By: Dr. Florian Wessendorf, managing director of Solar Promotion International
U.S. solar soared in 2016, surpassing more than 14 GW. This growth can largely be attributed to the boom in utility-scale projects that occurred when developers rushed to benefit from the ITC before its expected expiration at the end of 2015.
Yet this impressive growth in 2016 cannot mask the bumps and turns that still remain for the industry. Major policy debates have erupted concerning net metering, generating uncertainty around the future growth of residential solar. Meanwhile, the commercial and industrial sector remains largely untapped, as developers continue to be dissuaded by the difficulty of addressing the diverse needs of this market.
From a global perspective, there are two factors that will consistently drive growth in the U.S. solar market–and others– over the long-term. The first is the continuing drop in hard and soft costs, which drives competitiveness against conventional energy sources. The second is the rise of solar+storage solutions, which will address supply intermittency issues and make solar a more viable option for large-scale deployment.
According to NREL, solar hard costs have fallen by more than 50% during the past eight years, and the trend shows a continued decline for the next few years. The U.S. Department of Energy’s SunShot program has succeeded in reducing the cost of utility-scale solar to $1 per watt this year and anticipates the cost of solar in every market will decrease to $1 per watt by 2020. The International Energy Agency also predicts that in the next five years, global utility-scale solar generation costs will fall by another 25%.
Reducing the costs of solar plays an important role in its competitiveness with fossil fuels. A new study from Carbon Tracker examines the levelized cost of electricity (LCOE), which allows for the more accurate cost comparison among technologies over the lifetime of the asset by comparing the cost of capital, capacity factors, useful life and carbon pricing.
Under this new research, solar and renewable energy is more cost-effective than coal and natural gas. Research from Bloomberg New Energy Finance supports this claim by stating that solar will be cheaper than coal globally by 2025. As solar reaches a level playing field with fossil fuels, the solar conversation will center around pure economics; which source of energy is the cheapest?
The growth in the energy storage market will also enable solar growth for two reasons. Numerous countries around the world with high renewable energy penetration, perhaps nowhere as much Germany, have witnessed the challenges with the intermittent nature of solar energy production–an increasingly growing concern. Solar power generation occurs during the day, whereas there is a lot of demand for electricity in the evening. Furthermore, on days where there is low solar energy production, the grid needs to shift demand and adjust to the flexible load. Without flexibility and demand shifting, solar energy’s intermittency can cause blackouts when demand for electricity exceeds capacity.
The deployment of large-scale solar-plus-storage solutions will address grid stability, while also enabling the continued fast-pace growth of the solar industry. In the U.S., utility-scale storage led 75% of the energy storage market’s growth in 2016, and this will certainly continue to grow in the coming years.
On the residential side, the decline of net metering opens up some possibilities for solar+storage solutions. Utilities are debating whether homeowners should be allowed to sell excess solar energy to the grid. As residential solar+storage becomes more cost effective, a win-win solution emerges–excess solar energy will be used to charge on-site batteries. While the market for residential solar+storage is still tenuous, the growing demand for these solutions and the declining cost of batteries will drive market growth.
The solar industry has been on a “solarcoaster” of ups and downs in recent years, but ultimately the overall industry trend remains positive. Between the drop in solar costs and the rise of solar+storage solutions, there is reason to remain bullish about the solar market for this year and beyond.
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Florian Wessendorf is the managing director of Intersolar and ees global conferences and exhibitions in North America, South America and India. He has deep expertise in the solar industry, and formerly served as managing director of photovoltaic equipment at VDMA, where he was responsible for strategic development, advocacy, exhibitions, and marketing.