By Mitalee Gupta and Molly Cox
The fallout from the coronavirus pandemic and the looming threat of recession are expected to drive down pricing for front-of-the-meter solar and storage systems even faster than expected.
Project construction delays and tightening consumer spending will drive down storage and electric vehicle demand. This in turn will cause United States front-of-the-meter (FTM) storage system costs to decline more rapidly than previously forecast.
At the same time, we find that solar PV system costs in the U.S. are falling faster than anticipated across all market segments.
Declines in FTM solar system costs are primarily being driven by module price reductions, which are partly attributable to price pressure on manufacturers stemming from demand destruction caused by the coronavirus crisis. Similarly, battery price reductions are the key factor driving the broader system-price reductions we are expecting for FTM energy storage systems.
Storage pricing impacts from the coronavirus pandemic
Stakeholders anticipate delays in FTM energy storage and solar projects for the U.S. in 2020. Global EV sales are also expected to drop by 43% year-over-year.
Driven by the downside in battery demand from both storage and EV markets, system cost declines for FTM storage are going to reach 10% year-over-year in 2020, which is significantly more than the 7% year-over-year decline anticipated in our pre-coronavirus scenario.
Forecasted base-case and coronavirus-case year-over-year decline in FTM storage system costs, 2012-2025E (%)
In the near term, there is a risk of battery oversupply, especially among Chinese vendors. Post-2022, the market will begin to rebound and is expected to return to normalcy.
Beyond batteries, storage balance-of-system costs will see minimal impact due to the COVID-19 pandemic. Once the pandemic is contained and the global economy begins to recover, system costs will resume their previously forecasted pace of steady year-over-year declines.
Covid-19 and front-of-the-meter solar pricing
In the domain of solar, mono PERC utility system costs are now expected to decline 20% from 2020 to 2025, compared to the pre-pandemic forecast of a 16% price decline during that period.
Module cost reductions will be the most significant factor impacting commercial and industrial and utility-scale system costs.
Module manufacturers are not only facing reduced demand and subsequently lowering margins to stay competitive, but they are also experiencing a reduction in their supply-chain component costs, leading to module price declines at the end of Q1.
The reduction of the federal Investment Tax Credit to 26% in 2020 will create further downward price pressure across all market segments, for both developers and engineering, procurement and construction providers. However, we don’t expect significant changes to system costs, as these industry participants have been preparing for the stepdown for some time.
As the solar industry faces demand destruction in 2020 resulting from the ongoing pandemic, the impact across market segments will vary. For the residential segment in particular, we expect demand to pick back up by the end of the year before the Investment Tax Credit steps down again in 2021.
As a result, some companies may be able to maintain healthier project margins toward the end of 2020 as a result of the heightened demand, in a manner akin to the situation seen at the end of 2019.
Molly Cox is a solar analyst and the author of the new Wood Mackenzie report U.S. Solar PV System Pricing, H1 2020. Mitalee Gupta is a storage analyst and author of U.S. Front-of-the-Meter Storage System Price Trends, H1 2020.