By: Scott Elkind, Chief of Litigation Strategy
Over 100 solar companies declared bankruptcy in 2023 including large companies such as Sunnova, Sun Power, Solar Mosaic, among others.
CAUSES OF SOLAR COMPANY BANKRUPTCY
Why did this happen?
Reason No. 1: Rising Interest Rates
The federal reserve aggressively increased interest rates to combat persistent inflation. This move resulted in financial strain throughout the solar industry as it increased borrowing costs significantly. As increased interest rates affected the loan rates charged to consumers, fewer persons purchased solar power.
Reason No. 2 : Governmental Policy Changes
California adopted Net Energy Metering 3.0 which reduced compensation paid by nearly 75% for the production of excess electricity from solar consumers. This resulted in solar power becoming less desirable by consumers and decreased revenue by the solar companies.
Reason No. 3: Financing Structure Difficulties
Many solar companies utilized complex financing arrangements which became counterproductive when stock market conditions shifted in general, and specifically, due to interest rate changes. Companies that had offered zero-down installation found this practice unsustainable as they were undercapitalized to cover such arrangements.
Solar companies also changed their vendor payment practices which resulted in prolonged payments to installers while the solar companies waited for incoming revenue to cover these costs. In the end, many companies could not longer meet these extended payment obligations which strained their daily operations.
Reason No. 4: Unsustainable Business Models
As referenced above, zero-down financing arrangements become unmanageable due to shifting market conditions.
As also mentioned previously, market share acquisition was squeezed by higher interest rates which left companies chasing market growth suffering from an inability to adapt away this strategy, especially companies funded by aggressive growth oriented venture capital concerns.
Solar companies that expanded too rapidly strained their infrastructure and became increasingly unable to support their services to their growing customer base, resulting in poor service and warranty violations.
EFFECTS OF SOLAR BANKRUPTCIES ON CONSUMERS
Solar bankruptcies affect the consumer in many ways.
Effect No. 1: Service/Warranty Uncertainty
When a solar company declares bankruptcy, they no longer provide technical or maintenance support for the solar systems they have sold, including system monitoring, troubleshooting support, and routine maintenance. This leaves consumers without recourse for warranty coverage and/or system maintenance issues.
Although equipment warranties may remain in place, it is now incumbent of the consumer to navigate difficult claims processes instead of this being done by the solar company which promised to perform ongoing maintenance.
Effect No.2: Ongoing Financing Arrangements
Even though a solar company has declared bankruptcy, the company will instruct the consumer that the bankruptcy does not relieve the consumer from making payments on their installed solar equipment even when the solar company is no longer providing service.
This is where we come in. Our firm provides assistance in these situations and guides clients through this complicated process in an effort to provide them relief from the costs of solar equipment from a company gone bad.