Catalyst with Shayle Kann - Tumult in residential solar

Episode Date: July 10, 2025

Residential solar has had a rough couple of years. In 2024, the market contracted 31% and major companies like Sunpower and Titan went bankrupt. Now, only halfway through 2025, Sunnova and Mosaic have filed for bankruptcy, too. The market has suffered from low demand, high interest rates, and major policy changes like California’s cuts to net metering.  So now that the One Big Beautiful Bill phases out key tax credits, what’s next for the battered industry? In this episode, Shayle talks with Julien Dumoulin-Smith, who leads equity research for power, utilities, and clean energy at Jefferies. Shayle and Julien cover topics like: Why the IRA eased — but didn’t solve — the troubled market’s key challenges, like high interest rates, tax equity challenges, and intense competition How debt prevented companies from weathering rising input costs How the final version of the One Big Beautiful Bill avoided the worst case scenarios for residential solar Whether the bill will impact utility or residential solar more How the shift toward leasing will benefit  larger companies over small, local installers The impact of rising electricity prices Resources: Latitude Media: Sunnova’s debt problem Latitude Media: Is residential solar poised for a comeback? Open Circuit: Does residential solar have a bad product? Catalyst: Could VPPs save rooftop solar? Latitude Media: SunPower is bankrupt. Competitors see opportunity Credits: Hosted by Shayle Kann. Produced and edited by Daniel Woldorff. Original music and engineering by Sean Marquand. Stephen Lacey is executive editor. Catalyst is brought to you by Anza, a solar and energy storage development and procurement platform helping clients make optimal decisions, saving significant time, money, and reducing risk. Subscribers instantly access pricing, product, and supplier data. Learn more at go.anzarenewables.com/latitude. Catalyst is brought to you by EnergyHub. EnergyHub helps utilities build next-generation virtual power plants that unlock reliable flexibility at every level of the grid. See how EnergyHub helps unlock the power of flexibility at scale, and deliver more value through cross-DER dispatch with their leading Edge DERMS platform by visiting energyhub.com. Catalyst is brought to you by Antenna Group, the public relations and strategic marketing agency of choice for climate and energy leaders. If you're a startup, investor, or global corporation that's looking to tell your climate story, demonstrate your impact, or accelerate your growth, Antenna Group's team of industry insiders is ready to help. Learn more at antennagroup.com.

Latitude Media covering the new frontiers of the energy transition. I'm Shail Khan, and this is Catalyst. What I would argue is it was somewhat counterintuitive. Post-IRA, it was almost like the best day was day one after IRA, and after that, there was just an ongoing train of challenges, whether it was the wider trade narrative, or frankly, as you put your finger out a second ago, the NEM3POT changes in California,

and how much that pulled back participants, Coming up, the murky future of residential solar. When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility, built for the moments when utilities can't afford uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale.

Predictive, verifiable, and designed to perform when it counts. Learn more at EnergyHub.com. Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean

economy. Tune in as we unpack how progress is actually made. Listen to critical capital on Spotify, Apple, or wherever you get your podcasts. Catalyst is supported by Fish Tank PR, an award-winning PR firm focused on climate and energy tech, renewables, and sustainability. Fish Tank is known for generating prominent and effective media coverage for the brands they work with. If you want a PR partner that's thoughtful, shoots straight, and gets results, you'll like Fish Tank PR. To learn more about Fish Tank's approach, visit fish tankpr.com. That's F-I-S-C-H-Fish-Tankpr.com. I'm Shail Khan. I invest in early-stage companies and energy impact partners. Welcome. So it has been kind of a rough run for residential solar dating back well before Trump's recent

budget bill, actually. We've seen bankruptcies from major players like Cenova and Mosaic, and many smaller players have exited the market as well. This also extends to equipment suppliers, like N-phase, whose shares are down 40% this year as of this recording. Not everyone is quite as battered, though. Sun Run, for example, the market leader is actually up year-to-date in the public markets after taking more of a beating in 2024. Anyway, it was clearly already an industry in somewhat choppy waters, and then the one big, beautiful bill hit. So what's the outlook now? I decided for this one to bring on my favorite watcher of public markets in this space.

