Proposed legislation to extend the investment credit tax (ITC) would have a profound impact on the US solar industry, Wood Mackenzie analysis shows, potentially increasing deployments by 44% over the next decade.
But the extension, currently before Congress as part of a budget reconciliation package, will not be enough to achieve 80% carbon-free electricity generation by 2030.
The proposal, put forward by the House of Representatives, would see the current ITC extended to cover projects that begin construction by the end of 2032. Should it be approved, Wood Mackenzie forecasts that between now and 2030, 432 GWdc of solar capacity will be added to the grid, up about 44% from the base case outlook of 300 GWdc.
“Utility-scale solar sees the largest uplift over the decade, increasing by 51%,” said Sylvia Leyva Martinez, senior analyst at Wood Mackenzie. “An extension would reduce the future cost of utility-scale solar, making it competitive with wholesale power prices across the majority of the country.”
Bryan White, also from WoodMac’s solar research team, added: “Distributed solar would also see a major boost, with residential solar capacity increasing 31% and non-residential solar increasing 14%.
“An extension would allow the already strong residential solar market to continue to grow. The direct pay provisions of the proposed extension will be a major win for small and medium non-residential projects (<1 MW) thanks to the challenges of securing tax equity,” he added.
Extending the ITC would have the largest impact in the back half of the decade as the current near-term supply constraints that are delaying utility solar projects ease.
From 2025, an ITC extension would result in more than 30% more capacity each year, growing to 92% by 2030.
As the ITC extension extends the price competitiveness of solar, other market barriers will become stronger limiters of growth.
Leyva Martinez said: “Grid interconnection is already one of the biggest pain points for the industry. While there are additional incentives for grid modernization and transmission capacity in both the infrastructure bill and budget reconciliation package, these projects take years to complete.
“As a result, Wood Mackenzie’s outlook for solar growth is limited by grid constraints, as well as available sites for distributed solar. But long-term, our forecast assumes that grid upgrades will eventually relieve congestion and long-duration storage makes more solar feasible.”
The US Department of Energy’s recently published Solar Futures Study forecasts that total solar deployments need to reach 714GWdc by 2030 for the nation to be on track to decarbonize the electric grid.
Leyva Martinez added: “Extending the ITC will certainly expand deployments, but not enough to hit President Biden’s goal of 80% carbon-free electricity by 2030. Rather, our analysis indicates cumulative installed solar capacity will reach 528 GWdc by 2030, about 26% lower than the 714GWdc (525 GWac) called for by the Solar Futures Study.”
Wood Mackenzie’s research indicates the proposed 10-year extension of the ITC falls short of enabling full grid decarbonization. To hit President Biden’s climate targets, there is a critical need for energy storage and enhanced transmission and distribution infrastructure.