The Incredible Growth of the U.S. Solar Industry
In a recent article titled “The 6 Biggest Solar Startups – Remember Solar?“, we talked about how solar just posted a record-shattering +95% increase in solar installations in 2016 compared to the previous year. If you want to participate in the conversation, there’s a few things you should know… like how there’s now enough solar installed in the United States to power 8.5 million homes, and that Target alone now has 147 MW of solar installations (enough to power 24,000 homes). If you want to sound really smart (or make a few educated investments), here’s a complete rundown of the solar industry in the United States.
What type of solar are we talking about here?
For the most part, the country’s huge solar growth can be attributed to photovoltaics (PV). PV is what probably pops into your mind when you hear the word “solar”… panels that directly convert light into electricity.
Photovoltaics have made up the vast majority of new solar installations up to this point. The Solar Energy Industries Association (SEIA) just released the unprecedented growth stats for 2016, reporting 14,626 megawatts (MW) of new PV installed. This year’s installations alone now make up about a third of all PV installations in the United States. To give you an idea, at one point last year, a new solar installation was hitting the ground every 84 seconds.
The US market is now 1.3 million solar PV installations strong, with over 40,000 megawatts (MW) of capacity. In 2016, solar accounted for 39 percent of new electric capacity additions across all fuel types, earning it the number one spot for the first time ever. Incredibly, the total market share of solar for electricity generation was just .6% in 2015. As investors, this makes our ears perk up.
The other solar contributor worth noting is Concentrating Solar Power (CSP), which is basically solar on steroids. CSP uses heat from the sun to drive utility-scale electric turbines. We’re talking about mirrors and lenses that are specially arranged to concentrate sunlight all in one spot… and these installations are HUGE. They can also provide power after sunset, which is pretty awesome.
After being virtually non-existent until 2010, CSP charted a significant chunk of capacity over the past four years. The payoff of the huge investment CSP requires hasn’t quite proven itself, however, and with 1,706 MW of operational CSP projects online right now, there are only 49 additional projects under construction (compare this to the 13,000 MW of major operational PV projects, with over 40K more in development).
Because PV installations are killing it in the solar sector right now, we’re going to deal mainly with this form of solar generation for the remainder of the article (but if you’re suddenly obsessed with CSP… we don’t blame you. Check out the SEIA’s major solar project location map, and look for the CSP installations).
Residential Vs. Non-Residential vs. Utilities
PV installations have seen steady growth every year in all three sectors: residential, non-residential, and utilities.
Though residential installations have been the historically fastest growing segment, utility-scale solar just hit the springboard, driving solar growth in a huge way this past year.
2015: 2.1K MW Installed
2016: 2.4K MW Installed
The commercial price of photovoltaics has fallen by 58% since 2012, with 16% of the drop coming in the past year alone. The combination of dropping prices and government incentives have padded the pockets of homeowners enough to continue the growing investment in residential solar systems. Net metering has also gotten consumers excited about owning their own power, and slashing their electricity bills (more on both of those below).
2015: 1.5K MW Installed
2016: 1.7K MW Installed
One major leader in non-residential solar growth in the past year was community solar, a line of solar projects that has gained popularity with renters and solar-lovers without solar-friendly rooftops. Community solar opened up solar ownership and participation to a whole new market, and more than 200 additional megawatts (MW) of solar capacity were installed this year in a community-owned setting.
2015: 4.1K MW Installed
2016: 10K MW Installed
Utility-scale PV projects deserve the most applause for 2016’s huge solar growth. Not only did the utility sector tally up the most MW of solar installations, it also boasts the highest growth rate by any segment of the market…ever. Think big. Like a 145% increase from last year big. We’re making a mental note to check out a $60 billion utility company called NextEra Energy (NYSE:NEE) which generated more electricity from the wind and sun than any other company in the world during 2015.
Which states are leading the solar revolution?
Solar is now a fifty-state affair, with PV panels dotting the landscape of the entire country. 22 states added more than 100 MW each in 2016, broadening the spectrum of the US solar in-crowd. 36 states, however, are still hovering below the 1% solar penetration mark meaning that solar power makes up less than 1% of the state’s total electricity generation. That aside, the top five states on the leaderboard are toting some impressive stats.
California leads the country in total solar (23.9 million megawatt hours) and percentage of solar penetration (14.1%). California is followed by Hawaii (8.8% penetration), Vermont (7.8%), Nevada (7.5%) Massachusetts (6.0%) . The sixth place finisher, Arizona, tops all four of these in actual Mwh of solar installations, but penetration-wise falls in line at 5.0%. In terms of total solar capacity, California is killing it:
With CA’s ambitious renewable energy goals and enviable sunniness, this comes as no surprise. The rest of the leading pack is a little less predictable.
Solar Contractor Wall of Fame
When Solar Power World Online puts out a list of the “top 500 North American solar contractors” , it’s a sure sign that the solar installation sector is extremely fragmented. Mortenson Construction in Minneapolis (private company) and First Solar (NASDAQ:FSLR) in Arizona were the runaway favorites in the race for solar installations last year, setting up 1.6K and 1.4K megawatts of capacity, respectively. Both companies’ target market is utilities, which definitely contributed to their success. SolarCity (NASDAQ:SCTY) in San Mateo, California, focused more closely on the residential rooftop market, with 870 MW installed last year.
As for shares of the two publicly traded solar installers, First Solar’s performance was dismal having lost over -40% in the past year alone giving it a market cap of $3.7 billion. SolarCity on the other hand has returned +70% since their IPO in 2012 giving a market cap of just over $2 billion.
Let’s get into financial incentives.
If you’re looking for a tax credit to thank for the last decade of solar growth and stability, send your thank you cards to the Solar Investment Tax Credit (or ITC). The solar ITC has been solar’s hype man since 2006, with it’s latest extension at the end of 2015. In short, the ITC dishes out a 30% tax credit on both residential and commercial solar systems. Now that it has been extended through 2021, technology innovation is ramping up, and investors are feeling more certain about their long-term solar investments (which is driving some fierce competition). The end result is that consumers will continue to see costs drop.
Against the backdrop of the steadfast ITC, net metering has been a much more volatile incentive from state to state. Net metering, a billing system that credits solar owners for the energy they feed back into the grid, has been an important incentive for PV owners, specifically in the residential sector, who are looking for a way to offset the initial investment of an on-site solar system.
Many solar homeowners are soaking up the sun during the day when they’re away from home, and need the energy the least. Feeding their excess energy back into the grid means a significant slash in electricity bills, so homeowners can see an even greater, immediate return on their solar system investment. But states across the country have been re-evaluating net metering, and states like Arizona, Nevada and Maine spent the last year debating whether or not they were going to drop the program entirely. An end to net metering could seriously curb homeowner interest in solar, and a domino effect into other states could have a serious impact on the solar industry as a whole.
Now, you’re caught up on everything solar, and everyone’s going to wish they were on your end of the dinner party table.
The SEIA comes out with their full US Solar Market Insight Report on March 9, which will skyrocket your nerdiness to a whole new level. Don’t have time to soak up the new solar stats? Neither do we. What we are interested in spending time on is trying to figure out how we can make money off of all this growth in solar as retail investors aside from just buying the Guggenheim Solar ETF (NYSEARCA:TAN) or Market Vectors Solar ETF (NYSEARCA:KWT) which have had a dismal performance. Stay tuned.