Last week, the Financial Times posted the graphs below highlighting two solar trends going in opposite directions.
The cost of panels has never been cheaper. China flooded the market after sustained overproduction, leaving supply levels elevated.
We would think that means getting solar panels on your roof has never been cheaper, but the exact opposite happened in the UK. The cost of installing solar panels on roofs has recently peaked and remains elevated.
The main culprit is labor.
Labor now accounts for 5-7% of the cost of installing residential solar due to rising wages in the US and EU.
These rising wages present a Catch-22. We have a labor shortage in the energy transition, and higher salaries attract additional skilled labor. But, higher costs will prevent more people from installing solar.
No sector is immune to the laws of supply and demand.
I stay true to the fundamental truths: the laws of supply and demand; liquidity equals value; limited competition; long-term relationships…They offer a framework through which I view potential opportunity. - Sam Zell
Labor and supply constraints are the two main limiters on throughput, too. Without an abundant supply, jobs sit idle until the work can begin.
The market has recognized the opportunity and that it applies to batteries, heat pumps, and EV charging too. Due to this supply and demand dynamic, private equity firms continue to buy and roll-up HVAC installers, electricians, and EPC firms. It's a smart strategy that will reward those who can execute.
When the Inflation Reduction Act passed, those I knew were excited, but the question on everyone's mind was, "Where do we get the labor?" It turns out that was the question, and it's still unanswered.