Julian de Mullen Smith of Jeffreys. He's been covering all the public resi-solar companies and has a clear view of the world they've been navigating. Also, before we begin, we're going to do another Ask Me Anything episode where I attempt to answer whatever questions you have about these markets, these technologies, these companies investing in them, juggling, whatever you want. Just email us if you have a question at Catalyst at Latitudemedia.com.

That's Catalyst at Latitudemedia.com. I always really enjoy getting these questions, so please send them in. And in the meantime, here's Julian. Julian, welcome. Thank you very much for having me. All right, let's talk about residential solar, which has been a market that has experienced a lot of tumult, I would say, over the past couple of years. I want to start by having you kind of walk me through the state of the market and the major players in the market prior to the budget bill that recently passed. So, like, talk me through what's been happening in that market over the past, I don't know, a year or two.

Yeah, look, if I were to step back and talk about residential solar at the highest level of, you know, kind of the run-up here, look, it's been a fairly tumultuous backdrop already, right? I mean, you've seen a lot of shift in market share, a lot of shift in technology. I mean, look, fundamentally solar is the technology sector, whether it's the electrical equipment or the panels themselves. And frankly, even the financing piece of it has been evolving too, right? So, you know, you had ups and downs in the years going into this to be sure. But I think at the highest level, you know, post the enactment of IRA, you all of a sudden opened yourself up to a lot of different positive angles, right? Principally, domestic contents adder, the ability to tap energy communities as supplemental adders to the core ITC. That really was a watershed moment to try to enable, like, real profitability in the space, right? I think that is at its core what transpired in 22 onwards. Now, look, it's not lost on me and probably you, that, like, look, you also had a lot of tumult and exits across residential solar in the run-up to IRA. right, and frankly, IRA never got reformed, and yet you still had a number of bankruptcies and the like in the last couple of years. So, don't be wrong. It has not been a panacea, and I don't want to

characterize it as such. And that's why I say in some respects, you know, many people turn this to solar coaster, I think the example of the solar coaster is residential solar in many different ways. You talk more about those, I mean, you sort of made a good point there, right? Like the IRA passed, and that provided a bunch of tailwinds for resi solar amongst a bunch of other sectors. You said the energy communities and domestic content bonus means that like some projects could get 40, 50% tax credit, et cetera. And yet, again, even prior to this budget bill getting passed, it had actually been a pretty tough ride for a lot of the companies and we had seen some bankruptcies and so on. So what was driving that? I mean, I can name at the really high level like two things that

seemed like they were fundamental drivers, which was basically interest rates rose. And that seems to have a pretty meaningful impact on adoption of residential solar, probably. possibly profitability of the companies. And then net metering changes, particularly in California, just making it less lucrative. So was it a thing where all of a sudden companies couldn't sell profitably? Was it that consumer demand started to dry up? Was it that they were financially mismanaged? Like, what was going on there?

I mean, I think that it's core, to be honest with you, I mean, I think this is competition. It's probably the single best way to summarize it. I mean, I don't mean that to be a cop-out per se. Like, your core response, your initial response is right, right? interest rates going up, of course, right? Like, yes, this is an incredibly interest rate-sensitive product. Interest rates go up. That is the principal driver of raising prices.

Now, look, you talk about competition. Look, in theory, if it was less of a competitor space, you would say interest rates go up, the cost of solar goes up to homeowners. And ergo, it's just effectively passed along, right? We talk a lot about inflation in the current environment. And we talk a lot about saying, hey, well, consumers are just going to take it, right? Not so much as it turns out, right? I mean, going back to your point, the problem was,

having inputs that ultimately weren't necessarily passed along. I would throw in another twist there that, you know, frankly, tax equity in its various permutations. It also was really styming or stymied a number of companies within the space as well, right? I mean, but look, in many instances, I don't think you can blame tax equity in as much as it was sort of an output or the specific manifestation that drove companies to their end, right, in many ways. That sort of relates to one question I wanted to ask you, which is what is or was the financial structure of the major players. Let's say the public players in the market, companies like Sunrun and Sinova and so on. How are they structured financially? And when things happen,

