Solar's Future: Boom, Bust, Boom

The forecast for solar energy is mostly sunny across the United States, with a chance of a three-year eclipse.
Investors, installers, and customers are hustling to install panels before the federal investment tax credit (ITC) expires in 14 months, which should make 2016 a record year for solar installations, the likes of which has not been seen before in the U.S.
And beginning in 2020, a new incentive for renewable energy arrives in the form of the Clean Power Plan's Clean Energy Incentive Program, which will give states double credit toward their emission reduction goals when they install solar and wind.
But what happens from 2017-2019?
"Assuming the ITC doesn’t get extended, we have a weird period from 2017-2019, when we’re going to be trying to figure out how to make this market work," said Shayle Kann, the senior vice president of GTM Research, at GTM's U.S. Solar Market Insight conference in Coronado Island, Ca.
"There’s going to be a heavy emphasis on cost reduction to make sure the economics still pan out. And, you know, the need for a lot of smart strategy, to figure out exactly how to right-size your operation, how to right-size your business and where to be playing strategically so you can still get these projects done."
SolarCity announced last Thursday it was embarking on a smart strategy of slower growth and cost reduction sooner rather than later, and it saw its share price hammered on Friday, plunging 25 percent. Does that bode ill for the rest of the industry?
The 2017 Bust
"The economics in 2017, unless everything goes right, are going to be worse than they are in 2016," Kann said, "which is something that we basically haven't seen in the solar industry in the U.S. in 15 or 20 years.
"The result of that is likely to be the first down year for solar that we've seen in the last 15 to 20 years in the U.S. It may not be the end of the market. Growth may continue thereafter, but a down year is something we're very much not accustomed to, and it's going to be particularly painful in states, markets and utility areas that are … on the margin of profitability."
The EPA may even be creating a perverse incentive that discourages installations before 2020, when states can count them double.
But let's not get ahead of ourselves. We still have more than a year of boom before the bust.
The 2016 Bonanza
"There is the very near phase, say today to end of 2016, and it’s going to be a bonanza," Kann said. "We already know that there is 13 GW of solar that somehow has to come online next year—maybe even more."
That 13 GW is the equivalent of half of the solar currently online in the U.S. And it could mean parts shortages, price escalations for some components, maybe interconnection issues as solar companies hustle to install panels before the credit expires.
"This is an enormous amount of solar we’re building out right now, completely unprecedented in this country’s history," Kann said. "We have 14 months of just utter craziness ahead of us unless the ITC gets extended before then."
The ITC will drop from 30 percent to 10 percent for commercial installations, and to zero percent for residential. An ITC extension would smooth the waters ahead, perhaps leveling the installation peak in 2016 a bit by extending installations beyond.
But no one seems to be counting on this Congress to extend the tax credit.
"I think the industry will be able to wean itself off, but not next month," said Jamie Evans, Panasonic's managing director of eco-solutions, at Sen. Harry Reid's National Clean Energy Summit in Las Vegas in August.
The tax credit is less important than it once was, Evans said.
The solar industry should be able to survive now that solar prices are competitive, in some markets, with fossil fuels.
And if the federal government wants to bolster the solar industry, extending the tax credit may not be the best move.
"Subsidies for solar technologies would be much more effective per taxpayer dollar spent if they rewarded generation, not investment," according to an MIT Study on the Future of Solar Energy released this year.
The authors of the MIT study urge Congress to replace the ITC, so the solar industry continues to grow, but with a program that rewards generation rather than investment, with grants rather than tax credits.
Either way, the EPA's Clean Power Plan should come to the rescue—assuming it survives a blitzkrieg of legal challenges—in 2020.
The 2020 Boom
EPA's Clean Energy Incentive Program is designed to prevent the industry from stalling in 2020 and 2021 before the plan's first compliance date in 2022.
"We want to encourage these early wins," EPA Administrator Gina McCarthy said in September. "So we've created a clean energy incentive program to help states get ahead of the curve, and jump start their emissions-reductions as soon as 2020."
This should launch the next phase of sunshine for the solar industry, one that should last once states have to meet mandatory carbon-reduction targets in 2022.
" The next phase starts in maybe 2020 and goes for the next decade, and that’s the one that gets really exciting to me," Kann said, because between 2020 and 2030 the nature of the electricity market will have changed to favor renewables.
The new market should foster new technologies, new deployment mechanisms, and new financing mechanisms, Kann said, but the form of those changes will remain a mystery until states submit their implementation plans to EPA, a process that should begin in 2016.
"Until the states submit their implementation plans we don’t know exactly what impact it’s going to have on the solar market in any given state," Kann said. "We can pretty safely assume the Clean Power Plan will only have a positive impact on solar and not a negative one, but we don’t know to what degree and exactly how."
Solar installers can count on one positive impact though, Kann said: Right now, California accounts for half of the growth of residential solar and ten states account for 95 percent of the solar market overall. After 2020, there are 40 more states where solar should flourish.