Solar Market Insight Report 2014 Q3

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The quarterly SEIA/GTM Research U.S. Solar Market Insight™ report shows the major trends in the U.S. solar industry. Learn more about the U.S. Solar Market Insight Report.

Key Figures

  • The U.S. installed 1,354 MWdc of solar PV in Q3 2014, up 41% over Q3 2013, making it the second-largest quarter for solar installations in the history of the market.
  • In the first three quarters of this year, 3,966 MWdc of PV came on-line, compared to 2,647 MWdc in the first three quarters of 2013.
  • Cumulative operating PV capacity has now eclipsed the 16 GWdc mark, thanks to four consecutive quarters in which more than 1 GWdc was installed.
  • For the first time ever, more than 300 MWdc of residential PV came on-line in a single quarter and more than 50% residential PV came on-line without any state incentive.
  • 36% of all new electric generating capacity in the U.S. through the first three quarters of 2014 came from solar.
  • Growth remains driven primarily by the utility solar PV market, which installed 825 MWdc in Q3 2014, up from 540 MWdc in Q3 2013.
  • We forecast that PV installations will reach 6.5 GWdc in 2014, up 36% over 2013 and more than three times the market size of just three years ago.
  • Q1 2014 was the largest quarter ever for concentrating solar power, due to the completion of the 392 MWac Ivanpah project and Genesis Solar project’s second phase of 125 MWac. While no CSP plants came on-line in Q3 2014, Abengoa’s Mojave Solar (250 MWac) achieved commercial operation in December 2014.

1.         Introduction

As of the end of Q3 2014, the U.S. was home to 578,000 individual solar installations on rooftops, parking lots, landfills, deserts and fields. This represents a cumulative 16.1 gigawatts (GWdc) of photovoltaic (PV) generating capacity and 1.4 GWac of concentrating solar power (CSP) capacity, up from 1.2 GWdc of PV and 0.4 GWac of CSP five years ago. What’s more, solar now consistently accounts for a significant share of new electric generating capacity in the U.S. So far this year, solar represents 36% of new generating capacity in the U.S., second only to natural gas.

2014 has been a time of both growth and transition for the U.S. solar market. The growth has come primarily from two segments: residential and utility scale. Both segments are up substantially in 2014, and we anticipate continued strength through the next two years. The non-residential market (i.e., commercial, industrial, government and nonprofit) has essentially been flat for the second year in a row, but shows promise for a resumption of growth in 2015, driven by expansion in California and the emergence of a market in New York. Notably, 2014 is likely to be the first year of the last decade during which there is more residential PV installed than non-residential.

As part of the broader electricity sector, the solar energy market is defined by the policies and regulations set by federal and state governments. From the broadest federal tax policy to the state public utility regulations that define access to the market, policy will remain important to solar even after grid parity is reached in different parts of the country. Among the core political/regulatory forces that will shape the future of the market are:

  • Investment Tax Credit expiration. In a little more than two years, on December 31, 2016, the 30% federal Investment Tax Credit, which has been the bedrock incentive for the U.S. solar market, is scheduled to drop to 10% for commercial projects and to zero for directly owned residential projects. Already, developers of utility-scale projects are facing a cliff in 2017 and being forced to accelerate project timelines in order meet the deadline for the 30% credit. Extension of the ITC is SEIA’s top priority, and there is an increasingly loud chorus of voices in the solar industry pushing for extension.
  • Net energy metering and utility rate structures. Solar advocates were dealt a blow in Wisconsin recently, as that state’s Public Service Commission voted to significantly increase fixed charges on customer bills for Wisconsin’s largest utility. This is a rare defeat for solar among early NEM- or rate-related debates, and many proceedings on the issue are still ongoing.
  • Greenhouse gas regulation and solar market impact. Over the next few years, individual states will have to develop plans to meet proposed EPA standards for carbon emissions in the power sector under Section 111(d) of the Clean Air Act. These compliance plans could present myriad new opportunities for solar toward the end of this decade, depending on how they are structured, and SEIA, along with solar companies with a long-term view, is actively engaged in the rulemaking process.

In the meantime, as policies and regulations shift, the solar market continues to grow. We anticipate 6.5 GWdc of solar PV installations this year, 36% more than last year’s total. Additionally, 2014 is set to be the largest year in history for concentrated solar power (CSP), with a total of 767 megawatts (MWac) coming on-line. 

