In March 2022, during a lunch with Sunnova’s then-CEO John Berger, the outlook for the residential solar company seemed promising. Berger explained that increasing energy costs and the rise of remote work had heightened consumers’ awareness of their electricity usage. Furthermore, national efforts to combat climate change and address energy security issues following Russia’s invasion of Ukraine were providing additional impetus. He noted the broader instability in energy markets, saying that many consumers and companies would seek more solar and battery solutions for stability.
That positive outlook has since shifted dramatically. On Sunday, the company declared bankruptcy as its debts grew and the residential solar market encountered challenging circumstances. This significant reversal offers valuable insights into the clean energy industry’s past, present, and future. The combination of President Donald Trump’s policy reversals and existing market pressures has created substantial obstacles for numerous clean energy businesses.
However, Sunnova’s situation should not be interpreted as a sign that renewable energy is failing. Companies with different business strategies that rely less on consumers and tax incentives may experience better outcomes.
To fully understand Sunnova’s trajectory, it’s necessary to revisit the company’s founding in 2012. At that time, the residential solar sector was thriving. The cost of home installations had decreased significantly in previous years, and historically low interest rates made solar panels more accessible. A crucial business model innovation for companies like Sunnova involved financing or leasing systems to customers, removing the need for upfront payments.
Sunnova went public in 2019, and its valuation, along with those of many other clean technology companies, subsequently surged. By January 2021, its market capitalization exceeded $5 billion. However, its fortunes eventually began to change. While solar panels can save money over time by reducing grid electricity purchases, the need for consumers and businesses to borrow money for installation meant that rising interest rates presented a greater financial challenge. Even before Trump’s presidency, policy changes, such as alterations in how California utilities compensate consumers for electricity, slowed the industry’s progress.
There’s no doubt that Trump and his political allies in Washington have exerted significant influence. Upon assuming office, he instructed federal agencies to implement policies detrimental to renewable energy, and Congress is currently considering a budget package that would effectively eliminate most clean energy incentives included in President Joe Biden’s landmark climate law. Given the sector’s reliance on tax incentives to make the numbers work, this would severely affect residential solar.
The prospects for various segments of the clean energy economy appear to be increasingly diverging. Offshore wind is often cited as a particularly troubled sector, having faced supply chain issues and permitting hurdles in recent years. Moreover, for reasons that remain unclear, Trump has shown particular hostility toward offshore wind, and his administration has made specific efforts to impede its growth. Residential solar, heavily reliant on government incentives for economic viability, is also highly vulnerable, and Sunnova may not be the only casualty in this area.
It would be naive to assume that any clean technology is immune, particularly if Congress approves the proposed budget package. This legislation would aggressively phase out crucial clean energy tax credits, leading to a reduction in renewable energy additions, although the extent of this decline is debatable. Estimates range from a 10% decrease to as high as a 70% decrease.
Nevertheless, certain technologies, particularly utility-scale solar power and battery storage, will likely remain economically viable in many regions. Electricity demand is increasing, and solar is often simpler and cheaper to build than gas, the primary alternative. Other clean power sources, such as geothermal, also exist. Although geothermal energy is disadvantaged by the current package, some Republicans, including U.S. Energy Secretary Chris Wright, have advocated for maintaining tax incentives for this power source.
None of this will benefit Sunnova or other companies focused on consumers and subsidy-dependent distributed solar installations. However, despite the industry’s challenges, not all companies are in equally dire situations. Clean energy installations, including solar, will continue, although at a slower pace than previously anticipated.
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