Like many of my colleagues in the solar industry, we still get a tinge of excitement when a new U.S. Solar Market Insight comes out. The quarterly report, published by Wood Mackenzie Power & Renewables (ex-GTM Research) and SEIA, remains the go-to snapshot of the state of play of the U.S. solar sector. Given the projections as of late, I decided to unwrap the latest edition–the 2018 year in review–and wanted to share a few “Cliff Notes” that are relevant to our part of the solar world.
2018 remained strong, but the next few years will be colossal. Although the total market declined 2% and the utility side contracted 3% in 2018 (tariff-driven uncertainty and interconnection delays didn’t help), the outlook provides reasons to be cheerful. By 2024, the total installed capacity of solar in the U.S. is expected to double from the 62.4 GW tallied at year’s end. From my days at SunPower to now at Nextracker, that number resonates for me in so many ways: it means we now have about 75 times the amount of solar that was installed in the U.S. in 2008, and the milestone 100 GW installed capacity mark should be crossed within a few years.
Utility is the once and future big dog. Of the 10.6 GW-DC of solar installed in the U.S. in 2018, the utility sector accounted for 6.2 GW, or 58%, of the total. The forecasts going forward show this utility-driven dominance will continue.
Utility PPAs and development pipeline numbers reach new heights. Although we’ve seen an uptick in activity from our developer and EPC partners, the latest data is staggering. A record 13.3 GW of new utility PPAs were signed last year as well as an all-time-high contracted utility project pipeline of nearly 24 GW (with over 2.5 GW under construction at year’s end), with more than 42 GW of projects in the precontracted stage. Since the vast majority of new ground-mount utility-scale projects are scoped for trackers, these prodigious numbers represent a big opportunity for our customers and us.
Voluntary procurement continues to rule and more utilities are getting on board. According to the report, while new renewable portfolio standards are coming online, “voluntary procurement remains the largest driver of new PPAs signed and is expected to drive 51% of 2019 capacity additions.” Plus, a growing number of utilities are adding solar to their generation portfolios. In short: Solar has become an electricity generation source of choice and can often compete purely on the basis of economics.
Average system prices are dropping. One reason for this emerging competitive advantage is lower modeled average system pricing, which has dropped well below a dollar per watt for projects using single-axis trackers (with larger-scale projects seeing even lower pricing). What the report doesn’t mention is that the bang for that ballpark buck-a-watt figure has increased, as we implement performance-enhancing tracker technologies such as our award-winning TrueCapture™ smart control systems and integrated bifacial PV panels.
PPAs are at all-time lows with shorter durations. Although this was only alluded to in the executive summary (and covered in more detail in the full report), there’s a trend afoot where power purchase agreements are being priced sub-$30/MWh and contracts are shortening from the previous 20- or 25-year terms to 15 and even 10 years. Shorter PPAs mean a tighter window for investors/owners to get their return. This trend also raises the spectre of added risk and uncertainty in terms of the post-PPA “residual value” of the power plant. What will the plant be worth on the secondary market after the PPA runs its course? We see this as an opportunity to educate the industry on the importance of maintaining and enhancing the lifetime value of their solar investment through intelligent asset management, yield-boosting technologies that future-proof against declining production, and smart operations and maintenance practices.
The ITC elephant in the room awakens. One of the biggest influencers on the near-term growth trajectory of the U.S. solar market over the next few years will be the stepdown of the Federal Investment Tax Credit (ITC). While we can’t share the deeper “ITC safe harbor forecast” discussion found in the full report, suffice it to say that our developer partners are tightening up their plans as the tax credit drops gradually from 30% to 10% in 2023. The timing of when projects in a company’s contracted pipeline should begin construction in order to get the most ITC benefit are among the dynamics keeping planners up at night as they navigate the coming reduced-ITC world. While PV modules have historically been viewed by developers as the “first choice” component to safe harbor, structures such as trackers are becoming increasingly popular as go-to safe harbor components as well. Companies like Nextracker, which have robust supply chains and “manufacture-to-order” business models that can execute on the changing “commence construction” environment, will be well-positioned to support the industry during the ITC transition.