Inflation Reduction Act To Give U.S. Solar Energy Industry A Much Needed Boost

The U.S. solar energy industry has grown tremendously in the past decade. That growth has actually been one of the most phenomenal economic growth stories across the whole U.S. economy. However, the “Covid Era” hit solar hard, and it has struggled to get back on the trajectory it was on.

U.S. Solar Energy Growth Has Slowed

The latest industry-wide data we have from the U.S. Solar Energy Industries Association and Wood Mackenzie show a near leveling off of growth. (Note that all of the following data and analysis from these parties comes from before the passing or even introduction of the Inflation Reduction Act of 2022.)

Let’s start with the most striking or upsetting chart.

As you can see, the forecast for 2022 U.S. solar PV deployment (newly installed solar power capacity) is very poor. It’s far below 2020 and 2021 totals, just a bit above the total solar PV deployment in 2019, and approximately the same as the 2016 total. If someone had told you in 2016 that 2022 U.S. solar PV deployment would be the same as 2016 U.S. solar PV deployment, you would not be thrilled with the forecast. (Of course, if they had rolled in a global pandemic and resulting supply chain problems that cripple all kinds of markets globally, you might laugh and direct them to Hollywood.)

Even the 2023 bounceback forecasted here just gets us back to 2021 levels … and then 2024 drops a bit again. Not ideal.

The solar industry forecast gets back on a solid growth path again from 2025 onward, but it’s not as big, bold, or ambitious as it once was.

However, this forecast was based on the idea that the Investment Tax Credit would start declining in 2024. That tax credit has now been extended to 2032! The U.S. solar energy industry can rejoice, strong long-term growth can be banked on, and the next edition of this chart above should look much better — at least, for 2024 and beyond. Unfortunately, 2022 and 2023 are still suffering from global supply chain and inflation issues, as well as trade disputes.

Taking a minute to look at different segments and elements of the U.S. solar PV industry, we can see in this chart above that annual commercial solar power installations had a sharp drop from 2017 and 2018 and then have been slowly declining since 2018. We will have to dig into this topic further to better understand why the segment darted up in the mid-2010s only to lead to a gradual decline.

All of that said, note the black line graph overlaying the yellow bar chart. Commercial solar’s share of the overall commercial electricity market has risen strongly since 2018, going from 0.6% of the market to 1.1% of the market. So, clearly, it’s the broader commercial electricity market that’s been declining the most and the commercial solar PV market has fared much better than the norm.

Looking at the utility-scale solar PV market, the first quarter of 2022 showed a sharp drop from the first quarter of 2021, and its about even with the first quarter of 2020. The contracted pipeline (orange line) has been about the same for the past year. Without a doubt, the U.S. utility-scale solar PV market is suffering. The extended Investment Tax Credit (ITC) will help in the future, but more important is probably continued efforts to resolve supply chain, inflation, and trade issues.

Related to the charts higher up, this 4th chart shows that solar PV prices jumped up in 2021 and broke a long trend of declining commercial and utility-scale solar PV prices. We will see in coming quarters how solar PV prices trend as inflation and supply chain problems are resolved.

The last thing for this section: US solar industry jobs have been declining for

Good Solar Growth Stories

Despite all of those challenges and concerning charts and trends, there have been plenty of good trends as well in this time period. Let’s start with the homes.

The US solar industry is expected to grow in 2022 — maybe not by leaps and bounds, but solidly. Despite rising prices, many homeowners continue to discover the long-term cost benefits of home solar power and gain access to the market. California is expected to take a hit in 2023, and California is a huge portion of the US solar market, but we’ll come back to that in other stories. The good news is that, as you can see, the rest of the US solar market is expected to keep growing strongly.

As noted above, the forecasted drop in the market in 2024 can now be disregarded. That was based on the previously planned phaseout of the solar ITC. The Inflation Reduction Act of 2022 extended that tax credit for the decade to come, and we can expect solid continued growth again. The Inflation Reduction Act also featured various subsidies for improving the electrical backbone of houses, which supports solar as well. There’s a rebate for up to $4,000 to upgrade the breaker box in your house and up to $2,500 to spend on electrical wiring, for example. And …

… there’s the 30% tax credit for energy storage. As the chart above shows, US home solar power has increasingly been paired with home energy storage. That was expected to be a growing trend regardless, but the IRA will surely give that trend another big boost.

Overall, looking at cumulative US solar power installations, we can see how far the industry has come. Look at how low this total was a decade ago, in 2022. Just also note that the height of the chart at the end is not for the full year forecast but just for the first quarter. While it won’t be the biggest period of growth when all is said and done, the chart will look much better than the above.

This is the same thing for just the community solar power market. It shows continuous strong growth of the community solar power market (probably my favorite segment of the solar market) and breaks down the data by state. Minnesota, New York, and Massachusetts are the states that are clearly leading the charge in this segment of the solar industry.

Looking at the grand scheme of things again, US solar PV prices have come down tremendously in the past 10–20 years. And installations have risen strongly as a result, from just about 2,000 MW installed in 2011 to nearly 24,000 MW installed in 2021. the long-term trends are strong and positive.

We’ll end with perhaps my favorite chart of all. This one shows solar power’s (and wind power’s) share of new power installations across the United States. Despite everything else noted above regarding a slowdown of the US solar market in 2022, you can see that it reached 50% of new power installations (in terms of power capacity) in the first quarter of 2022, and wind and solar together combined for about 90% of new power installations. That’s winning! We just need more of it. (For more on this topic, see our regular U.S. electricity capacity reports and U.S. electricity generation reports.)

For more perspective on the charts, graphs, and data above, see the SEIA page on these.

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