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What’s Behind the U.S. Solar Boom?

Cheap Chinese solar panels helped but solar power growth is also being driven by renewable energy mandates and new business models.
September 11, 2012

Solar power installations in the United States more than doubled in the second quarter this year, driven by a combination of plunging panel prices, policies to create demand for renewable energy, and business model innovations.

Solar power plants, such as this 30-megawatt plant in New Mexico, are boosting solar contribution to the grid. Credit: First Solar

The Solar Energy Industry Association yesterday reported that 742 megawatts of solar power were installed last quarter and that 3,200 megawatts of solar are expected to be installed this year. Second quarter installations were 45 percent more in megawatts compared to the first quarter this year and 116 percent compared to the same period last year.

Large-scale utility projects, in particular, grew significantly, adding 477 megawatts in the quarter. The residential solar market grew incrementally for the fifth consecutive quarter, while the commercial market slowed down. The SEIA and GTM Research, which co-authored the report, expect growth to cool off in the second half of the year and next year.

The report’s authors call U.S. solar installations a “rare bright spot” in an otherwise gloomy solar business. Led by the massive scale-up of Chinese manufacturers, solar panel prices have plunged and few producers are operating at a profit. (See, Once-Mighty Suntech Struggles to Survive).

Cheaper solar panels and other equipment has aided the current installation boom in the United States and China. But without policies and new financing options, solar would not be growing as fast as it is now, says Shayle Kann, the vice president of research at GTM Research.

Utility installations are driven primarily by state-level renewable portfolio standards which require utilities to procure a percentage of their power from renewable sources. The Department of Energy’s Loan Guarantee program, which provided a loan to failed solar manufacturer Solyndra, backed a number of these utility renewable energy projects. Those projects are considered less risky than loans to manufacturers.

Financing has also been a boon to solar, particularly for residential customers. Instead of having to purchase panels, consumers can have panels installed and pay a monthly lease or power purchase agreement to the installer who owns them. Consumers’ electric bills stay the same or are lower. (See The Bright Side of a Solar Industry Shakeout.) 

But is this rapid solar build-out bringing solar closer to the price of grid power? Kann says the industry still has a ways to go before it can underprice fossil fuel power generation without subsidies.

A utility solar project could be priced at about 10 cents per kilowatt-hour, he says. But with natural gas prices at historical lows, that energy is still substantially more expensive than the cost from a new natural gas plant.

A good price target is the Department of Energy’s SunShot program’s goals of $1 per watt installed for utilities and $1.50 for residential solar by 2020. “If you can get to that point, then arguably you’re at grid parity without incentives. It’s aggressive, but possible,” says Kann. 

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