like, I don't know, tax equity becoming more expensive, interest rates going up, like, how does that flow through to the economics of those businesses? Look, to be fair, I mean, I think, you know, you hit on another core point. If you're going to focus on the existing large companies that are public, I mean, look, I think a lot of the story there was just leverage, right? How they finance themselves gave them much less latitude when things went against them, right? Let's call a spade of spade. This is true across any sector we cover. I mean, you and I have talked over the years. You've seen a lot of these different permutations. Leverage is a real killer over the years. And look, to be honest with you, I think that is

definitely a contributing factor, as we saw here yet again in recent months. I mean, to cut to the chase, like one should have had more of an equity structure, given the volatility. And again, you could talk about the volatility. You're like, what are you talking about? You customers sign up for a 20 plus year term volatility. What do you? I mean, that doesn't resonate. Yeah, my point to you is you don't necessarily know how many customers are going to be signing up. You just don't know the discrete terms that you're going to sign up that next customer. The volatility of the business that we just described, whether it's interest rates or otherwise, that's where there's ambiguity in the business model. It's not in the discrete decision of like,

hey, a customer is signing it for 20 years, does contract a cash show? Cool, that's great. That's the core tenant of the business model. Sure. But, you know, the sort of supplementary piece of holding leverage at the parent company is really what we're talking about here, is having a company that goes out and effectively finances and develops residential solar. That has a certain limitation on the amount of leverage it can take. And making sure that you're very diligent to keep the maturity profile and give yourself a lot of latitude is truly important. I think. I think that's really what ended up being a critical factor for at least a couple of the major bankruptcies in last few years. Just diligence in rolling debt is at its core.

Now, you could also go back to it and say, like, wait a second. Leverage, come on. You can't blame leverage. No, you're right. You can't just blame leverage, naively. The ability to refinance, the ability to roll forward your debt. If I have maturity, if I have a home or whatever, I'm just going to roll it forward. The problem here was that you couldn't necessarily when you needed to, right?

You need a proactive role for your dad. And more of the point, the economics of the business, ergo, go back to that core mantra of competition, wasn't necessarily working in your favor, right? You had a number of new entrants, right? Think about this. If you want to talk about, like, probably the unsung story of what's going on in residential story in the last couple years, it's been you have a number of different novel competitors out there, right?

You've got this next-air's subsidiary. You've got various private folks from abroad coming in. with their own equipment, tethering, leasing terms to that equipment, right? There's lots of, look, and I would call that innovation. I would call that, look, I mean, in a world of solar and understanding that, look, it's sort of like up to consumers to select. I get it. I really do.

But again, I would also emphasize it's been brutally competitive at times. And I think in many ways, I think that's the culmination of what we've seen out there. is in the inability to pass along in a linear fashion pricing. And I could argue even from today, regardless of what's happening with O triple B, is that, you know, frankly, the competitive landscape could get worse. I mean, you could see a declining volume environment

in the next years against the backdrop of having, you know, still a landscape of different solar vendors. And frankly, the prospects there become a little bit more of a night fight in the sense that, like, yeah, we're competing over a nut. a greater number of customers, right? Like, how does that evolve? How do other players fall out of this market?

That's the open question. But we can talk about that. There's a lot to unpack there, frankly. What do we know about consumer adoption and, like, I guess, demand elasticity? Like, one of the things I don't really have a clear handle on is, okay, obviously at the margin, if it becomes, if solar becomes more expensive because we have import tariffs, because interest rates go higher, whatever it is, like, obviously, it's the, obviously it's the margin that should impact customer demand and volumes. But I don't really have a sense of,

you know, like back in the day, when I was paying more attention to residential solar, the magic, there was some magic point you had to hit where you had to offer like a 20-year-lease or PPA with a 3% escalator that gave you 15% year-one savings or whatever the number was, something like that. Is there, do we have evidence of sort of how much demand elasticity there is? In other words, do small changes in price to the consumer really drive meaningful demand changes? Or is the market less elastic than that? And what's actually happening here is more about the profitability of the individual unit for the supplier, for the installer. Yeah, I mean, look, I'm not going to try to argue that this is a truly competitive landscape.

