Date September 2015
By the numbers
- A continued rise in installed capacity across all segments - residential, non-residential and utility is expected in 2015
- The U.S. industry is set for major disruption at the end of next year
- Industry revenues: $1.1 billion (U.S. solar power industry)
- Significant companies: NextEra Energy Inc., SunEdison Inc., Sempra Energy, Iberdrola Renewables LLC
- Recent sales trends: Spurred by favorable government incentives, the solar power industry has grown sharply during the past five years at an annualized rate of 83.9 percent, including growth of 40.9 percent in 2015 alone, according to IBISWorld
Domestic market focused on federal solar Investment Tax Credit (“ITC”) expiration in 2016: The U.S. is expected to continue its record setting growth across all industry segments – residential, non-residential and utility – in 2015, reflected in the 1,306 megawatts (“MW”) of installations completed in Q1 2015. Residential installations grew by 11 percent over Q4 2014, which bucks the trend of decreased quarterly growth due in large part to weather conditions in snow covered areas. California continues to lead all of the states in cumulative MW installations by a significant margin over Nevada, New York and North Carolina. The utility scale pipeline saw 644 MW installed in Q1 2014. However, development well exceeded this amount as installers race to complete projects ahead of the Federal ITC expiration on December 31, 2016. The tax credit will decrease from 30 percent to 10 percent at that time. No extension is currently expected. Similarly, the United Kingdom saw 1.6 GW of completed installations in Q1 2015 prior to the expiration of its Renewable Obligations (“RO”) scheme for projects exceeding 5 MW.
Global photovoltaic (“PV”) capacity grows; China and Japan lead the way: Global PV capacity is expected to exceed 2014 capacity by 177 percent, reaching 497 GW by 2019. China and Japan currently account for half of global demand with the U.S., the United Kingdom and Germany contributing an additional quarter. It is expected that, across 11 markets, demand will exceed 1 GW in 2019 with many in a post-feed-in-tariff phase. These markets should experience less volatility due to reduced reliance on government tax credits and subsidies, which generally have the greatest influence on the respective global markets. By 2019, it is expected that the Asia-Pacific region will exceed 10 GW of demand. Additionally, India and Australia currently have expanded or are negotiating new government subsidy standards for the near term.
Revenues rise due to industry consolidation: Manufacturers of thin film modules saw revenues reach a three quarter high in Q4 2014. The industry consolidation that took place during the precipitous price declines experienced in 2010 and 2011 has led the top 20 suppliers to now account for 68 percent of demand, up from 60 percent in 2011. Revenues and industry consolidation are expected to continue through 2017. Additionally, manufacturers that had traditionally seen the majority of their products shipped outside of their headquarters country are seeing distribution shift. For example, First Solar and Solar Frontier shipped 83 percent of modules produced from Q1 to Q3 2014 within the country of origin as opposed to 89 percent outside of the headquarters country in 2010. This local focus can provide advantages such as local knowledge, political lobbying, logistical advantages and improved brand perception.
System and component pricing continues to decline: Overall system pricing for all PV installations continues to decline but at lesser rates than were experienced in years prior. Pricing was reduced 9 percent to 14 percent year-over-year, with larger declines realized in non-residential pricing, which represents a blend of projects that are neither residential nor utility in scale. Module pricing has seen modest declines when compared to the exponential declines seen in past years. Soft costs associated with projects were in line with the hardware price reductions. According to the Solar Energy Industries Association (“SEIA”), the installed cost for residential systems was $3.46/Watt in Q1 2015, which is down 2.4 percent quarter-over-quarter and 10 percent year-over-year. Non-residential systems rang in at $3.23/Watt, which is down 6 percent and $1.58/Watt (fixed tilt) and $1.80/Watt (tracking) for utility installations. These declines are significant given relatively static module pricing.
Outlook for the future; government focus required: Record revenues and capacity growth is expected through the end of 2016. With the expiration of the Federal ITC, project development will decline while project implementation and construction rapidly increase. The tax credit reduction to 10 percent in January 2017 will lead the industry to bring as many projects online before this deadline while also preparing for dramatic drops in demand in 2017. Construction after this date will likely be centralized to geographic areas and locations with positive economic conditions. Utility scale projects are anticipated to see the most dramatic declines in 2017, according to the SEIA. This is due in large part to the tax credit reduction but also due to the decrease in project development prior to the deadline.