The AI boom can give rooftop solar a new pitch

Rooftop solar has often been sold as a way of going off-grid. Facing a crisis, it needs a new pitch: Helping that same grid cope with the demands of the artificial intelligence boom.

Federal credits for rooftop solar are poised on a knife edge in the giant tax bill wending its way through Congress. Current Senate language looks set to chop them to zero in short order, although one Senator indicated this week that some unspecified relief may yet surface in future drafts. Absent a significant revision, that the solar-allergic House majority could live with, this would be the third big blow to the industry in as many years; the others being cuts to state incentives, particularly in California, and higher interest rates. Installations fell last year for the first time since 2018. Shares of the number one installer, Sunrun Inc., are down by almost a quarter so far this year and almost 90% over the past four years. Two large firms, Sunnova Energy International Inc. and loan provider Solar Mosaic LLC, filed for bankruptcy earlier this month.

Lost incentives and higher interest rates don’t just represent an economic headwind; they upend the entire business model. Rooftop solar has developed peculiarly, and expensively, in the US, in part because the federal tax credit, while useful, is cumbersome. An industry of financial middlemen emerged to monetize those credits, whose added fees equate to about one third of the cash cost of a home solar system, according to Bloomberg NEF.Installations were made viable by low interest rates and state incentives mandating that utilities buy any excess power from rooftop systems at retail rates, well above its marginal value and effectively forcing bill-payers without solar panels to subsidize their neighbors. This, along with rising utility rates, allowed developers to offer savings against traditional electricity bills. The result was a growing, but fragile, industry that must reduce its vulnerability to tax-policy swings, regardless of the precise pain inflicted by Republicans this time.


Assuming federal tax credits are toast, rooftop solar will suffer a massive cost shock. The only remedies are to cut costs in areas such as marketing and installation, or find new sources of revenue. There is certainly scope for cost cuts, not least those financing fees. But this would be a multi-year process, with lower sales in the meantime. Marketing and permitting costs are ripe for cuts but also sticky.

The bigger opportunity lies in remaking rooftop solar’s value proposition — which begins by making it smarter.Even California eventually stopped paying homeowners for their excess electricity during the day when it was quite clear the market was saturated with solar power anyway. New state regulations encourage rooftop panels to be paired with batteries so that owners can reap more value from storing excess daytime power and using it to limit their consumption of more expensive grid-power after sundown.

This is the necessary step toward a bigger goal: Virtual power plants, or VPPs, which take the atomized resources spread across rooftops and basements and combine them via software into large scale, coordinated power players on the grid.

The catch with batteries is the added expense. A typical residential solar system cost almost $29,000, before federal and state incentives, at the end of 2024, according to Energy Sage, an online marketplace for clean energy products. Even though the current tax-bill language appears kinder to batteries, adding one of those cost an additional $13,500 — and that was before tariffs kicked in. Taken together, that’s almost as much as buying a new vehicle.

There are, however, other potential pools of value that such a system can tap. As I wrote here last fall, electricity bills are a concern already across much of the US and the energy needs of datacenters, electric vehicles and the like will strain grid-operators’ ability to balance reliability, affordability and sustainability. Rising costs, and lengthening backlogs, for everything from gas turbines to transformers make the usual model of overbuilding grid-capacity to meet rising peaks in demand economically extortionate and perhaps simply infeasible.

Distributed energy resources, which include rooftop systems and co-located batteries, offer a means to shave those peaks in demand instead — provided they can be aggregated. A homeowner can use a battery to shift excess solar at noon to curb their draw on the grid at night. A VPP, however, can provide grid-balancing services, including flexible demand management, in return for payment. At scale, load-shifting not only saves on individual bills; it reduces the amount of investment required to upgrade and expand the grid, particularly in local distribution networks where spending has increased the most. This also ultimately reduces power bills and makes those new loads coming onto the grid easier to bear. Plus, distributed resources offer backup in a blackout and can often be sited and connected far more quickly than utility-scale projects.

Jigar Shah, former head of the Department of Energy’s Loan Programs Office who now runs advisory firm Multiplier, is something of an evangelist for this sort of rooftop reinvention. In a recent essay for Utility Dive, he highlights the efforts of Xcel Energy Inc., a large Midwestern utility, to incorporate distributed capacity into its grid planning, taking such resources from being just “backup” for the system to being part of its “backbone.” There is an irony here. Not too long ago, the utility sector was fretting about cheap solar power fueling mass disconnections by homeowners, touching off a ‘death spiral’ of higher power bills pushing yet more people to disconnect. Today, those rooftops could be key allies for a grid struggling with its biggest challenge in decades.