This is an extract from a recent report “US Solar Market Insight” prepared by Wood Mackenzie and SEIA.
The US solar industry installed 11.8 GWdc of capacity in the first quarter of 2024, the second-best quarter for the industry, behind the last quarter of 2023. The utility-scale segment had a remarkable quarter, putting 9.8 GWdc of projects in the ground – more than the annual total for this segment as recently as 2019. The distributed solar segments did not perform as strongly. Residential solar shrank by 25% year-over-year as the segment continued to struggle with high interest rates and the transition to net billing in California. With 1.3 GWdc installed, it was the segment’s lowest quarter since Q1 2022. The commercial and community sectors were relatively flat year-over-year, installing 434 MWdc and 279 MWdc, respectively.
The commercial sector is diversifying – newer states are growing but are offset by declines in mature markets. Community solar relies heavily on the creation of new state programs and policies to generate growth in new markets. While there’s been progress on legislation in several states, new policies have been slow to cross the finish line. Furthermore, the promise of future market growth in California withered away with the March decision by the California Public Service Commission (CPUC) to reject a proposed new program. Overall, photovoltaic (PV) solar accounted for 75% of all new electricity-generating capacity additions in the first quarter of 2024, remaining the dominant form of new generating capacity in the US.
2024 installation growth will be mixed across the various solar segments
After achieving record growth in 2023, the solar industry is expected to install about the same amount of capacity in 2024 – just under 40 GWdc. While growth this year is expected to be flat, this still represents an annual installation volume that is double the size of just two years ago. Expectations for 2024 reflect mixed trends across segments. Residential solar is expected to shrink 14% year-over-year. California residential volumes will decline by about 40%, as predicted since the net billing tariff was finalised. Solar-plus-storage installations are on the rise, but this doesn’t compensate for the declines in standalone solar. Overall residential sector growth outside of California is expected to be flat. Higher interest rates are still challenging residential solar sales since they increase financing costs for homeowners.
After 23% growth in 2023, commercial solar is expected to grow by another 14% this year. This is primarily driven by growth in two states – California and Illinois. In California, projects that submitted interconnection applications under NEM 2.0 will still be coming online this year due to typical 18–36-month development timelines for these projects. And in Illinois, pipelines that have qualified under the Illinois Shines program are being built out in earnest. Community solar is expected to grow by 4% after growing 10% last year. Some states, such as Illinois and Virginia, are seeing growth. But as noted earlier, other states have been slow to form new programs and growth is slowing in more mature markets. Utility-scale solar growth will remain flat in 2024 and 2025. The pipeline is strong, but buildout is being suppressed by a lack of labor availability, high voltage equipment constraints, and continued trade policy uncertainty, amongst other headwinds.
The solar industry continues to navigate tariff uncertainty: As recently as a year ago, module availability was a constraint for the industry. The situation is quite different now. Not only has the global solar supply chain expanded, but module imports to the US have also risen significantly over the last year. In the last few months, there have been numerous solar tariff policy changes that could shake up the solar supply chain yet again. First is the announced increase of the Section 301 tariffs (from 25% to 50%) on imports of Chinese solar cells and modules. Given the small volume of Chinese imports compared to total imports (0.09% for modules and 0.03% for cells in 2023), the direct impact on the US solar industry is insignificant. The Biden Administration also announced a temporary exclusion from the Section 301 tariffs for certain solar manufacturing equipment. Because domestic manufacturers are highly reliant on imports of Chinese equipment, this could help reduce production costs and incentivize increased investment in domestic manufacturing.
Second, the Biden Administration announced it would eliminate the Section 201 tariff exemption for bifacial modules. There will be a 90-day grace period before the tariff goes into effect, which will allow imports to enter duty-free for certain pre-existing contracts. Bifacial modules, which make up the majority of module imports, will now be subject to a 14.25% tariff (which will be reduced to 14% in February 2025). The Section 201 tariffs will expire in February 2026. The increases on total solar system costs are modest, and there is healthy module availability that will be used for projects in development. Beyond this, the tariff is relatively short lived with only 20 more months of applicability. Furthermore, the Biden Administration announced there will be an option to increase the Section 201 tariff rate quota (TRQ) – from 5 GW to 12.5 GW – on imported solar cells. This should help domestic module manufacturers continue to grow and compete with imports while domestic cell capacity catches up.
Finally, there are potential new antidumping and countervailing duties (AD/CVD) on the horizon. In late April, a group of US solar manufacturers filed petitions with the US Department of Commerce and the US International Trade Commission seeking new AD/CVD tariffs on imports of solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam. The resulting AD/CVD duties, if any, would also apply to modules produced outside the targeted countries with cells produced in the targeted countries. Preliminary determinations from Commerce, regarding subsidisation and dumping, are due in midJuly and early October, respectively, if the determination dates are not postponed.
Modest growth for US solar through 2029 points to broader energy transition challenges: From 2024-2029, the US solar industry will install more than 250 GWdc of capacity, roughly 40 GWdc a year. While this is certainly proof of the solar industry’s strong standing in the energy transition, it also represents a slowdown of industry growth. The growth patterns vary amongst segments, but average annual growth between now and 2029 is 3%. Solar projects across all segments are facing challenges that go beyond technological viability, cost competitiveness, or module availability. The limiting factors for projects today span the power industry: availability of labor, interconnection delays and costly network upgrades, high soft costs and interest rates, opposition to new project development, and more.