2.             Photovoltaics

2.1.       Installation Overview

The U.S. installed 1,354 MWdc of solar PV in Q3 2014, up 8% over Q2 2014 and 41% over Q3 2013. This marked the fourth consecutive quarter with more than 1 GW of installations, as well as the most stable overall three-quarter period in the market’s recent history. As has been the case for the past two years, the utility market made up the largest portion of the market (61%). In the distributed solar market, a stark divergence has appeared: while the residential market continues to see strong growth (up 13% Q/Q and 58% Y/Y), the non-residential market has struggled (down 19% Q/Q and 3% Y/Y).

2.1.1 Market Segment Trends

Residential PV
  • Up 13% over Q2 2014
  • Up 58% over Q3 2013

For the first time ever, the residential market exceeded the 300 MWdc mark in a single quarter. Growth occurred both in California (11% quarterly growth and 52% of the national market) and across the rest of the market (16% growth and 48% of the national market). Third-party-owned (TPO) residential PV systems continue to be an attractive option for many homeowners, driving anywhere from 67% (New York) to 92% (New Jersey) of residential installations in state markets where it is available. However, Arizona and California have experienced a gradually declining TPO market share over the past year as 1) an increasing number of installers have begun to offer loans and 2) the cost of solar has come down enough that more customers can afford to pay in cash.

Non-Residential PV
  • Down 19% from Q2 2014
  • Down 3% from Q3 2013

The non-residential market appears poised for another virtually flat year. After growing 3% on an annual basis in 2013, the first three quarters of 2014 have shown 4% growth year-over-year. In both years, there have been clear bright spots in the non-residential market, but they have largely been countered by another major market in decline. In 2014, Massachusetts has been the growth story, with 179 MWdc installed through three quarters (up from 77 MWdc in the same period last year), but New Jersey and California have combined for a 79 MWdc decline in the pace of installations versus 2013. Whereas the residential market has shown widespread resiliency against the reduction or, in some cases, the expiration of state incentive programs, the non-residential market remains reliant on these incentives in the vast majority of cases. As a result, low SREC prices (as in New Jersey) or expiring production-based incentives (as in California) have dampened demand.

Utility PV
  • 825 MWdc installed in Q3 2014
  • Drove more than 50% of national PV installations for the sixth straight quarter

In Q3 2014, the U.S. installed 825 MWdc of utility PV from 67 individual projects and project phases. This makes Q3 2014 the third-largest quarter ever for utility PV in the U.S.

The market continues to benefit from the expedited build out of the contracted pipeline, ahead of the federal ITC’s scheduled drop to 10% at the end of 2016.  The majority of this capacity (528 MWdc) came from the four largest projects, three of which were developed in California.

In addition to these mega-scale projects, North Carolina posted its second-largest quarter for utility PV installations with 94 MWdc installed, as developers ramped up build rates to bring their pipelines on-line before the 35% state tax credit expires at the end of 2015. Meanwhile, First Solar completed the first merchant solar project in the U.S., a 23 MWdc project in Texas that sells power into a wholesale power market rather than selling power to a utility via a power-purchase agreement (PPA). The completion of the first merchant solar project in the U.S. is a symbol of utility PV’s growing economic competitiveness in the broader electricity market. As discussed in greater detail in the full report, the past 18 months have seen 4 GWdc of utility PV land PPAs with utilities at prices competitive with or below the cost of natural gas alternatives.    

2.1.2. Full Report Excerpt | California: Record Growth in a Post-Incentive Market

Despite the gradual, now-full depletion of residential rebates offered by the California Solar Initiative (CSI), California’s residential market has grown by at least 50% year-over-year every quarter since Q1 2013. With state incentives now a secondary driver of demand across the territories of the investor-owned utilities, the conversation surrounding why California’s market continues to grow is linked to market dynamics driven by retail rate design, installers’ growth strategies, and the diversification and expansion of homeowner financing solutions.

Over the past few months, installers point to the following trends as particularly important drivers of California’s residential market maintaining its highly consistent rate of growth.     

Aggressive, concentric growth from both local and national installers: A growing pool of in-state installers are now expanding their sales footprints from one to two utility service territories. This trend holds true for a few installers originally operating on the East Coast that are now ramping up operations within California to further fuel growth. Subsequently, the competitive landscape has become increasingly saturated, with higher numbers of customers considering five to six bids and in some extreme cases, upward of twelve bids in select communities. Despite the increasing competition, both local and national installers maintain the view that Q4 will be the largest quarter to date for California’s residential market.

