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Suddenly, the Solar Boom Is Starting to Look like a Bubble

Is the solar industry’s boom for real, or is it being propped up by hefty government subsidies?
February 12, 2016

By all accounts, 2016 should be a great year for solar power providers. In December, Congress extended the federal investment tax credit for solar installations through 2022, convincing analysts to project strong growth for the solar industry in coming years. Prices for solar panels continue to decline, even as emissions reduction targets reached under the Paris climate accord drive governments to seek more power from renewable energy sources. Several recent reports have shown that the cost of solar is often comparable or nearly comparable to the average price of power on the utility grid, a threshold known as grid parity.

But investors are not feeling the love. This week shares of U.S. solar leader SolarCity tumbled to a new low, while several other solar companies also took a pounding. Last month Nevada introduced sharp cutbacks in its program for net metering—the fees paid to homeowners with rooftop solar installations for excess power they send back to the grid. California and Hawaii, two of the biggest solar markets, have introduced changes to their net metering schemes as well. Across the country, as many as 20 other states are considering such changes, which would dramatically alter the economics of rooftop solar.

The uncertainty has cast the solar providers’ business models into doubt. Without net metering payments, residential solar “makes no financial sense for a consumer,” SolarCity CEO Lyndon Rive recently admitted to the New York Times.

A SolarCity employee building a rooftop solar installation in Lakewood, California.

The rosier projections for grid parity usually assume that both net metering fees from utilities and government subsidies will continue. GTM Research this week released a report saying that rooftop solar is now at parity with grid power in 20 states, and will be in 22 more by 2020—if subsidies are included. Without subsidies, the picture looks a lot bleaker. If each state added a $50 per month fixed charge to solar owners’ bills—a change that many big utilities are fighting for—solar would be at grid parity in only two states. Critics of government subsidies for renewable energy have called the solar boom “an artifical market” that will evaporate the minute government handouts dry up.

All the recent turbulence aside, it’s likely that solar’s longer-term future in the U.S. remains bright. Renewable portfolio standards, the state-level mandates that establish minimum renewable-energy requirements, will drive the addition of 89 gigawatts of new solar capacity over the next 10 years, according to analysts at Credit Suisse. Solar prices will continue to fall; a study by Oxford University researchers, published last month in Research Policy, found that annual price declines of 10 percent will continue well into the next decade, enabling solar to supply 20 percent of global energy needs by 2027. And falling costs and wider availability of solar systems coupled with energy storage will enable solar households to store energy for later use, making rooftop solar more economical on its own—regardless of whether it ever reaches true grid parity.

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