Clean energy supply chain
Canary Media’s Solar High Rollers column covers big developments and trends in solar.
The U.S. solar market has managed to notch a decade of steady growth despite shifting global economics and oscillating domestic energy policy. Expansion has continued even in this weird year.
With results reported for three quarters, analysts are estimating that 19 gigawatts of utility-scale solar and almost 4 gigawatts of distributed solar will be deployed in the U.S. this year — record amounts in both categories. The industry is thriving despite high installation costs, worker shortages, supply-chain woes and import tariff complexity.
American residential and distributed solar companies have weathered the Covid-19 storm with software and new online strategies, enabling the market to grow with strength over a tumultuous 18 months. The pandemic put resilience at the front of people’s minds and accelerated adoption of digital sales practices.
Here’s a guide to the top trends in the U.S. solar market in 2021.
U.S. solar growth is breathtaking and persistent. On top of the 23 gigawatts expected to be deployed in the U.S. this year, research house S&P Global Market Intelligence has put out an aggressive forecast of 44 gigawatts coming online in 2022, which would be almost a doubling year over year.
Solar is now the “cheapest electricity in history,” according to the International Energy Agency.
Installed solar capacity in the U.S. has topped 100 gigawatts, according to a midyear report from the Solar Energy Industries Association and Wood Mackenzie. The number of solar projects with capacities greater than 100 megawatts is booming across all regions of the U.S.
Demand in the U.S. remains strong with 17.4 gigawatts of capacity in development or under construction, according to S&P researchers.
Here’s the overall U.S. solar installation track record from the last decade and forecast for the coming decade.
The perennial PV price drop is over
For the first time in the memory of many solar analysts, prices for solar system hardware increased in an industry where it was assumed that prices would continue to decline.
- Prices rose across all solar sectors for two quarters in a row.
- All of the commodity materials used to make solar modules are experiencing upward price pressure, including polysilicon, silver, copper, aluminum and glass.
- High prices for polysilicon, the main ingredient in crystalline-silicon PV cells, are putting some solar projects in jeopardy, as Canary recently reported. BloombergNEF’s solar team notes that polysilicon spot prices have rocketed from a low of $6.30 per kilogram in 2020 to $37 per kilogram at the end of this year.
- High prices for steel are increasing the cost of trackers.
- Global logistics woes are forcing delivery delays and price hikes for materials and components. Shipping costs have increased up to 500 percent by some analyst estimates.
Solar is still the lowest-cost generation source in many locations, but power-purchase agreements are being renegotiated because margins are razor thin. Still, strong demand for solar means that projects are more likely to be delayed than canceled. The rising costs of solar inputs and power-purchase agreements are in line with rising costs and prices for all new generation.
Things that might have been
The Democrats’ Build Back Better plan, which passed the U.S. House and was scuttled in the Senate, had $555 billion in funding for climate change and clean energy. It included a 10-year extension of a tax credit and production credit for renewables projects and a credit for stand-alone energy storage installations, both of which would have been boons for the industry.
But the radical change in Build Back Better was the “direct-pay” provision that would provide the option of financing renewable projects with the Investment Tax Credit in the form of a tax refund instead of tax credits.
Under the bill, the Investment Tax Credit and direct-pay provisions would have increased from 26 percent to 30 percent and potentially could have included a 10 percent adder for projects that use domestic materials and pay prevailing wages. It would mark a significant change in the way we finance renewables projects in this country.
Perhaps a Christmas Manchin miracle will allow some elements of these laws to be enacted in 2022.
A push for solar manufacturing in the U.S.
Can the U.S. be a solar-powered nation without a domestic solar supply chain? Can the U.S. solar industry regain its production mojo?
U.S. solar manufacturers have largely lost the battle with China. The U.S. currently has a meager 7.5 gigawatts of PV module production capacity, according to Wood Mackenzie, out of a global capacity of nearly 400 gigawatts, according to Solarzoom.
Determined U.S. policymakers are trying to advance legislation with subsidies and support that might spur domestic solar manufacturing and tap its power as a potential jobs engine.