Installer and legislative-led efforts to trim the duration of the interim between sales pitch and installation: Over the last twelve months, a growing wave of municipalities has collaborated to streamline and expedite the permit approval process in order to cut down on installation timelines. The passage of state bill AB 2188 in September 2014 is expected to further streamline the permitting process statewide, mandating that the permit application approval process last no longer than eight days if the system can qualify for an “expedited review.” In addition, installers are expediting sales-to-installation timelines by tapping into communities with over-the-counter permitting processes, and more importantly, by more aggressively pushing standardized, fixed-price financing solutions to further speed the sales process for customers acquired via referrals.   

Beyond 2014, impending revisions to net metering and rate design by way of AB 327 are poised to be primary determinants of residential solar economics in California. The CPUC has until December 2015 to finalize the details of the next net metering program, which will take effect on July 1, 2017 or when each utility hits a predefined capacity limit (whichever occurs first). Based on GTM Research’s outlook for the three investor-owned utilities, however, SDG&E and PG&E are both expected to reach their respective NEM capacity limits by the first half of 2016, making December 2015 a crucial deadline for the CPUC in order to ensure a smooth transition into the next NEM program.

2.2 National System Pricing

In the Q1 2014 edition of the U.S. Solar Market Insight report, we introduced a new methodology of capturing and reporting national system pricing. Our previous methodology used weighted average system pricing directly from utility and state incentive programs, but we have long felt that the data was not an ideal reflection of the current state of system pricing, as it often represented system prices quoted well prior to the installation and connection date, and much of the reported data was based on fair-market-value assessments for TPO systems.

Our new bottom-up methodology is based on tracked wholesale pricing of major solar components and data collected from major installers, with national average pricing supplemented by data collected from utility and state programs. Starting with this report, we will no longer be reporting system prices state by state, although we will still continue to display reported system pricing from state and utility incentive programs in the full report.

2.2.1. National Residential System Pricing

Note: Detailed information about national system prices by market segment is available in the full report.

Our model shows weighted national residential system costs at $3.60/Wdc in the third quarter, representing a 3.8% decrease quarter-over-quarter. Best-in-class installers are achieving lower costs by leaning on high installation volumes that allow the purchase of hardware directly from manufacturers and by amortizing overhead costs over a larger installation base.

Supply chain, customer acquisition, installation labor, overhead and margin, which together constitute the category of “soft costs,” continue to dominate project costs. Customer acquisition costs continue to be a pain point for small and large system installers alike. While smaller installers typically have lower-cost leads – leaning heavily on referrals – gaining significant volumes can be difficult. In contrast, larger installers receive many more qualified leads, but often procure these leads at higher costs (e.g., purchased third-party leads). Data from publicly listed companies and private communications to GTM Research both indicate that customer acquisition costs are typically anywhere between $0.35/Wdc and $0.50/Wdc, with little correlation between the size of the firm and the level of costs.

2.2.2. National Non-Residential System Pricing

Note: Detailed information about national system prices by market segment is available in the full report.

Our model shows flat-roof non-residential system costs at $2.27/Wdc, representing a 5% decrease quarter-over-quarter. Major cost declines come from inverter and structural BOS pricing – both challenged industries as commoditization continues to compress margins. The potential for module pricing increases as the result of tariffs on Chinese and Taiwanese module products has also led to system developers and EPCs aggressively pushing inverter and racking manufacturers to adopt lower prices.

2.2.3. National Utility System Pricing

Note: Detailed information about national system prices by market segment is available in the full report.

Unlike residential and non-residential systems, utility system pricing is rarely reported. As a result, our national capacity-weighted average incorporates publicly reported pricing where available, as well as input from utility developers and EPCs. National weighted-average system pricing for utility systems in Q3 2014 came in at $1.88/Wdc, a 3.8% increase from Q2 2014, reflecting a higher proportion of systems installed in higher-cost regions and an increase of single-axis tracking systems.

We also find that costs for systems installed in Q3 2014 came in as low as $1.55/Wdc and as high as $2.10/Wdc. Low pricing reflects strong competition in new markets that has pushed component and EPC margins significantly downward. High pricing reflects systems with legacy PPAs and higher-cost components like single-axis tracking.

In this iteration, we add bottom-up modeled costs for single-axis tracking systems, which come in at $1.88/Wdc – a 12% premium over modeled fixed-tilt systems. While there are additional structural, electrical, labor and site-related costs for one-axis tracking systems, the premiums are often offset by larger gains in system performance, as well as by peak pricing mechanics. Increased competition among utility racking manufacturers entering the single-axis tracking space has driven pricing reductions of nearly 20% from the previous year.