What I would argue is, you're right. There's a lot of different inputs that are going against companies, and their inability to, in a linear fashion, pass those along the customers has been unfortunate, not to reash too much from the last second. I mean, and frankly, we've seen a lot of different oscillations in the last years. It has been strike. I think what I would argue is it was somewhat counterintuitive

to the cumulative challenges that we've seen. Post-IRA, it was almost like the best day was day one after IRA. And after that, there was just an ongoing train of challenges. whether it was the wider trade narrative or, frankly, as you put your finger on a second ago, the NEM3POT changes in California and how much that pulled back participation in California. And that was a big volumetric impact that really cascaded not just across the actual lessors and installers, but also across the equipment manufacturers, right? That really challenged the system just from a volumetric perspective for quite some time.

And I think we were just coming out of that last year. and then we started talking about, oh, and now we've got this IRA question. Right. And I think that's really what is in front of us now. It's like how you think about what is to come is really going to be dictated by all variety of interpretations, not just under O triple B, but really where this administration wants to go in terms of interpreting policies. That's so critical here as far as I'm concerned. But look, I want to make sure I'm answering a question directly.

Yeah, I mean, you alluded to the key thing of the moment, which is the budget bill, O triple B, as you call it. But, all right, so let's dive into that a little bit. Can you just walk through what that bill does to and for residential solar relative to status quo beforehand? The best way to frame what's happening under this bill now is not just in a linear sense, okay, yeah, they've shortened and accelerated the phase out of hiring, right? Like, okay, sure, I got it. And in fact, in many ways, where that ended up at the end of last week was actually, frankly, at the better end of the spectrum of what fears were. Again, everyone understood at the outset that there was going to be some pain to be taken.

And frankly, when you saw the House and the House Freedom Caucus come out a few weeks ago, it was like, oh, my, they are really taking a hatchet to the residential solar space in particular. So you've seen a lot of major gyrations in the space that aren't over yet, and we'll get to that in a moment. But I really would emphasize that literally a month ago, you were staring at this being like, wow, like you could see a precipitous decline in residential solar as of next year, right? I mean, whoa. Okay. But really what's transpired is like, no, actually leasing companies are going to be eligible to continue to participate through 2027. Residential storage is, in theory, extended to the full life of IRA as you saw folks chiming in saying, look, firm capacity to get the full IRA benefits, got it. And then ultimately, look, the biggest dynamic for residential solar we're looking at right now is really consumer solar in the context of this 25D piece, right?

to the extent to which that consumers can no longer qualify themselves for the tax credits, that's a game changer, right? I mean, if you want to talk about being pro-consumer or not, I mean, the nuance here is, like, look, you're going to only limit the ability to tap tax credits to corporate entities and commercial entities and you're going to take it away from consumers directly? Like, again, not exactly intuitive, but has major changes for the underlying landscape that we're looking at here, right? And I think that's the most important point, is as you,

roll forward to 2026 when you have this requirement go into effect. The open question is, well, so leasing companies effectively take over this market. Now, again, broad strokes, you've got a two to one ratio already of leasing companies versus folks doing loans already and doing their own financing, right? So, again, I think the backdrop and the trend was already going towards leasing arrangements, right? Like that shouldn't be lost on people. But if you think about rolling forward next year, like, you're basically going to have two options. You can buy this thing outright, but realistically you're going to forego the tax credits.

Or B, you can continue to lose leasing companies, and they can qualify for the tax credits, and they can indirectly flow that back to you in the form of a lower off-take arrangement and off-take price. So that's really where the industry model's going. And the question is, how much demand erosion are you going to see writ large on the back of that? Like how much of that one-third-ish of the industry are you going to say, well, look, that's just demand that evaporates versus simply saying, look, they're just going to pivot to a different financing structure. And now you're going to have, like, effectively, market share capture by a variety of the incumbents, principally, as far as I'm concerned. And how are the installers themselves going to pivot to adapt that new reality? So for as much as we've seen a lot of gyrations, 2026 is going to be, again, I would call it extraordinarily dynamic.

in a market which you could argue the market itself is going to decline in absolute terms. And yet for the incumbent lease in companies, arguably their volumes on a discrete basis are going to go higher. Right? Because they're going to capture the market share that they didn't previously add that was going directly to consumers. So that's like one of the single most important dynamics as you roll forward. And then if you'll permit me, the other important piece here that like you got to talk to is like, wait a second. So that's only 26 and 27. In theory, the tax credit is the end. MATC rolls off at the end of 27 under the deal cut with Alice Freedom Caucus and Lisa Murkowski and all that across the House and the Senate. And then there's this nuance of like, wait, wait, wait, wait.

