silver lining here; despite major setbacks like these, a large number of solar providers already had enough supplies and materials to finish their 2021 installations before the price surge.

Still, this means that 2022 solar panels would likely cost a bit more than they would have in 2021, as this price increase was merely pushed down the line. At some point, providers were inevitably going to run out of existing supplies and materials, forcing them to deal with higher prices and continued delays by raising their own rates.

It’s important to note that this short-term negative trend speaks nothing of the solar industry in general. For the past 15 years, prices have been going downwards, rather than up. And while 2022 might be different, this is merely due to pandemic-induced higher costs of labor, costs of transportation, and costs of input materials.

Again — this is all almost certainly temporary, and not anything indicative of the solar industry in general. Also, there’s further good news for homeowners interested in solar: so far, commercial projects have been hit far more heavily than residential ones, due to their material needs and volume.

And the Investment Tax Credit for solar stays at 26% throughout 2022 — while it will be lower in 2023, before being slowly phased out for residential projects by the end of 2024. So, this means that even people who aren’t satisfied with higher project costs will find it more cost-effective to get a solar panel in the next two years than without the ITC later on.

Furthermore, the demand for solar panels is steadily increasing in the long run, due to a variety of factors including ITC incentives, increased public interest in energy savings, and mounting concerns regarding the effects of climate change.

Of course, the supply chain problems aren’t exactly helping homeowners who are on the fence in 2022 — but we’ll delve into the state of residential solar in more detail to help you understand all of the factors in play.

Residential solar in 2022

While the delays triggered by the pandemic may have made residential solar slightly more expensive, the number of realized residential solar projects in 2020 actually increased by 11%. And over the course of the following year, one in every 600 homes in the United States decided to install solar panels.

As mentioned above, the growing interest in residential solar panels is long-term and unlikely to dampen any time soon — especially with the costs for residential solar systems becoming 64% lower during the previous decade, and the establishment of major incentives like the Federal Investment Tax Credit.

Much of the rising affordability of solar has been triggered by falling hardware costs, which is something that’s not likely to change any time soon — solar panel components became a whopping 85% more affordable from 2010 and 2020. And sure, the most significant cost declines happened at the beginning of the previous decade; but this is still indicative of a larger trend.

However, the fact that the pandemic has actually made the prices rise slowly means that cost reductions triggered by hardware affordability are slowly tapering off, while factors like the prices of steel, aluminum, copper, silver, polysilicon, and labor are becoming more important. Those input factors will continue becoming more important if solar component prices go up.

The solar supply chain

The biggest issue that solar providers and interested homeowners are currently dealing with are the prices of solar panel components that are in short supply thanks to the pandemic — mainly copper, semiconductor chips, and steel. And while existing stocks have managed to help providers stave off price hikes, the compounding cost increases of all materials is slowly beginning to affect most installers in 2022.

Still, the cost increases that residential solar installers were forced to deal with are comparatively small when stacked up against the price jumps of commercial solar providers. It’s just important to keep in mind that potential shortages could still impact future residential solar installations. This is especially true for cash projects that are already more expensive to clients to begin with.

So, what kind of specific price changes can homeowners expect in practice? Well, a project that was priced around $20,000 before the pandemic started affecting prices could now go up to $24,000 or $22,000. This small price hike hasn’t particularly impacted demand, though.

The investment tax credit

As of 2022, the federal Investment Tax Credit gives qualified individuals a whopping 26% credit for solar panel installations. Interested homeowners should keep in mind that the ITC rate will be 22% from the start of 2023, and it will be entirely phased out for residential projects in 2024 — at least under the current regulatory framework.

President Biden has indicated that his Build Back Better initiative includes a significant extension of the ITC — if his proposed legislation on this issue would pass Congress, the Investment Tax Credit would be extended for at least a decade longer, and perhaps more. His proposals include other incentives for the completion of renewable energy projects as well.

Still, the limited time frame for making use of the investment tax credit under the current legislation means that demand for solar panel installation will continue to be record-breaking until 2024 — at least according to industry predictions.

The solar outlook for 2022

All things considered, this year is set to be an interesting one when it comes to residential solar projects. For 2022, the 26% cut via the investment tax credit is completely locked in — the only question is whether it will be extended beyond the current 2024 agenda. This largely depends on what happens with President Biden’s Build Back Better legislation.

In the short run, cost increases and supply chain delays are finally catching up with residential installers and other solar panel providers. However, at least so far, it doesn’t seem that homeowners will have to deal with price jumps that are as sharp as the ones in the commercial sector. The only real worry is the potential for unpredictable delays.

Still, industry experts expect that prices for solar components and modules will increase in 2022 — as will labor costs. This isn’t going to mean substantially pricier projects for homeowners, but some single-digit increases seem almost inevitable by the end of 2022. On the one hand, such price hikes could potentially inhibit growth in the near future — but luckily, there are other interesting developments to watch out for in residential solar.

New technologies like solar shingles are becoming a more easy-to-install and less pricey option than the mainstream solar arrays most residential installations use today. Should such options become more readily available, the number of solar customers will increase despite the current price increases.

And if you’re thinking about increasing the value and energy efficiency of your home by adding a solar array to its roof, make sure to consult professionals first — they’ll be able to help you decide if now is the best time to make such a profitable, yet substantial investment. At the end of the day, you’ll have to weigh your budget against external factors to make the best possible decision for you and your family.

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