One of the more promising energy developments of the Obama era has been the rapid growth of US solar power. Photovoltaic prices keep dropping, and installations keep soaring. Sure, solar still provides just 0.6 percent of our electricity. But the trend lines are encouraging:
One looming question, though, is whether the US solar industry will keep seeing record growth in the years ahead. And that's far from assured — particularly if a key federal tax credit expires in 2017.
The solar boom could stall in 2017 if Congress doesn't renew a key tax credit
Solar power has been booming in the United States for a bunch of different reasons. Chinese manufacturing has gutted the price of silicon panels. Installers like SolarCity have made financing a home system much, much easier. State incentives in places like California have mattered a lot. But one crucial factor has been the 30 percent federal investment tax credit for solar systems, first enacted back in 2006 and expanded greatly under the 2009 stimulus bill.
Unless Congress decides to extend this tax credit — and many Republicans aren't too thrilled with that idea — it's set to lapse on January 1, 2017. At that point, it will drop to 10 percent for utilities and commercial installers, and disappear entirely for residential solar.
What then? The most recent report from GTM Research and the Solar Energy Industries Association (SEIA) projects that solar installations will hit record highs in 2015 and 2016 before slowing dramatically in 2017:
Eventually, solar is expected to rebound — particularly under the Clean Power Plan
That's not the end of the story, either. The report expects the next half-decade or so to break down like so:
A record solar boom in 2015-'16: The near future is pretty much set. Utilities still have a slew of projects in the pipelines, interest rates are low, and everyone's racing to build before that federal tax credit expires. The US currently has 20 gigawatts of installed PV solar capacity today — that's expected to nearly double, to 38 gigawatts, by the end of 2016.
A serious lull in 2017-'19: Then ... things get bumpier. If Congress lets that investment tax credit lapse, the rate of installations is expected to slow dramatically in 2017. Most of the projects currently in the pipeline will have already been built, while the economics will get a bit less favorable for future projects.
Solar won't disappear entirely. The technology is still getting cheaper, and state incentives still exist in places like California. "Despite these headwinds," the report notes, "solar project costs will continue to fall and increasingly large pockets of demand will remain open. The overall market may decline substantially year-over-year in 2017, but growth from the new, smaller base will resume thereafter."
Indeed, some folks in the solar industry, like Jigar Shah, have even argued that the expiration of the federal tax subsidy could be good for the solar industry long-term — because it'll force installers to cut costs even further. We may be about to find out.
A rebound after 2020. Next up, starting in 2020, the Obama administration's Clean Power Plan is scheduled to take effect. States are supposed to come up with plans to cut emissions in their power sectors by 2022, although they get extra credit for acting early on renewables starting in 2020. The GTM Research/SEIA report expects solar to start growing again in this period:
Project costs will be significantly below today’s levels, placing solar on a strong competitive playing field with both retail electricity and alternative sources of wholesale generation," its report says. "Much of the uncertainty from [2017-19] will have been settled, and market participants will experience a more extended period of consistent expansion.
Most notably, this period will also likely be the time during which solar in the U.S. truly becomes a 50-state market, as the combination of CPP compliance and improving project economics will open up state markets that historically have seen very limited solar development.
On that last bit, note that up until now, the vast, vast, vast majority of solar installations have been happening in California — mainly because the state has a combination of sunny weather, ambitious renewable energy targets, and high electricity prices that give homeowners an incentive to defect to solar:
But once all states have to figure out how to cut greenhouse gas emissions under the Clean Power Plan, the report argues that solar could start expanding beyond California. Note that this isn't certain. It depends on how states design their implementation plans, what incentives they give for solar, and so on. But it's a reasonable bet.
Lots of other policy tweaks could affect the growth of solar
Note that this forecast is based on the current policy landscape and current projections for price and technology. But all sorts of surprises are possible, on the upside and downside.
On the upside: Congress could always extend that federal tax credit past 2016, giving solar a big additional jolt. (Hillary Clinton has said she'd push hard for an extension if she became president; it's part of her plan to dramatically scale up solar power.) Or we could see big breakthroughs in solar tech that bring down the cost much, much further. (Perovskites, anyone?)
But there's also a downside: States could start paring back some of their net-metering incentives for residential solar, which would cut into growth rates. Similarly, it's unclear to what extent state efforts to decarbonize their power sectors under the Clean Power Plan will favor solar — that's a big wild card.
In the long run, it seems inevitable that solar will play a major role in our energy mix. The sun is just too massive a resource to ignore. But in the short and medium term, solar's relentless growth is hardly assured. It'll still depend a lot on policy.
- Solar power still needs to get a lot cheaper. Are perovskites the answer?
- As mentioned above, it's worth reading Jigar Shah's piece on why the expiration of the federal tax credit could actually be a healthy thing for the industry by driving further cost reductions. Not everyone in the solar industry shares this view, but he draws some instructive lessons from other countries.
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