It's not technically the end of 27 because it's a so-called thing called the Safe Harbor. But you have this dynamic where in theory if you commence construction, and again, that commence construction is a really technical legal term. In theory, you can buy equipment and some permutation and effectively extend out the life and the element. eligibility of that ITC beyond that 27 cliff, if you will. And so, yes, technically the two-year period, 26, 27 is going to be dominated by leasing companies. But the question thereafter is really going to be dominated by, well, how does this administration seek to change those safe farmers, right?

Because the day after, I mean, almost literally a day after, as in we're literally staring at, you know, Monday, July 7th, days after this thing was formally signed on July 4th, the administration comes out immediately. and issues an executive order and says actually we're going to rethink how we're doing this commenced construction and safe harbor. And that's a big question mark here on what this means for residential solar in 28 and 29 and 2030. And that's unresolved, right, if you catch yourself up to the story today. And that's the single biggest sitting at the edge of our chair's question mark for enabling and giving some degree of visibility, right? Because these business models want visibility.

I'm building a business with two years of visibility on solar and then I'm going to sort of roll the dice on how. how this involves further? Virtual power plants are becoming a reliable way for utilities to manage capacity, but enrolling devices is just the start. What really matters is confidence, knowing those resources will perform when dispatched and being able to prove it from the control room to the living room. Energy Hub's platform handles the full picture,

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future of energy isn't shaped by technology alone. It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform for the clean economy. Join me for my brand new show, Critical Capital. As I talk with people deploying capital, shaping policy and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. Are you tired of overpaying for big-name PR firms, but not really knowing what they're delivering?

Is your comms team wasting time reviewing lengthy messaging briefs and decks instead of engaging journalists or producing content? Are you wondering why your competitors are getting press and you aren't? Fish Tank PR is an award-winning climate and energy tech, renewables, and sustainability-focused PR firm dedicated to elevating the work of both early stage and established companies. Whether you need to position yourself as a thought leader in between project announcements or translate complex ideas and technologies into tangible, compelling stories that resonate with the media, F-Tankpr.com. Check out fishtankpr.com. Correct me if I'm wrong, though. The degree to which the commence construction rule and any changes treasury might try to make to it affects like huge business. decisions today, feels to me more significant, more dire for utility scale than it does for

Rezi. For Rezi, because this 2027 placed in service rule, which exists if you don't successfully start, quote-unquote, start construction by mid-20206, that's really, really hard to hit in utility scale because you're subject to like interconnection timelines and all this other stuff. Whereas in Rezzi, you're just kind of like rolling, doing installations. Not that it's not important. and as you said, like, it affects the 28, 29 volumes. But it feels to me like it's, you know, if you're in utility scale, you're like eyes glued to the treasury process because it's all the matters, less so in Resi. Am I wrong?

Look, point, counterpoint, right? Look, your point's made, but I'll give you the counterpoint on that. Look, utility scale solar, look, the reality is that market is principally driven by C and item in, commercial and industrial demand. What does that effectively? It amounts to tech companies, data center demand, right? Like, am I really worried substantively that someone's not going to step in and want to enter the utility scale markets to buy renewables in the future?

We've already got a clear deficit of supply to meet what effectively is tech and C&I demand out there, right? So if I were to summarize it this way, the ability to pass along the inflation X tax credits in that market, which is the bulk of the renewable market, is fairly, transparent. It's going to be there. In fact, that's what makes this IRA conversation, IRA reform conversation, so readily happening, right? It's that there's a growing implicit acknowledgement of, like, if these IRA credits are going to tech companies, why do we

need this? That's the tension at its core of how this came to be today. But if I were to... You're arguing that, like, that the ITC, PTC is more existential for residential than it is for utility scale. And thus, like, whether you get it in 20, 29 matters. Yeah, well, let's put this way. I wouldn't use the word existential. I would say it this way. It's much more transparent to me sitting here today in 2025

that I've got a buyer, a supposed future data center company or the like, who is keen to procure that at not any price, but at a price, rather than saying, look, I'm going to jack the price up of residential solar by X percent in 28 or 29, depending on exactly how that's safe harbor and depending how much if they buy storage with it. And there's sort of an uncertain elasticity on pricing that you're walking into, right?