The Solar Energy Manufacturing for America Act, introduced in June by Senator Jon Ossoff of Georgia (D), would create a generous tax credit for domestic solar production at all steps of the solar module supply chain in order to bring some of that offshore manufacturing back onshore.
Canary recently published a list of U.S. solar manufacturers and a roundup of manufacturing news.
Software gives residential solar a boost
Sunrun, the leading U.S. residential installer and financier, raised its guidance on megawatts installed twice in 2021.
It took a pandemic to make it happen, but the U.S. residential solar (and storage) industry has finally figured out how to lower customer-acquisition costs: use software to move the whole process online.
U.S. solar software companies are intent on optimizing design and lowering pricing by focusing on“soft costs,” industry parlance for everything that’s not hardware. Soft costs — which now account for 55 percent to 60 percent of the average residential installation price — include customer acquisition, design, installer overhead, financing, contracts, inspection, permitting and interconnection.
This software subsector is active and winning funding. Solar software dynamo Aurora Solar, flush with a $250 million funding round and a reported valuation of $2 billion, in August acquired Folsom Labs, a software company focused on solar system design for commercial buildings. Aurora uses remote imaging to design rooftop solar installations, aiming to shift a labor-intensive and in-person design process online. Residential solar software maker Sofdesk was acquired by microinverter builder Enphase earlier this year.
Here’s a roundup of software startups looking to improve system design and the solar customer experience.
Never-ending net-metering fights
California’s long-standing net-metering policy allowed the state to cement its position as the undisputed leader in rooftop solar in the U.S.
A recent proposal by the California Public Utilities Commission would drastically change that policy.
The decision caught the industry by surprise, as Jeff St. John reports for Canary:
Last week’s proposed decision from the California Public Utilities Commission would be far more damaging to rooftop solar economics than most industry analysts had predicted. In fact, industry groups contended on Monday that its impacts would be so severe that they see little chance of it being approved by the CPUC next month in its current form.
At issue is how much solar-equipped homes should be paid for the electricity they export to the grid and how much they should be required to pay to support the broader utility system they rely on when they’re not generating their own power.
The new plan would reduce payments for solar power fed into the grid and impose the highest fixed fees in the nation on rooftop systems installed in the future. Solar industry groups warn that the policy could turn the country’s leading market into the country’s costliest for new adopters of rooftop solar, potentially decimating a thriving sector and undermining the state’s clean energy goals.
The proposal largely embraces the argument that California’s existing net-metering program unfairly burdens utility customers who can’t afford rooftop solar with excessive costs.
Solar groups have vowed to press California Governor Gavin Newsom (D) and the CPUC’s commissioners to put forward an alternative proposed decision in the next 30 days. The existing proposal, as well as any alternative proposals that emerge, could be voted on by the commissioners as early as January 27, 2022.
California has long been a U.S. vanguard for rooftop solar and distributed energy, and it remains the most important market for solar companies. That makes the CPUC’s decision important not just for the state’s residents but for the U.S. solar industry as a whole.
Read St. John’s full report on the contentious decision.
Interconnection queues reveal the glorious solar future
If you want a glimpse of the future of clean energy in the United States, take a look at the projects applying to get on the grid in the coming years in the territories of grid operators ERCOT, PJM and CAISO. Solar, wind and storage dominate the lists.
Texas grid operator ERCOT could potentially add more than 70 gigawatts of utility-scale solar by 2025.
Not every project in an interconnection queue gets completed and goes online. But applying for and getting an interconnection agreement — a long, expensive process — is a key step in developing new electric power generation and not done casually.
Innovation and VC investment in solar
Despite the investment scars of the past, investors are optimists and are continuing to fund solar entrepreneurs with good ideas.
We reported earlier this year on startup Erthos, which dispenses with trackers and racking altogether and installs photovoltaic solar modules directly on the ground. Ojjo, another innovative startup, provides “a new way to approach solar foundation design.” It uses a truss system it claims requires only half the expensive steel used in a conventional installation. With backing from VCs, a throng of startups are trying to commercialize perovskites as a new photovoltaic material.
