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The future of residential solar power is bright, but a little bumpy

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Elon Musk's recent moves with SolarCity come at a potential turning point for the burgeoning industry

Electric cars, the hyperloop, space travel: Tesla's Elon Musk, master of futuristic technologies, always has a plan. But speculation about the company's recent $2.8 billion purchase of SolarCity, the green energy behemoth building a massive solar panel factory in Buffalo, New York, suggest that while Musk has compelling visions for the future, even he may not have a handle on a technology seen as a key part of the future of sustainable energy.

A midcentury creation, modern solar power has repeatedly been championed as a solution to our energy woes. But especially in the United States, the technology has never lived up to the hype.

Musk’s plan for expanding solar energy generation, especially the much-hyped idea of selling a solar roof or solar shingles, and creating an "end-to-end clean energy, sounds exciting. The timing seemingly couldn't be better, since many predict the market to grow: Bloomberg New Energy Finance predicts U.S. homes will add 2.6 gigawatts of solar panels this year, double the amount in 2014, and by 2020, that number should rise to 3.6 GW a year.

But rosy predictions aside, it’s the fundamentals of the market—awareness and cost—that will drive wider adoption.

We’ve been in boom times

Solar power has just witnessed more than a decade of record-breaking growth in the United States. Better technology, and easier installation of more efficient panels means the price-per-watt, a measure of efficiency, has dropped dramatically, from $6 in 2007 to $3 in 2014. According to the Solar Energy Industries Association (SEIA), this year should be another big one, with a 119% increases in solar installation nationwide, which should bring the U.S. close to the milestone 1 millionth solar installation in the country.

But despite all those positive trends, residential solar installation is still lagging behind where it could be.

State-level decisions still make a big difference

While it’s easy to focus on the feel-good nature of solar panels—and the empowerment that comes from doing your own small part to help fight climate change—for many consumers, it’s still about the money. According to Austin Perea, a solar analyst at Greentech Media, an industry research firm, two recent policy initiatives have helped make solar power more accessible, affordable, and sensible for U.S. consumers.

The first, the federal Solar Investment Tax Credit (ITC), which offers a 30% tax credit for residential and commercial solar systems, has been a catalyst for the growth in solar since being introduced in 2005. By making the down payment for rooftop panels more affordable, the subsidy has been the primary driver for the big boom in residential solar power across the country, and was recently extended through 2023.

But in many ways, decisions made by state government and local utility companies can have equally big impacts, since they control the day-to-day economics of electricity prices. Perea points to the numerous debates around net metering as a key factor in the growth of local solar markets. Net metering is when a household gets credit for the power they generate throughout the day and send to the grid. It’s a huge benefit to homeowners with solar panels, since it basically provides another subsidy and lowers the cost of a solar system.

But not everyone sees it that way, or wants to pay the extra subsidy, and it makes a huge difference in how the economics of solar work out. Nevada has been a huge growth area for solar, according to Perea, but since the state cut net metering, he sees new installations tanking during 2016. Contrast that with California, where net metering can mean an extra 10-15% savings on electricity for consumers with solar panels. The bottom line is the bottom line.

"The federal investment tax credit sets the level, but net metering can be a big deal," says Perea. "How state public utility commission’s rule on net metering policy can be a pretty significant factor in maintaining viable rooftop economics."

Others believe that bad policy is holding back the expansion of residential solar. A recent report from the Center for Biological Diversity called Throwing Shade, calls out 10 states that are blocking distributed solar potential through bad policy, despite having great potential for expanding the market.

Third-party players, and loans, matter

Another factor that helped bolster the growth of solar power is loans. Many companies would use what’s called Power Purchase Agreements (PPAs), sort of a solar mortgage that allowed customers to get panels installed for little or no upfront cost, as long as they agreed to purchase power from the third-parties that owned the rooftop panels. These types of agreements were used in the majority of installations over the last decade, and SolarCity was a big innovator in the field. Just this summer, the company introduced a new leasing program that allows buyers to own their panels with a more advantageous 10-year lease.

But reliance on loans may end up hurting SolarCity in the long run. A recent Pricewaterhouse Cooper report concludes that the price of solar technology is declining to the point where many consumers may prefer to just own their systems outright instead of pay interest on PPAs. It could be good for some, and lead to a more competitive market, but will force SolarCity to change its model.

Do we need new technology, or just better regulations? Likely both

Tesla and SolarCity are placing a big bet on a future that isn’t quite there yet: distributed, consumer-controlled power. Musk looks toward a day when home battery storage and rooftop solar systems allow a consumer to power their homes and electric cars.

But serious changes need to be made to usher in that idealistic future. Most importantly, the electric grid and utilities need major reform. Power generation needs to be both decentralized and interconnected, allowing areas of excessive sunlight to "sell" power to those with less generating capacity, while creating the framework for microgrids that give consumers, neighborhoods, and cities more power over their own power.

It’s an optimistic future that hasn’t quite arrived. Musk’s impatience aside, it’s not that far off; it’ll be interesting to see if his companies can help the us realize that future more quickly.