Market segment outlooks
Residential PV: The challenges from 2023 continued to plague the residential solar industry in the first quarter of 2024. These include high interest rates, the transition to a net billing tariff in California, and increasing customer acquisition costs. This has led to a two-year low in quarterly installed capacity. In Q1 2024, the segment added 1,281 MWdc, a 25% year-over-year and 18% quarter-over-quarter decline. While a first-quarter installation slowdown is typical for residential solar, some industry players report a more pronounced slowdown than in past years as high interest rates persist. The drop in installed capacity in California contributed to the national decline this quarter, as installations from sales made under NEM 2.0 dwindled. In the first quarter of 2024, 28 states experienced both quarter-over-quarter and year-over-year declines in installed capacity due to the ripple effects of sustained high financing costs. Some states will still grow this year, fueled by lower module prices, a rapidly growing third-party ownership segment, and significant retail rate increases. However, interest rates remain high, and it is unclear when they may begin to decline. But looking ahead, we expect recovery starting in 2025, with the residential solar market growing by 10% on average over the next five years, as retail rates trend upwards, increasing potential savings for residential customers.
Commercial PV: Installations in the commercial solar segment were flat year-over-year in the first quarter, supported by solid installation volumes in mature markets such as California, Illinois, and New York. In California, 152 MWdc of commercial solar capacity was installed in Q1 as NEM 2.0 projects continued to come online. As the Illinois Shines program continued to attract developers in the near term, Illinois experienced a significant 212% increase year-over-year, with 61 MWdc installed in Q1 2024. New York also had a strong quarter of installations, driven by its more efficient interconnection processes compared to other states. Developers in many states continue to face frustrating challenges with interconnection timelines. Due to these interconnection issues, growing market saturation, and high development costs in established markets, developers are increasingly shifting focus to emerging commercial solar markets. In some nascent commercial solar markets developers can benefit from lower costs and ample available sites. Rising energy demand and retail rate increases are also attracting developers to these markets. The commercial solar outlook remains mostly unchanged since last quarter. As an influx of California NEM 2.0 projects come online through the end of this year, we expect 14% year-over-year growth.
However, national installations will decline in 2025 due to an expected drop in California installations as the NEM 2.0 pipeline gets built out and mature markets become more saturated. Prevailing wage and apprenticeship requirements will also contribute to a decline in 2025. Since new projects larger than 1 MWac must meet these requirements to qualify for the full tax credits, developers likely began construction on a significant portion of their active pipeline before requirements took effect in January 2023. Much of this pipeline will have been built by 2025, resulting in slightly reduced volumes from 2025 through 2027. In the longer term, the national commercial solar market will grow by 15% annually in both 2028 and 2029. Increased development activity in newer commercial solar markets, particularly in the Midwest and Southeast, will heavily contribute to this growth. ITC adder qualification and rising electricity prices will also drive national long-term growth, averaging 8% over the next five years.
Community solar PV: Community solar installations remained relatively flat year-over-year in Q1 2024, resulting in 279 MWdc of new capacity. Installed capacity in New York grew 17% year-over-year in Q1 2024, making up 46% of national installed capacity. Additionally, while first-quarter growth in Illinois, Colorado, and Virginia supported national installations, other state markets are off to a slow start. Overall, the national market is expected to grow 4% in 2024, exceeding 1.3 GWdc of annual capacity. Mature state markets will drive most of this year’s capacity, but it is anticipated that momentum will build in newer markets such as Delaware and Virginia.
In March 2024, the CPUC issued a proposed decision on A.B. 2316, siding with utility arguments and against the widely backed Net Value Billing Tariff (NVBT) proposal. As a result, the five-year outlook for California decreased from more than 1.5 GWdc to just over 200 MWdc, an 87% decline. The massive market potential of the NVBT program proposal was anticipated to bolster long-term national market growth. However, the CPUC voted to confirm a slightly modified proposed decision on May 30th, resulting in a 14% reduction in our 2024-2028 outlook compared to last quarter. Overall, the national community solar market is expected to grow at an average rate of 5% annually through 2026 and then contract by 11% on average through 2029.
Utility PV: Utility-scale segment achieved a record first quarter, with 9.8 GWdc installed. Newly contracted projects in Q1 2024 reached 4.4 GWdc, with corporate and utility procurement as the main drivers for newly contracted capacity. Although procurement activity has continued, installations have outpaced its growth, reducing the contracted pipeline by 5 percent, to 96 GWdc. The substantial increase in first quarter installations was driven by a backlog of projects that were slated to come online in 2023 but did not materialise until Q1 2024. Additionally, President Biden’s two-year tariff waiver on imported Southeast Asian crystalline silicon modules ends in June 2024. The temporary waiver has contributed to increased imports and higher module inventory levels. However, modules imported under the waiver that are subject to the circumvention tariffs must be “utilized” within 180 days of the expiration of the waiver (by December 3, 2024). This has driven increased installation activity at the start of the year.
National solar PV system pricing
The decline in demand for residential solar contributed to a module supply/demand imbalance, resulting in lower module prices and declining system costs for the residential and commercial segments in Q1 2024. Costs decreased annually by 4% for residential and 12% for commercial PV systems, as module prices fell by an average of 45% over the year. The average system cost for the utility-scale segment rose by 5% for fixed-tilt systems and 4% for single-axis tracking systems in Q1 2024 compared to Q1 2023. One of the main drivers of these increases is higher transformer costs, which surged by 25% year-over-year due to transformer supply shortages. Rising labor and engineering costs also contributed to the rise in utility-scale costs, as they increased by 23% and 22%, respectively, since Q1 2023.
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