2.3. Component Pricing

2.3.1. Polysilicon, Wafers, Cells and Modules, Q3 2014

Pricing for polysilicon and PV components fell quarter-over-quarter in the third quarter of 2014. Polysilicon price adjustments were slight as polysilicon demand remained strong, prices falling only 1% sequentially to $21.70/kg. In contrast, demand for wafers fell during the quarter, driving prices down 4% to $0.22/Wdc. However, the most dramatic drop was the decline in Taiwanese cell spot prices. Following the U.S. imposition of antidumping duties on Taiwanese cells and modules, Taiwanese cell spot prices plummeted from $0.44/Wdc in Q2 to $0.34/Wdc in Q3. Since duties spanned from 20.86% to 27.59%, final prices in the U.S. hovered around $0.41/Wdc in Q3.

Module pricing in the U.S. differs widely based on order volume, producer region and individual firm. During the third quarter, delivered prices for Chinese modules ranged from $0.72/Wdc on the low side (corresponding to order volumes greater than 10 MWdc for less established firms) to $0.75/W on the high side (established, bankable firms, order volumes of less than 1 MWdc). Blended delivered pricing for Chinese modules is estimated to have stayed flat at $0.73/W for the third straight quarter, up 4% from Q3 last year. Pricing by firms in the U.S. and other Asian countries (Korea, Malaysia, Singapore) selling into the residential and commercial sector were in the range of low to mid $0.80/Wdc, largely in sync with price levels throughout the year.

2.4. Market Outlook

We expect another strong year for the U.S. PV market in 2014, with installations reaching 6.5 GWdc, a 36% increase over 2013. The fastest growth will come from the residential segment (49% year-over-year), followed by the utility segment (45%). Most notably, we revised our non-residential forecast for 2014 downward to just 1.4% growth, primarily due to incentive depletion hampering growth in Arizona and California and SREC oversupply in New Jersey resulting in  rock-bottom build rates.

Forecast details by state (31 states) and market segment through 2018 are available in the full report.

3.             Concentrating Solar Power

The final quarter of 2013 kicked off the first wave of mega-scale CSP projects to be completed over the next few years, and Q1 2014 built on that momentum with 517 MWac brought on-line. This includes BrightSource Energy’s 392 MWac Ivanpah project and the second and final 125 MWac phase of NextEra’s Genesis solar project. While Q2 2014 and Q3 2014 were dormant for CSP, Abengoa finished commissioning its 250 MWac Mojave Solar project in December 2014. Although no additional projects are expected to come on-line this year, 2014 ranks as the largest year ever for CSP with 767 MWac brought on-line. The next notable project slated for completion is SolarReserve’s 110 MWac Crescent Dunes project, which entered the commissioning phase in February 2014 and is now expected to become fully operational in February 2015. Major CSP project development highlights in Q3 2014 can be found in the following table.

Acknowledgments

U.S. Solar Market Insight® is a quarterly publication of GTM Research and the Solar Energy Industries Association (SEIA)®. Each quarter, we collect granular data on the U.S. solar market from nearly 200 utilities, state agencies, installers, and manufacturers. This data provides the backbone of this U.S. Solar Market Insight® report, in which we identify and analyze trends in U.S. solar demand, manufacturing, and pricing by state and market segment. We also use this analysis to look forward and forecast demand over the next five years.  All forecasts are from GTM Research; SEIA does not predict future pricing, bid terms, costs, deployment or supply.

* References, data, charts or analysis from this executive summary should be attributed to “GTM Research/SEIA: U.S. Solar Market Insight®.”

* Media inquiries should be directed to Mike Munsell (munsell@gtmresearch.com) at GTM Research and Ken Johnson (kjohnson@seia.org) at SEIA.

* All figures are sourced from GTM Research. For more detail on methodology and sources, visit www.gtmresearch.com/solarinsight.

Our coverage in the U.S. Solar Market Insight reports include 30 individual states and Washington, D.C. However, the national totals reported include all 50 states, Washington, D.C., and Puerto Rico.

Detailed data and forecasts for all 30 states are contained within the full version of this report, available at www.greentechmedia.com/research/ussmi.

AUTHORS

GTM Research

Shayle Kann, Senior Vice President

MJ Shiao, Director of Solar Research

Shyam Mehta, Lead Upstream Analyst

Cory Honeyman, Solar Analyst

Nicole Litvak, Solar Analyst

Jade Jones, Solar Analyst

SEIA

Tom Kimbis, Vice President

Justin Baca, Director of Research

Shawn Rumery, Research Manager

Aaron Holm, Research Analyst

 

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