US solar to end the year with 55% more capacity than 2022
4 minute read
Head of Global Solar
The US solar industry installed 6.5 gigawatts-direct current (GWdc) of capacity in the third quarter of 2023, a 35% increase from Q3 2022 and a 1% increase from last quarter. This was a record third quarter for the industry, building on the installation momentum of the last few quarters. It reinforces our outlook that the US solar industry will install 55% more capacity this year than in 2022, driven by a recovery in utility-scale volumes.
In our US solar market insight Q4 2023 report, created in collaboration with the Solar Energy Industries Association (SEIA), we highlight the most recent segment dynamics that will contribute to a record year, along with our current forecasts.
Fill in the form for a complimentary copy of the 15-page executive summary. Or read on for some key highlights.
As solar module supply constraints ease, limited availability of other equipment takes the spotlight in the US
As 2023 comes to a close, it’s clear that the utility-scale solar industry has recovered significantly after a rough 2022. The segment has already installed 12 GWdc, slightly less than total utility-scale installations last year. As we’ve reported in the past, supplier diversification and releases of module detentions from Customs and Border Protection (CBP) have resulted in notable increases in solar module imports this year compared to last year.
However, it’s important to acknowledge the differences in solar module supply dynamics between the US and the rest of the world. Imbalances in global solar module supply and demand have put significant downward pressure on module pricing, with average global pricing falling 30-40% from the first quarter to the third quarter. This imbalance is driven by excess capacity in China, which makes up less than 0.1% of US module imports due to a combination of tariffs and enforcement of the Uyghur Forced Labor Prevention Act (UFLPA).
As module supply has loosened, supply of other types of electrical equipment has become a greater concern for the utility-scale segment
Consequently, module supply to the US utility-scale sector is still tighter than other global regions. Demand for modules from top tier 1 manufacturers is in high demand. This has kept US module pricing significantly above price points in other countries, even without anticircumvention tariffs. Still, the ripple effects caused by this imbalance have pushed US module prices down 10-15% over the same timeframe as supply constraints have alleviated.
As module supply has loosened, supply of other types of electrical equipment has become a greater concern for the utility-scale segment. Transformer availability has become a widespread problem, with wait times extending past two years in some cases. High-voltage circuit breaker lead times have nearly doubled in the last year to an average of 100 weeks. This has already increased balance of system (BOS) pricing for utility-scale solar.
With no signs of this trend reversing, we expect electrical equipment availability to be one of several factors slowing utility-scale solar growth in the next several years.
A tale of two residential solar markets
Third-quarter installations for the residential solar market were also robust, setting another quarterly installation record. As a result, we now anticipate 13% growth in residential solar this year. This may come as a surprise to those monitoring the steep declines in residential solar stock prices in recent months. And this is why it’s important to understand the dynamics shaping residential solar growth, which point to two different sets of residential solar markets.
In California and several Northeast states, installation volumes are rising. The switch to net billing in mid-April drove a dramatic increase in residential solar sales in California. That enormous backlog of sales has driven intense installation growth in the last two quarters, and we expect this to last through the first quarter of 2024. In the Northeast, retail rate increases that occurred last year are also driving growth and creating opportunities for significant customer savings.
This growth is being partially offset by a trend that characterizes the second set of markets: shrinking sales volumes from rising interest rates. Solar loans became much more expensive in 2022 because of federal interest rate increases. In price-sensitive markets such as Texas, Arizona, and Florida, sales volumes, particularly for loan companies, started declining in late 2022 and have continued shrinking since then, which is impacting installation volumes.
Next year, installation growth in California and the Northeast will no longer offset the impacts of declining residential solar sales volumes, mostly because of the anticipated drop in California. As a result, we expect the residential solar market to decline by 12% in 2024.
Robust near-term growth will give way to more modest long-term expectations
We expect the US solar industry to grow 55% this year compared to 2022, a slight upward revision to last quarter’s expectations. With nearly 33 GWdc of capacity expected, it will be the nation’s largest year of solar installations by far. Unsurprisingly, most of this growth comes from the utility-scale segment, which bore the brunt of the supply chain impacts in 2022.
Our growth outlook for the US solar industry remains strong, averaging 14% annually over the next five years. However, sustained growth will become more challenging in the longer-term as interconnection bottlenecks and transmission capacity suppress the pace of installations.
Get a much closer look at the US solar market
The full report explores each segment in detail and reports on solar supply chain dynamics and solar pricing trends based on recent global solar manufacturing buildout.
The 15-page executive summary includes charts on:
- US solar installations and forecasts by segment
- US PV share of capacity forecast
- Solar PV system pricing
- And more.