In many ways, 2018 was not an easy year for solar installers. Two rounds of tariffs raised prices on imported cells and panels (especially those from China), investment tax credit reductions loom ahead and the residential market remained flat following a 2017 downturn. While more of the same seems in store for 2019, forecasters see growth returning in the early 2020s, and total installed capacity is expected to more than double by the end of 2023.
That bullish estimate comes from analysts at Wood Mackenzie, who create the quarterly and annual U.S. Solar Market Insight reports for the Solar Energy Industries Association. Their third-quarter 2018 review estimated last year’s total solar installations at 11.1 gigawatts (GW) of new capacity, up slightly from 2017’s 10.6 GW figure.
Troubled by tariffs
Two sets of tariffs—one, starting at 30 percent, levied against all imported solar cells and modules (what we call panels) and a second 25-percent hit directed at Chinese imports—raised a lot of uncertainty for project planners last year. The first was announced in January, while the second was included with an August action affecting a total of $16 billion worth of Chinese products.
In June, Reuters reported the 30-percent tariff had forced developers to cancel or freeze more than $2.5 billion in previously planned investments. Larger utility-scale projects are most affected, because panels make up a bigger percentage of their total installed costs. However, longer-term impacts are more difficult to judge. The 30-percent tariff dropped to 25 percent this year and will fall to 15 percent by 2021, so some projects have gone into a holding pattern. While China is a huge player in the international solar manufacturing market, it produces a very small percentage of U.S. imports, so the added tariff on those products is expected to have minimal impact.
The tax man cometh
Developers are balancing the declining tariff schedule against financial pressures raised by the pending phase-out of the longstanding 30-percent investment tax credit for solar installations. That credit drops to 26 percent for projects beginning construction in 2020, 22 percent in 2021, and then to a permanent 10 percent for commercial and utility-scale projects. The credit is eliminated completely for residential installations after 2021.
Like much tax legislation, though, the near-term impact of the phase-out rests on some very specific language—in this case, “commence construction.” In August, the U.S. Internal Revenue Service defined that phrase in a way that could help loosen developers’ purse strings. Developers now can claim a project’s construction has begun in the year they either begin significant physical work or incur 5 percent or more of the total project’s cost. If either of those occurs during 2019, developers have until the end of 2023 to complete construction and begin operations.
Raising the rooftop market
Last year’s flat residential market was a step up from 2017, when sales dropped 15 percent over those of 2016. But there are signs of possible growth in 2019 and beyond, with homeowners outside the classic high-adoption states beginning to see solar’s advantages.
For example, Florida has historically lagged in rooftop solar, due to strong resistance from local utilities. Until recently, solar-lease contracts were considered illegal because the leasing companies—e.g., national leader Sunrun—were essentially third-party power providers. Last April, however, the state Public Service Commission ruled in favor of Sunrun contract language that redefines the arrangements as equipment leases, rather than power-purchase agreements.
There also is some indication that residential solar sales could get a lift from growing homeowner interest in energy storage as a resilience booster. Initially, paired solar-storage systems were seen as a way to reduce a home’s need for grid-supplied power during expensive peak demand periods. But as major storms, and resulting grid outages, have become more prevalent, keeping a home up and running when the power goes out is a growing concern.
Houston-based Sunnova is hoping to address outage fears with its SunSafe solar-plus-storage leases. It launched the plans in high-cost states such as California, Hawaii and Massachusetts. In November, though, the company touted resiliency as it rolled out the leases in Texas, where electricity costs are among the nation’s lowest, but where storm damage has been headline news the last few years. By repositioning solar panels, paired with batteries, as a fuel-free backup generator, installers could gain new customers who are as concerned about increasing their home’s energy security as they are about reducing its carbon footprint.