Daniel Pidgeon, ERS, for Zondits
Stephen Lacy, the editor-in-chief of GreenTech Media, sat down with Shayle Kahn, Senior VP of GTM Research for a special podcast on the solar industry’s record-setting 2016. The 36-minute podcast is worth the listen, but we’ve summarized some of the highlights here:
America’s solar market nearly doubled in size last year, for a whopping 95% growth rate from 2015 to 2016. This is the most rapid growth rate the solar market has seen to date. In 2016, 14.6 gigawatts dc of solar were installed, and the total of individual US installations rose to over 1.3 million individual. In addition, solar was the single largest source of new electricity generating capacity (not generation), beating natural gas, coal, and wind. This is the first time that solar has reached this milestone.
2016 also showed a 19% increase in the residential market, a 49% increase the nonresidential market, and a 145% increase in the utility-scale market – proving that the utility-scale solar market is still the driving factor behind the massive growth pattern (at 72% of the entire solar market). Utility saw this unprecedented growth for two major reasons: 1) utility-scale solar is finally becoming more cost-competitive and 2) the solar investment tax credit (ITC) was expected to expire at the end of 2016, forcing projects to meet the year-end contracting deadline. Fortunately, the solar ITC successfully achieved a multiyear extension, which should lead to more growth in the future.
Despite the multiyear extension for the ITC, Kahn says to be cautious about drawing too many conclusions from these 2016 numbers. In his mind, the 2016 solar year was largely driven by policy phenomenon, creating a growth pattern that cannot be expected to repeat. The top two drivers of utility-scale growth are: 1) The California Renewable Portfolio Standard (RPS) and 2) The Public Utility Regulatory Policies Act (PURPA). The California RPS has reached its utility targets for the next few years, suggesting that growth may slow in the next couple of years. In addition, PURPA is federally mandated, and so it is something to watch closely with the new administration. Kahn believes that the California RPS and PURPA won’t drive utility-scale solar forever. Therefore, continuing the learning curve and decreased costs with more readily available financing will be important for continued utility-scale growth.
After growing 50% each year for the previous 4 years, the residential solar market only grew 19% in 2016. The biggest market, California, only grew 5% last year, with smaller installers now taking a greater market share. Two notable states are Texas, which more than doubled, and Pennsylvania, which grew five-fold in 2016.
There are two sides to the coin in analyzing the residential market’s recent struggles after it appeared to be this rocket ship of growth. First, companies like Solar City, Sunrun, and Vivant, which together make up more than half of the residential market, may have slowed their cash flow by deliberately slowing their growth. Second, these decisions by these companies could also be a function of what’s happening in the market (where high-solar states are running out of room to grow, and so they are forced to dial back their growth ambitions). The hope for residential solar is for California not to drive half the market anymore. There is growth to be had in states like Texas, Florida, and Pennsylvania – populous states with an undertargeted residential market.
The commercial sector, as Kahn put it, is consistently the hardest market to succeed in. Kahn states several reasons why this market takes just a small slice of the pie: it is still difficult to obtain credit scores for small-business owners, transaction costs remain high, and financing is not readily available. Large commercial and community solar growth is the main reason for the commercial solar growth rate of 49% last year. Kahn thinks that one of the commercial sector companies will finally get this market down to a science so that the smaller commercial projects can finally flourish.
Solar generation is now approaching 2% of all electricity generation in the US, after passing 1% just last year. When asked if we are on the path of exponential growth, Kahn quickly replied no. However, he emphasized that this is not bad news. Is exponential growth realistic? Probably not. But, we are experiencing continued meaningful growth to hit 250 gigawatts by the next decade. Costs continue to fall (with little indication that it’s going to level off), while the cost of electricity continues to rise (broadly speaking), creating more opportunities for solar to enter the market.
The big questions moving forward are: What is solar’s contribution to peak capacity reduction? Is solar reducing that peak? Does impact on load lead to impact on greenhouse gas emissions through the use of solar? These are the big-picture questions that Kahn and others are trying to answer. The Solar Market Insight report containing analysis and forecasting will be released on March 9. This will be a more in-depth look at the solar market over the past year, and it should address the future of the solar industry.