There’s financial innovation underway in the solar space at Finite, GoodLeap, Mosaic and PosiGen. GAF Energy is seriously pursuing integrated solar roofs, while SolarEdge and Enphase are introducing smarter electronics and storage.
Here are some of the largest solar corporate funding deals of the year through Q3:
- GoodLeap: $800 million
- Aurora Solar: $250 million
- Nexamp: $240 million
- Intersect Power: $127 million
- Arcadia: $100 million
Solar-plus-storage on the rise
“Of the 170 gigawatts of solar projects entering the grid interconnection queues in 2020, 36 percent were paired with batteries,” according to a report from Lawrence Berkeley National Laboratory.
“Everything in 2022 will have a storage component,” George Hershman, CEO of engineering procurement and construction company Solv, told this author. “Everything in California and the West, every contracted asset is going to have storage. We’re seeing the scale [of storage] go up and cost go down, and we understand how to monetize it. It’s here to stay.”
LBNL points out that not all solar-storage hybrid plants are the same or equally competitive. Its report finds that “with currently available tax incentives, the most attractive hybrids tend to have a two-hour battery duration, with little difference to four-hour durations.”
The Biden and Trump administrations have agreed on at least one thing: maintaining trade sanctions against Chinese goods, including solar panels.
In 2018, Trump introduced 30 percent tariffs on photovoltaic solar cells and modules. An article on the Council on Foreign Relations website reports that Trump imposed tariffs “more than any recent president, particularly against China, and President Biden has so far left these levies in place.”
Depending on which politician, economist or industrialist you ask, import tariffs are either effective tools for defending trade sovereignty or blunt instruments that raise consumer costs and do little to create domestic industries.
The U.S. International Trade Commission (ITC) recommended last month that Biden keep the duty on imported crystalline silicon PV cells and modules — currently at 15 percent — with annual stepdowns of 0.25 percent over the next four years.
The Biden administration also imposed import restrictions on silicon from a producer in China’s Xinjiang province because facilities there were linked to forced labor of Uyghur Muslims, as reported by Canary.
As noted above, U.S. solar manufacturers have largely been beaten out by China. Defenders of the ITC recommendation see a path from increased prices for U.S. solar customers to the creation of a domestic manufacturing ecosystem.
On the other hand, the Solar Energy Industries Association has asked that Biden let the tariffs expire. “President Biden has set a bold vision for the U.S. to lead the world on clean energy. Extending these tariffs will hold us back from realizing that vision,” said Abigail Ross Hopper, CEO of the trade body, as reported by PV Tech.
Competing solar forecasts
Rystad Energy projects that shipping and supply-chain costs could trigger the postponement or cancellation of over half of the world’s planned 90 gigawatts of utility-scale solar power projects.
But U.S. solar installation and manufacturing could accelerate if Congress passes the budget reconciliation bill.
While Wood Mackenzie was leaning toward optimism and forecasting year-over-year growth of more than 12 percent for the global solar industry, the analyst house just lopped off 7.4 gigawatts, or 25 percent, from its previous 2022 forecast because of supply-chain issues.
S&P Global Market Intelligence is more sanguine. As mentioned, it forecasts that the U.S. solar market could almost double in 2022 to 44 gigawatts. What stresses might that gargantuan rate of growth create in labor markets, supply chains and interconnection queues?
BloombergNEF’s Jenny Chase is pushing her team to increase their global solar power projections, John Fitzgerald Weaver reports in pv magazine. “There is always at least a bit more solar than you think there is,” Chase tweeted. She also called the International Energy Agency “cowards” for its lowball solar projections.
“The U.S. solar market has never experienced this many opposing dynamics,” said Michelle Davis, principal analyst at Wood Mackenzie. “On the one hand, supply-chain constraints continue to escalate, putting gigawatts of projects at risk. On the other, the Build Back Better Act would be a major market stimulant for this industry, establishing long-term certainty of continued growth.”
Thanks for reading Canary Media this year, and fasten your seatbelt for the 2022 solar coaster.
Eric Wesoff is the editorial director at Canary Media.