Utility Solar Market Update
Victor Phan, 9 March 2023
Q4 2022 UTILITY-SCALE SOLAR MARKET UPDATE1
The US utility-scale solar industry installed 2.5GWDC of capacity in the third quarter of 2022, an 8.8% decrease from Q2 2022 and a 36% decrease from Q3 2021. The lower installations continue to be due largely to ongoing supply chain-related project delays. Equipment procurement remains a challenge for the utility-scale solar projects with lead times for grid components significantly increasing due to the pandemic. Despite these slowdowns, Q3 2022 installations were still 142% higher compared to installations five years prior. Approximately 4.5GWDC of new contracts were signed over the quarter, of which the majority will be coming online between 2024-2025, bringing the total utility-scale solar pipeline to 90GWDC.
Figure 1: US utility-scale PV capacity installed by quarter
Although 2022 has so far showed a decline after consistent record setting years, Wood Mackenzie expects the solar industry to return to growth from 2023 onwards. Looking forward, projects that were delayed in 2022 should be able to obtain module supply and come online and by 2024, the real impacts of the IRA will begin to come to fruition. As a result of IRA driven demand and supply normalization, 140 GWDC of US utility scale solar projects are expected to be installed between 2023 to 2027.
Figure 2: US utility-scale PV capacity installed and forecasted by year
In June, President Biden removed tariffs on solar panels for at least 24 months and is working to increase solar panel production in the US. The US has also enacted the Uyghur Forced Labor Prevention Act (UFLPA) to prevent forced labor-produced polysilicon from entering the US market. This has caused some delays in imports in the short term, but in the long term, it is intended to reduce supply chain concerns and prevent US market participation in human rights violations.
In August, landmark climate legislation was passed through Congress and signed by President Biden as part of the Inflation Reduction Act after a year of negotiations and stalled efforts. The legislation includes measures to drive the shift from existing fossil fuel generation to cheaper clean energy. The legislation also increases the Investment Tax Credit to 30%, extends it through the end of 2024, and adds a production tax credit starting at $0.026 /kWh in 2022.
The solar industry has started to explore newly available tax credit adders and financing options included in the Inflation Reduction Act (IRA). Although the benefits and impacts of the IRA are not expected to fully materialize until 2024-2025, Wood Mackenzie expects more complex and innovative financing structures will arise due to the IRA.
More broadly, in the US, solar M&A activity has picked up, despite a slight pause in Q3 2022. Since August 2022, there has been almost 20GWAC in solar transactions, with asset sales comprising 55% of total capacity and company acquisitions accounting for the remainder. Many investor-owned utilities (IOU) who were looking to sell their unregulated renewable subsidiaries are now re-evaluating the value of their renewable project pipelines post IRA. The demand for recent renewable sales and uptick in M&A activity indicates that the tax credit expansions and extensions from the IRA have given investors renewed confidence in the solar pipeline from 2023 onwards.