After years of growth, 2024 could be the year solar power decides whether it becomes the nation's primary renewable energy source or stalls due to continued regulatory and financial constraints.
“We see continued growth in 2024, which is good, but there are significant headwinds. How we manage these headwinds will determine whether we meet our projections,” said Sean Gallagher, vice president of policy at the Solar Energy Association (SEIA).
The industry entered a stellar year with a record number of installations and a higher share of production that helped keep the lights on in the summer heat.
According to a December report by SEIA and Wood Mackenzie, the U.S. will add about 33,000 megawatts of solar power in 2023, a 50 percent increase from 2022, though exact numbers are not yet available.
Demand for clean energy to meet decarbonization goals, including the Biden administration's goal of a net-zero carbon power sector by 2035, as well as government incentives in the 2022 Inflation Reduction Act, have helped boost demand across the country. New policies to encourage community solar power, along with billions of dollars from the EPA, are helping this solar market grow.
SEIA estimates that the number of installations will increase by 10 percent by 2024, with annual growth of 14 percent over the next five years. The U.S. Energy Information Administration reports that by 2024, solar power could produce 14% more electricity than hydropower, making it America's largest source of zero-emissions electricity.
The agency's short-term energy outlook, released in January, also predicted that about 80,000 MW of solar power would be available within two years, representing an 84 percent increase in generating capacity.
But behind these hopeful predictions lies a potential obstacle. Starting this year, the limited market for solar power and trade barriers could mean that solar equipment will become cheaper. Interconnection problems continue to slow projects, and some states are rolling back policies that once offered homeowners big incentives to install solar.
High interest rates, which make it difficult for developers and homeowners to invest in new solar energy systems, are expected to decline, although it is not yet clear when or by how much.
"In the world of renewable energy, all the pieces never come together or fit," said Marlene Motika, head of U.S. renewable energy at consulting firm Deloitte. "The industry is used to these types of challenges, but demand remains and this could help offset the rising costs of renewable energy projects."
The Biden administration, which has made solar expansion a key part of its climate agenda, has taken steps to overcome those obstacles, including temporarily easing some trade rules to boost imports and implementing interconnection reforms that make it easier to connect solar to electricity. network.
Consider four challenges for the US solar industry in 2024:
Local production
Efforts by the Biden administration to build a strong solar manufacturing base will culminate this year with the opening of the first cell, wafer and die manufacturing plant in the United States.
That increase was driven in part by the Inflation Reduction Act of 2022, which provides a tax credit known as 45X that rewards local manufacturers for producing clean energy products.
Analysts said they expect more corporate advertising using available credit. Earlier this month, Microsoft announced plans to buy 12 gigawatts of American-made solar panels from South Korea's Qcells plant in Georgia, which are expected to come online this year.
Announced manufacturing projects could triple the country's solar module capacity by 2024 from 2023 and meet the country's demand by 2030, according to data compiled by Deloitte. Not only is this based on a 45x loan, it also lowers the price. equipment that does not need to be imported.
However, what happens in between could determine the direction of the solar industry in 2024. Gallagher said SEIA is pressing the Biden administration to "avoid hurting itself" with trade policies that raise prices for some imported equipment. and panels This includes restrictions on solar boat building equipment, which is currently only manufactured in China.
Discussions will continue regarding the government's temporary suspension of tariffs on solar panels imported from four Southeast Asian countries, which will expire at the beginning of June. The Biden administration has set a moratorium until June 2022 to give the solar industry time to grow, despite evidence that China is circumventing existing trade barriers by stockpiling equipment in Cambodia, Malaysia, Thailand and Vietnam.
The decision was welcomed by solar manufacturers who said the high tariffs could hurt projects planned or under construction, but also criticized China for supporting it.
Two U.S. companies, Auxin Solar and Concept Clean Energy, appealed Biden's decision in December at the U.S. Court of International Trade, arguing the move hurts a domestic manufacturing base that has been "destroyed by China's unfair trade practices." The company demanded to lift the moratorium. It is not yet clear when this decision will be made.
BloombergNEF solar analyst Paul Lescano said in an email that the group "expects an eventual increase in solar module imports before the new tariffs take effect in June 2024," which would lower solar module prices in the short term.
As prices fall, Lescano added, "it will be important to secure long-term contracts for announced U.S. solar module factories and strengthen the commitment of U.S. module buyers to buy from U.S. factories," which would demonstrate the viability of these factories. market. . market. .
