By Rebecca Phillips, MBA ’22
This article was written in response to a seminar given by Manavendra Sial, Executive Vice President and CFO, SunPower Corporation, in an EDGE Seminar at Duke University’s Fuqua School of Business in Fall 2021. This article voices one student’s perspective and does not necessarily represent the views of either Duke University or the seminar speaker.
As Americans increasingly turn their attention toward clean energy, the market for solar photovoltaics will explode. We’ve already seen remarkable growth. Since the solar investment tax credit (ITC) was enacted in 2006, the U.S. solar industry has grown by 56% on average each year.[1] Manu Sial, CFO, tries to capitalize on this growth at SunPower, a firm that has provided solar solutions for residential and commercial customers since 1985.[2] Sial shared three reasons why residential customers may be reluctant to invest in solar panels: upfront cost, lack of short-term financing options, and overall confusion with the process. I’d argue there’s another important reason, one so obvious that it’s easy to miss: home solar is nearly impossible for the 34.2% of Americans who are not homeowners.[3] I predict there is a sizeable market for renters who want to live in homes with solar panels but who are at the mercy of their landlords to make the initial investments. The onus is on landlords to address this, and firms like SunPower should arm them with the information they need to take advantage of the demand.
Solar customers have multiple motivations for adding solar to their roofs—ranging from an intrinsic desire to “do good” for the environment to energy cost savings. I believe that younger generations are even more motivated by environmental concerns. On the whole, Millennials and Gen-Zers are more concerned with environmental impact than any previous generation. Tiny house living is a growing trend among young people who are looking to reduce their carbon footprint, and many people rely on solar panels and propane to power and heat those homes.[4] A staggering 47% of U.S. Millennials reportedly look for solar panels when purchasing a home, regardless of house size.[5] And for reasons that start (but certainly do not end) with the Great Recession, people under 35 currently have the lowest home ownership rate in American history, and the share of Millennials who expect to always rent is only increasing.[6] The desire for solar panels among younger generations coupled with their low home ownership rates have created a valuable opportunity for savvy American landlords.
The demand is significant, and the solution lies on the supply side of the market. When landlords install solar panels on their rental properties, they are making not only an environmentally-friendly choice but a smart investment. Analysis by Zillow in September 2021 revealed that homes with solar panels sell for 4.1% more than comparable homes on average.[7] (I would encourage large property management organizations to install solar panels on apartment buildings too, but this blog post focuses on small-scale, private landlords renting out single-family homes.) Photovoltaics will also lower energy bills for their tenants. This will make it easier to attract tenants and could be the differentiator for people comparing homes in the same neighborhood. Depending on the market, landlords might be able to justify small increases in rent because of the energy savings and pass a portion of their upfront solar costs onto their tenants. With an expected life of 25 years, solar panels will stay an attractive feature of a property through many cycles of renters with zero variable cost. Property owners have predictable costs when one family moves out of their house and another moves in – painting, carpet replacement, deep cleaning – but solar panel servicing is not one of them.
There’s also an argument for why the current moment is the sweet spot for residential solar installation. Property owners might notice that the cost of solar is dropping and decide it’s better to wait ten years before making a purchase. This would be a mistake. In December 2020, Congress extended the Investment Tax Credit (ITC), which provides a 26% tax credit for systems installed in 2020-2022, and 22% for systems installed in 2023, but the tax credit will expire in 2024 unless Congress renews it.[8] On the other hand, the realities of climate change make solar a good bet in the long term. It’s easy to imagine solar panels on the roof of every other home in a couple of decades. Landlords who buy solar panels now have an opportunity to be ahead of the curve and offer a unique and exciting value proposition for renters looking to protect the environment and their wallet.
Property owners needn’t be intimidated by the $10,000+ sticker price of a residential solar panel system. Outright purchase is not the only option for acquiring solar panels. Loans are a great option for customers with a good credit score, and leasing can provide immediate cost savings for customers willing to sacrifice the tax credit.
With a degradation rate of 0.5%–1% per year, solar panels are a high-quality investment that meaningfully reduces the carbon footprint of a property.[9] Landlords who are willing to install them address all three of the most common concerns people have with solar: upfront cost, lack of financing options, and confusion with the process. You could see it as a gift to your tenants, or to your planet–but either way, it will pay dividends for decades.
[1] SEIA ITC Factsheet. “Solar ITC 101: What is the Solar Investment Tax Credit?” Solar Energy Industries Association, January 2021. Accessed November 21, 2021.
[2] SunPower. “About SunPower: Changing the way our world is powered.” Accessed November 21, 2021.
[3] Statista Research Department. “Homeownership rate in the U.S. 1990–2020.” Statista, February 17, 2021. Accessed November 21, 2021.
[4] Norton, Ray. “Millennials and Tiny House Living: Minimal-lennials.” Powerblanket, November 2, 2018. Accessed November 21, 2021.
[5] Statista Research Department. “U.S. Millennial Homeownership: statistics & facts.” Statista, August 25, 2021. Accessed November 21, 2021.
[6] Statista Research Department. “Share of Millennial renters who expect to always rent in the United States from 2018 to 2020.” Statista, March 18, 2021. Accessed November 21, 2021.
[7] Hyder, Zeeshan. “Solar panels for apartments & renters: Your options.” SolarReviews, September 24, 2021. Accessed November 21, 2021.
[8] U.S. DOE, “Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics,” https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics
[9] Manu Sial discussion