Utility Solar Market Update
Victor Phan, 30 May 2023
Q1 2023 US UTILITY-SCALE SOLAR MARKET UPDATE1
In 2022, the US solar industry saw a 16% reduction in its installed capacity, with 20.2 GWDC added. This was due to a number of factors, including an anticircumvention investigation, equipment detainments by Customs and Border Protection (CBP), and the enactment of the Inflation Reduction Act (IRA), making it one of the most tumultuous years for the industry. Despite this, solar PV continued to dominate the electricity-generating sector, accounting for 50% of all new capacity additions in 2022, marking the fourth consecutive year in which it has been the top technology for new additions.
Figure 1: New US electricity-generating capacity additions, 2010 - 2022
In Q4 2022, the utility-scale solar segment experienced its strongest quarter for the year, installing 4.3GWDC; Q4 has consistently been the strongest quarter annually. Utility-scale volumes were down 31% in 2022, the largest drop since 2017 when the investment tax credit (ITC) was set to expire. The steady year-over year growth of utility-scale solar came to a halt in 2022, with 11.8GWDC installed for the year, a decrease of 32% compared to 2021, largely due to the aforementioned challenges in the supply chain and trade disruptions.
Figure 2: US utility-scale PV capacity installed by quarter
The passage of the IRA has facilitated confidence in project development and contract negotiations, resulting in over 4.5GWDC of projects being contracted during the fourth quarter; bringing the contracted capacity for 2022 to 26GWDC and total project pipeline to 90.3GWDC. Although this represents a 12% growth over 2021, the continuation of supply chain challenges has resulted in short-term uncertainty.
The industry is expected to recover in 2023 and 2024 with continued supply chain challenges being more than offset by strong corporate and utility procurement driving high demand for utility-scale solar and the impact of the IRA coming into effect. In terms of constraint, Wood Mackenzie predicts that module supply concerns will clear by H2 2023, but CBP scrutiny on Tier 2 and small-scale orders will continue to constrain module supply. In terms of drivers, the IRA has added industry certainty and improved the attractiveness of solar investments, with solar Levelised Cost of Energy (LCOE) becoming even more competitive due to tax credit adders and Production Tax Credit (PTC) use.
Figure 3: US utility-scale PV capacity installed and forecasted by year
The full impact of the IRA is expected to be felt in 2025 once supply conditions stabilize and market participants become familiar with implementation mechanisms. Tax equity availability will be critical in the medium-term, as capex-intensive projects, such as carbon capture and hydrogen production technologies, enter the market. The utility-scale segment is projected to exceed 40 GWDC of annual capacity by 2028 and 50 GWDC by 2031. Long-term growth will depend on site availability, transmission development, and interconnection timelines and costs.
Despite challenges in the procurement process, Wood Mackenzie's base case projections suggest that around 139GWDC of new utility-scale installations will be added between 2023 and 2027, with a total of 429GWDC added over the next 11 years. Demand for utility-scale solar will continue to be strong during this period, with both corporations and utilities showing significant interest.