Clearly there's a market for solar for residential and for Util-Skil, X tax credits, and without knowing that buyer is, right? Like transparently. But there's a much greater degree of uncertainty on the residential side, given how much more meaningful on a relative basis the value is of that tax credit in residential solar versus UTT. scale. On a percent basis, the tax credit is more valuable. Right. Fair enough. So I want to go back and unpack for a minute, just some of the other dynamics that you laid out there. So basically,

what the bill does is it says if you are doing homeowner ownership of residential solar, whether through direct purchase or a loan, which is the two ways that you do that, you're not going to get the tax credit after the end of this year. So it kind of ends tax credits at the end of 2025, right, for anything that is owned by the homeowner. And then meanwhile, it allows the tax credits to continue in the same manner as you get for utility scale if it is third party owned, which is where you're saying the leasing companies, in theory, PPA as well, would qualify in the same manner. And so it really advantages anybody who can offer third party owned solar. And I guess this is my question for you. Does the dynamic of qualifying for the credits for a lease versus ownership,

probably result in an even bigger incumbency advantage. Do you have to be a big player to take advantage of those credits rather than being a small local installer? Look, let's be honest, right? That trend towards consolidation has been going on for years. And look, I will, like, firmly agree with your characterization. What we are poised to see, whether it's 25 into 26, whether it's 26 going into 28, we're going to continue to see the consolidation.

Now, again, let's be careful. There's a, like, depends where you are in the value stack, right? Like, in the financing terms and effectively, who's originating these leases, sure, that's going to continue to consolidate. That's what the interesting question is. Who's going to win in that race? And what is the innovation there? Is it just be a race to the bottom on cost of capital, for instance?

But, look, I think separately and distinctly from that, as you frame, it's like, look, the individual installers who had been principally selling loans and had sidestepped this whole conversation to a large extent, that's really going to continue to be faced out. And in many ways, what I would argue to you is like when you look at, you know, the trend over the last years where you've seen residential solar companies take advantage of the IRA, which only authorized domestic contents and only authorized energy communities to leasing companies, you know, frankly, that already shifted the market share away from loans. The higher interest rates themselves shifted people away from loans, right? That has been the story of consolidation for the last two years

running. And that's only going to be magnified here from what we can tell with the 25 DEPs phasing out at the end of the year. Now, look, there could be like a pull forward. There could be some dynamics where you see folks say, actually, I'm going to run in, I'm going to buy it while it's hot. I'm going to get it before the end of the year. Do you see a little? little bit of a pop. We've been asking ourselves that for a little while here. Okay, two other dynamics that I want to talk about with you. One is the effect of likely rising electricity prices. I mean, we're already in an environment where retail electricity prices have been rising, more so in some places than others, but significantly.

And I think general expectations are that a variety of factors, including removing tax credits for utility scale renewables, will probably cause electricity prices to rise. even more in the future. How do you think about that in the context of residential solar? Obviously, the whole, the dynamic of the economics to a customer of residential solar or a function of how much does the solar cost versus how much does your grid electricity cost. So if electricity prices are like inflationary across the board, presumably that's a helpful signal for resi solar, but I don't know how quickly that flows through to actual demand. So yeah, look, if I were to answer the question directly, I would say, look, we ran this math a month ago as we were looking

at the prospects of O triple B phasing out the IRA incentives and said, look, utility rates are going up. So when we ran our math, right, assuming that you benefited on a, you know, your starting point was an ITC that includes some degree of domestic contents and energy communities. The point is, if you're talking roughly 40% tax credit to begin with, and you roll that off, you know, you're effectively talking about ballpark a three cent a kilowatt hour increase in pricing, right? So, again, is that the end of the world? No, not necessarily. Is that if I were to use kind of like a, you know, year-over-year bill increase, you're talking about a, call it almost a 7% five-year trajectory, right? If you think about like this phase that happening cumulative

over a five-year period or something like that, we're talking about this being like a 7% per anem increase over a five-year period. Right. So it's not trivial. And, you know, are we expecting utility rates to increase at that rate? No. But I think the historical growth rate of utility rates at 2% to 3%, could we expect that to, you know, increase, relatively speaking? Sure.