General roadblocks
A large supply of solar equipment means nothing if it's not installed somewhere, the solar industry notes, because many projects can't be connected to an overburdened grid.
"Welcome the new year like the old one," said EIA Gallaher. "Across the country, in every segment of the market, whether it's a large project or a small roofing project, engagement takes too long and is unpredictable."
Last summer, the Federal Energy Regulatory Commission took major steps to review interconnection complaints through Executive Order 2023, reforming the process and prioritizing projects that can demonstrate commercial readiness.
In October, the Energy Department released a draft "roadmap" outlining options for further interconnection reforms, including setting deadlines for renewable energy projects. This road map will be completed this year.
Those steps are helping, Gallagher says, but they may not be enough to bring solar power to the grid fast enough to meet demand. Instead, he said, solving the problem will require the joint efforts of regional and state transport operators. The model could be taken from the 13-state PJM Interconnection, whose reforms unveiled last July could pave the way for more than 72,000 MW of clean energy projects on the grid by mid-2025.
Some changes are happening at the state level, for example, Massachusetts passed interconnection changes for small renewable systems last year, but Gallagher said negotiations remain active "at all levels." That includes the US Congress, where lawmakers can continue lengthy debates over energy permits.
Another issue to consider is the possibility of resettlement, including policies that address the challenges of new renewable energy projects. The Bureau of Land Management announced plans this year to update the Solar Energy Project's Environmental Impact Statement, allowing developers easier access to utility construction projects on public lands in 11 western states.
Change in net accounting
As small rooftop solar installations become more popular and affordable, thanks in part to federal tax credits, some states are revising key policies that encourage homeowners to adopt the technology. With net metering, rooftop solar customers are compensated for the excess electricity they generate and feed back into the grid, sometimes at the rate they would have paid for the energy.
While net metering is designed to shorten the payback period for expensive solar systems and get more panels on rooftops, some states have begun reducing the amount solar owners pay because those payments go to lower-income families.
Arizona has indefinite net metering rules, and other states such as Florida, Colorado and Arkansas have considered changes to their plans. North Carolina, Hawaii and Idaho were among the states that lowered customer rates last year.
Some states are also unexpectedly trying to replace net metering policies with a more complex system called net metering, which rates solar power differently based on its impact on the electric grid. California, the nation's largest solar market, took a controversial move toward net metering last year that lowered profit expectations for solar customers and led to a sharp drop in sales. Last week, environmentalists challenged the rules in court and filed a lawsuit with the state Supreme Court.
By the end of 2023, Idaho will join California in replacing the state's largest electric company, Idaho Power, with a net metering rule, a metering strategy that lowers the total rates solar owners pay and gives them more compensation for the electricity they supply. the utility. power grids. inactive, he insisted. This really encourages battery saving.
Alex McKinley, owner of Boise-based Empower Solar, said that while fewer than 2 percent of Idaho homes have solar power, the state's new program could impact emerging markets.
"I think if that was a reasonable outcome, growth wouldn't be the same," McKinley told E&E News. “It will drive people away from solar because the return on investment will be lower. It's sad to know that we won't experience the growth that is happening in other parts of the country."
Idaho Public Utilities Commission spokesman Adam Rush said in an email that the rules adopted by the commission in December are designed to ensure that net metering members "receive a fair level of credit" while "ensuring that all other customers are not treated unfairly." . "material damage".
Autumn Proudlove, associate director of policy and markets at North Carolina State University's NC Clean Energy Technology Center, said states that have lowered net metering rates have seen a decline in solar installations. While replacing a traditional grid meter with a framework based on time and grid conditions may make sense, it may not make sense if the goal is to get more solar on rooftops, he said.
"The advantages of metered networks are clear. The costs are based on retail electricity rates and are generally quite cheap,” Proudlove said. "The structure of the population is more complex. Selling to customers can be difficult because delivery is more difficult and economically unattractive."
The interest rate
After raising interest rates to stave off a potential recession, the Federal Reserve has said it will cut them three times by 2024. That's a good development for the renewable energy industry, as high interest rates discourage small and large projects.
"When interest rates went up last year ... it really affected the construction and financing of renewable energy projects," said Deloitte's Motyka. "I think developers will be happy to see interest rates decrease. This helps them stay competitive and maintain their margins in the market.
Interest rates are also weighing on the solar market as homeowners and businesses experience a credit bubble, according to Wood Mackenzie research released in November. The analysis cited data from the EnergySage platform and found that the average annual interest rate on solar loans rose from 2.5 percent in the third quarter of 2022 to 6.1 percent a year later.
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