10 solar trends set to dawn in the New Year
As the sun is about to set on 2014, we look into what the past 12 months brought for the U.S. solar market and what can we expect for 2015.
Here are 10 trends to bear in mind as we look ahead to a new dawn.
1. Record PV installations
About 6.5 GW of PV will be installed in 2014, according to the Solar Energy Industries Association. If that holds true, installations would be up by 36 percent over 2013, and the market would have more than tripled from just three years ago. In the global ranking, the U.S. might even come in third as only China and Japan are expected to install even more new PV capacity with 12 GW and 11 GW, respectively. The cumulative operating PV capacity in the U.S. will amount to more than 17 GW by the end of 2014. Impressive as this might sound, however, the PV market penetration hovers only around 1 percent, which leaves lots of room to grow.
2. New financing models advance
In 2014 about 68 percent of PV installations were leased or operated with a Power Purchase Agreement, often eliminating any upfront costs, according to GTM Research. With prices for PV systems having gone down so much, however, homeowners buying their systems outright or taking on a loan is becoming the new norm — again. Market leader SolarCity, which dominates the residential market with a share of 30 percent, started to offer its first loan product in October, reacting to a significant uptick in customer demand and increasing competition by small, specialized lenders. Now SolarCity even predicts half of its new business could be solar loans by the end of 2015.
Another finance model that sees a renaissance are PACE programs for both residential and commercial sectors. They basically allow home and business owners to pay down their loans through their property tax. After legal road blocks were removed, in California alone PACE programs with a volume of $500 million were approved in the residential sector with $100 million for commercial projects in 2014 — 10 times as much as in 2013.
And we may see even more financing models emerge as the industry is working on yield cos, asset backed securities and retail bond offerings.
Hanging over the U.S. solar industry’s head like the sword of Damocles is the scheduled reduction of the federal investment tax credit for renewable energies from 30 percent to date to 10 percent for commercial projects, and 0 percent for residential projects by the end of 2016. Lobbyists have been working feverishly to have the ITC extended. Even if they fail, the good news is that the point of grid parity is approaching fast — what with falling PV system costs and rising electricity costs. Deutsche Bank analyst Vishal Shah predicts that by 2016 rooftop solar PV in the U.S. will be as cheap as, or cheaper than, electricity from the grid in all 50 states, setting the stage for a massive boom.
One unknown remains: because many residential solar PV owners still need to rely on the grid when the sun does not shine, a change of the utility’s tariff structure could require an update for the whole solar equation as well.
4. Solar-battery systems
Given the uncertainties described, many solar homeowners flirt with the idea of becoming independent by installing a battery systems complementing their solar modules on the roof. Despite recent economic and technological advances, however, modern battery systems are still prohibitively expensive. As long as there is no way for homeowners to monetize their battery capacity by participating in demand-response services for utilities, the number just don’t pan out. At least, not yet. German storage integrator Sonnenbatterie recently entered the U.S. market, backed by $10 million of VC funding. SolarCity has been toiling with residential solar storage for a while, and Tesla maintains that a good portion of its Gigawatt factory battery storage will find a home in the residential market space.
5. Community solar
The idea is simple and obvious: Not every roof is suited for solar panels — some are too shaded, some are too crooked, some are too old. So why not build a bigger solar array whose clean energy production can be bought by individuals who use net-metering credits for it? Or, as NREL defines community solar, projects take advantage of virtual net metering which “allows net-metering credits generated by a single renewable system to offset load at multiple retail electric accounts.”
In reality, community solar has to overcome a host of regulatory legal and economic issues before it works. Which does not mean that quite a few projects aren't in the pipeline for 2015. The latest indicator that community solar might become the next big thing in solar was thin-film module producer First Solar’s investment in Clean Energy Collective, a community solar specialist.
6. Solar tariffs are here to stay
It ain’t over 'til it’s over, baseball legend Yogi Berra once famously proclaimed, but the likelihood that hefty tariffs for Chinese and Taiwanese solar modules and cells in the U.S. will be rejected is approaching nil. The International Trade Commission has the final word on this at the end of January. If the commissioners agree with the U.S. department of commerce that the U.S. industry has been harmed by Chinese and Taiwanese imports, the tariffs will become permanent Feb. 1.
If the ruling stands as expected, panel manufacturer SolarWorld, with facilities in Germany and the U.S., will have won its long and controversial battle. What that means for the war as a whole remains to be seen. Analysts such as GTM Research’s Shayle Kann predict that because of the tariffs, module prices in the U.S. in 2015 will be stable or might even climb slightly. Either way, the trade war leaves the U.S. solar industry behind, bitterly divided.
7. More trouble ahead for utilities
For a while utilities have understood that the surge in renewables threatens their livelihood as they know it. Some decided to fight solar; others try to find ways to join the revolution. The tale of E.ON, Germany’s biggest power company, serves as a reminder of what happens to those who are late to the party. E.ON announced in December that it will spin off its centralized power assets and become a distributed utility embracing the new energy world. However, it is losing billions of dollars in the process and might not even be able to pay for the disassembling of its own nuclear power plants, potentially leaving the German government (and ultimately the tax payer) to foot the bill.
Soft costs are the main reason why an average residential solar power system in the U.S. still costs more than $4 per watt while it can be bought in countries such as Germany for less than half the price. The ill-defined category, which describes everything from permitting to customer acquisition, has been tackled by solar companies for a while without much success. Customer-acquisition costs, which range from $2,000 to as high as $5,000 per customer, seem the main culprit. The best way to lower them may just be residential solar’s own success: the most reliable and cheapest way to acquire new customers is word of mouth, as satisfied solar customers tell their neighbors about their great investment.
Compared to other forms of energy generation, PV solar is clean and sustainable — which doesn’t mean, however, that it could not do better. Silicon Valley Toxics Coalition’s Fifth Annual 2014 Solar Scorecard didn’t paint the prettiest picture. The survey ranks 37 solar manufacturers — about 75 percent of the whole solar industry — on a range of environmental, sustainability and social justice factors. Trina and SunPower came in first and second, respectively, and Yingli, SolarWorld and REC rounded out the top five. Although the top five companies averaged a score of 70 out of 100, the remaining 32 firms averaged a paltry score of 30. Hanwha SolarOne and JA Solar both tied for dead last, at 10.
What’s even more disappointing is that a mere seven companies, representing just 25 percent of the market, made the effort to fully respond to the survey — 51 percent less than two years ago.
10. The path for growth
Two of the biggest moves in 2014 were SolarCity's continuing to walk down the path of vertical integration by buying PV manufacturing startup Silevo, and planning to set up a 1 GW plant in New York. Another was installer Vivint Solar's going public Oct. 1. In both cases, the jury is still out. While it is expected that SolarCity soon will add an inverter company to its portfolio, the installer’s strategy of growth at all costs still has to generate profits at some point. Vivint Solar’s IPO filled the pockets of its investor Blackstone but disappointed its shareholders so far. Between its IPO and mid-December, the stock fell from $20 a share to well under $10. Solar IPOs remain dicey and no sign indicates that it would change in 2015. At the same time, expect to see more mergers and acquisitions in the market while companies get ready for rapid growth.