I think that's certainly in the cards. And I think a further nuance here and a really important nuance is, look, is the cost structure going to come down on residential solar? I mean, that's the other elephant in the room, right? to be honest to you guys, like, we talk about competition, and this may really not sit with people because people, what are you talking about? Like, there is still a lot of value that is caught up at various points in the supply chain that, you know what? Honestly, if you look internationally, you would ask, why is U.S. residential solar so expensive versus, say, Australia? We ask this a lot.

And arguably, as we see the tax sort of come out, you're going to see that spread, that difference in how you, you know, you price residential solar in the U.S. start to come up, right? The dealer markups and the like start to come down. I think that's the principal metric and variable here that you're going to be looking towards. And that could actually mean that that 7% impact, right, or you think about that 3 cent a kilowatt hour is blunted as it like makes its way to consumer pricing. And so you could make a, as you kind of allude to, you can make a much more cogent argument saying, well, look, you said it's two to three percent, not sure that's really the case prospectively. I'm not going to say it's five plus by any means,

to be sure, but I'm also not going to tell you that 7% is going to be going right to the consumer either. I think as you look at it, you're going to be parsing details. And yes, indeed, as I go back to initially, ex-tax credits, there is still clearly a market out there. And the fact that the ongoing tax credit for the storage, which we haven't even talked about separately, is still there, only adds to that conviction. Again, the question is, for a sector that has otherwise been a growth market, right? Like, residential stores have been very much viewed as a growth sector writ large, which is difficult to stomach entirely in an infrastructure world, you're like, wait a second. So it doesn't appear to be a gross sector anymore. It's a sector and overall volume metric

decline potentially for several years in a row. And how does the industry adapt around that? That's the new bigger reality that we should be addressing and talking to here. Okay, so you alluded to my last thing to talk about, which we maybe shouldn't have saved to the end, but is super important, which is storage. So, you know, obviously the storage, the storage credits will persist longer than the solar credits will. So there will be a particular incentive to continue to attach storage. I guess I'm curious about two things. One, how central has storage already become for these residential solar companies? Like, is the attach rate so high now that we should actually be thinking of them as solar plus storage companies, or is it still kind of a

side business for them? And then two, do you foresee a future wherein there's a, you, some of these companies at least pivot to a storage-only business or at least significant storage-only installations. Is there a world for resi storage in the absence of resi-solar? We have seen those deployments happen in some places already. Yeah, lots to unpack there, but I'll try to be concise. Number one, storage, look, I don't necessarily think there's a sizable storage standalone business, at least relative to the size and scope of what we're looking at today

in solar and storage and solar only, right? Like, obviously it's there. It's just as a relative percentage of people who are going to do solar and solar and storage, I think the storage-only market's modest. A, B, look, I think when you think about the business model, yeah, clearly. And the fact that you can still sell solar and storage and then take a tax credit only on the storage piece, which conceivably also includes the power electronics, mind you, critically. That's actually a real value proposition there.

So I think you're going to see an evolution of sort of like a cash sale plus a lease sale, or like some sort of lease that effectively embeds the tax credit on the storage piece, but then also has an ongoing solar lease in there as well that just doesn't have a tax credit in it. So I think you're going to see, again, we talk about the evolution of the business model, the leasing terms are going to evolve to encapsulate and effectively price up modestly, but keep embedded the implicit tax credit that stays with the inverter and the underlying power electronics to integrate the storage as well as the storage solution itself. And I don't think that piece is going away.

And I think those are going to, you know, folks are going to innovate to get there in the next couple of years. That's where people are going to have to win, right? And we see new and novel business models emerging around storage as well. And I'm sure you've seen some of these different antidotes around Texas and how this is being sold, right, to consumers. Right. So stay tuned is what I would offer, right?

in terms of storage being the linchpin of how solar is sold and having imagination of how that can shift and create stickiness. Well, stay tuned, I would say, is a good coda to this whole conversation and a good way to end it. So, Julian, thank you so much, as always. Really fun to talk to you. Thank you, sir, so very much. Appreciate the time.

Julian de Moulin-Smith leads power utilities and clean energy equity research at Jeffreys. This show is a production of Latitude Media. You can head over Latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. This episode was produced by Daniel Waldorf, mixing in theme song by Sean Marquan. Stephen Lacey is our executive editor. I'm Shale Khan, and this is Catalyst.