Solar industry forecast: sunny with a chance of issues

From humble beginnings, solar energy in the U.S. has surged over the past five years to the point of contributing gigawatts of power to the grid. But despite its momentum, the exact path of solar in the future is an open question.

The headline item from GTM Research’s annual solar industry conference is that the U.S. is expected to install more solar capacity this year than long-time global leader Germany. Total solar photovoltaic installations reached 930 megawatts at the end of the third quarter this year, including residential, commercial and utility solar. That’s the same power generating capacity as a large power plant, although solar’s capacity factor — essentially the amount of time during a year it provides power — is far lower than a fossil or nuclear power plant.

Solar's rise

As a reflection of how fast the industry is moving, there will be a new solar installation every four minutes this year, compared to one every 10 hours in 2001, said GTM's vice president of research Shayle Kann. Solar is now sold to consumers through a number of channels, including traditional installers, car companies, environmental groups, home improvement stores and home automation companies. Big solar has advanced as well: The giant 393-megawatt concentrating solar power plant in Ivanpah, Calif., is projected to start sending power to the grid this year. 

Banks and a number of other institutional investors have come around to liking solar. That’s allowed startups, such as SolarCity and Sungevity, to innovate around financing, which has helped fuel rapid growth in residential solar. Now a number of shared ownership models are emerging. For example, startup Mosaic allows individuals to invest in jointly owned solar projects. And after falling by 75 percent over the past five years, the costs of solar panels continue to decline, too.

After natural gas, solar is the second-largest source of new power generation on the grid and the cumulative power capacity is 11 gigawatts, according to GTM Research. If solar continues its rapid pace, the company forecasts that solar could contribute nearly 10 percent of U.S. electricity generation in 15 years from virtually nothing a few years ago.

Issues ahead?

But solar’s continued fast growth isn’t necessarily assured. A 30 percent federal tax credit will be cut back in 2017, which likely will slow sales. More fundamental, distributed solar poses real problems to investor-owned utilities, said David Shuford, vice president of policy and business evaluation for alternative energy solutions at Virginia-based utility Dominion Energy, during a panel.

Energy users could, in theory, completely disconnect from the grid using distributed generation. But even if consumers purchase less energy from the utility, distributed generation could slow the overall load growth of utilities. If that happens, utilities, which make money when they invest capital in maintaining the grid, will see their earnings decline, he explained.

“Long before we go into any death spiral because of distributed generation, we will start to pay attention if it starts to impact load growth because it has an earnings impact,” he said.

Worries over distributed solar’s impact on utilities’ business model has led to challenges in net energy metering laws, which compensate solar users for the excess power they generate, in a number of states. Utilities could press regulators to change rules in a number of other ways, such as redesigning rates so that solar customers pay additional charges or that all customers pay a higher fixed monthly fee, Shuford said.

A number of utilities are experimenting with distributed solar by, for example, financing rooftop solar panels themselves. But some experts believe it’s much more likely that outside companies with skills in consumer marketing will lead on residential solar. “They can deliver solar like a FedEx package and most utilities I know don’t have a clue how to get there,” said Jon Wellinghoff, the former chairman of the Federal Energy Regulatory Commission and partner at Stoel Rives.

In states with high penetrations of solar, utilities are starting to struggle with how to deal with the intermittent output of solar. San Diego Gas & Electric (SDG&E) has hundreds of megawatts worth of solar generation and struggles to ramp up fossil and other power generators in time when the sun is setting in the late afternoon, a period of peak demand.

“The intermittency and integration issues are front and center for us,” said Josh Gerber, smart grid manager at SDG&E. “At some point, if we don’t start making changes — and that runs from regulatory policy and rates all the way down to the technology at customer premises — we will reach a point where we can’t take any more solar.”

Solar panels photo by Vangert via Shutterstock