US solar hits some bumps in the road
Principal Analyst, Solar
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This time last year I posed the question: as the solar industry charges ahead, could anything hold it back? The past twelve months have provided the answer, and it’s a resounding ’yes’. Supply chain constraints and resulting price increases have been the story of the year, impacting installations in every segment. In the long term, growth prospects are robust – installed capacity is expected to nearly quadruple in size between now and 2032. But in the near term, installations will continue to be challenged by limited equipment availability and higher pricing, along with issues around trade and policy.
A full analysis of each market segment, including our 10-year outlooks, can be found in our US Solar Market Insight 2021 Year in Review, created in collaboration with the Solar Energy Industries Association (SEIA). Fill in the form for a complimentary copy of the 19-page executive summary. Or read on for some key highlights.
Supply chain constraints and trade uncertainty continue to limit near-term growth for US solar
By any measure, 2021 was a highly successful year for the US solar industry. New installations increased 19% to 23.6 gigawatts (GW) – another annual record. More than half a million residential solar projects were installed for the first time. And solar made up the largest share of new generating capacity added in the US for the third year in a row.
However, Wood Mackenzie is projecting a 7% decline in installations for 2022. For utility solar, developers have cancelled about 5% of planned 2022 capacity and delayed about 8% to 2023 or later. But beyond this, there just isn’t enough equipment expected to enter the US this year to support demand. As a result, our outlooks for solar capacity in 2021 and 2022 have fallen by 11 GW since our reporting last September.
While distributed solar has been less impacted than utility solar, expected installations would be higher were it not for these supply chain constraints. Our 2022 outlooks for commercial and community solar have been adjusted downward by 15% and 3% respectively, reflecting the combination of interconnection-related challenges and supply chain constraints. While residential solar growth remains robust, tight equipment supply has led to longer project timelines and prevented even stronger growth for some installers.
Furthermore, trade uncertainty continues to threaten the industry. US Customs and Border Protection (CBP) recently released some shipments of solar equipment previously detained under the Hoshine Withhold Release Order (WRO). This is a promising sign, but the WRO continues to limit equipment deliveries to the US and add uncertainty to project timelines.
Additionally, the industry is watching the development of a recent anti-circumvention request filed by Auxin Solar against Vietnam, Malaysia, Thailand and Cambodia. Auxin alleges Chinese producers are circumventing Antidumping and Countervailing Duties (AD/CVD) by carrying out most of the manufacturing of solar components in China, then completing them in Southeast Asia. The Department of Commerce will decide whether to take up the case this month. New AD/CVD orders would potentially double the cost of imported modules, presenting considerable downside risk to US solar.
Distributed solar prospects hang on California’s NEM 3.0
As supply chain constraints continue to strain the industry, California’s net energy metering (NEM) 3.0 debate has also dominated the conversation. Stakeholders are anxiously awaiting how the nation’s largest distributed solar market grapples with fair compensation for distributed solar projects, as the outcome will set an important precedent.
To demonstrate the drastic impacts of the proposed decision from the California Public Utilities Commission (CPUC) issued on 13 December 2021, Wood Mackenzie has incorporated the proposal into forecasts. The impacts are drastic. Both residential and commercial solar additions would be cut in half within a year or two of the policy going into effect. And because California is the largest distributed solar market, reductions in the state drag down the national totals.
Since the publication of the 13 December proposal, the CPUC has announced they are reassessing NEM 3.0. The intention is to issue a revised or alternate proposal in the coming months. This is good news for the industry, but there is still considerable uncertainty around the impact of any modifications.
Short-term challenges overshadowed by US solar’s long-term growth prospects
Despite these headwinds, the industry is about to enter a period of long-term, sustained growth. Our base case puts annual average growth from 2022 to 2032 at 6%. And if the clean energy incentives that are part of the Build Back Better Act are passed in some fashion, that growth increases to 12%. With cumulative installations nearly four times what they are today in our base case, and six times in our Investment Tax Credit (ITC) extension scenario, the next ten years will truly be the solar decade.
Challenges like supply chain constraints and policy changes will undoubtedly persist as the solar industry grows. But high demand, cost competitiveness, and growth momentum have ensured that solar is the next decade’s generation capacity of choice.
The full report explores the road ahead for US solar in detail. Fill in the form at the top of the page for a complimentary copy of the 19-page executive summary.