Shayle Kann, Vice President of Research at GTM, wanted to assess whether solar is becoming mainstream. He decided to use a checklist, since the U.S. solar market is so complex. As he explained at the U.S. Solar Market Insight Conference:
With diverse markets in each state, the U.S. has a geographic complexity not found in most countries. Each state has its own regulations, electricity prices, and other factors affecting the market. States even have submarkets.
Solar is not just an electricity-generation technology -- it’s also a retail product. These days, traditional solar salespeople are joined by car dealers, home-improvement companies, home-automation companies, and environmental groups.
Market growth is accelerating. We now have a solar installation every 4 minutes in the U.S., compared to one every 10 hours in 2001. Projections for next year are for one every 3 minutes, going down to every 90 seconds by 2016.
So Kann devised a checklist to help answer the question, At what point does solar become mainstream in US? And how close are we? His conclusions:
1. Solar must be a primary source of new electric capacity in the U.S.
So far in 2013, solar has in fact been a primary source of new electric capacity. A big source of excitement is that this year, the U.S. is likely to install more solar than Germany.
2013 Cumulative New PV Installations in 2013 by Quarter, U.S. vs. Germany. Source: GTM Research
Although growth has not been consistent across market segments, we've seen big increases in all areas. Residential solar grew an amazing 230% in the last few years, admittedly from a relatively small base, but along a consistent trajectory. This, Kann says, is the beginning of the hockey stick.
Non-residential solar also grew 230%, though that segment was more volatile and is now in a bit of a downward trend, with the result that 2013 may be flat. That may be due to dynamics in a few states like New Jersey, Hawaii, and Massachusetts, and GTM believes it will pick up. The utility market has also shown steady growth, with 23 times as much installed in the third quarter than a year ago.
2. Solar must be cost-competitive without reliance on fickle incentives.
We’re not quite there on this checklist item, but we’re getting close. California, Kann says, is a prime example of solar's ability to become competitive without federal or state incentives.
The operative word here is “fickle.” Kann was quick to note preemptively that he was aware of the many incentives for fossil fuels. But those for solar have not always been as steady.
In any case, we’re heading in the right direction. In California, the solar market is growing, and Q3 2013 was the first quarter when more than half of residential installations in the utility territories were not CSI-funded.
At this point, 82% of solar in the U.S. remains concentrated in a few states. For other states to get to where California is, we need to lower the cost of solar, and we need further innovations.
3. Solar must be taken seriously by the electricity industry.
Heard about the Utility Death Spiral? Yes, that's a rhetorical question. Whether or not you believe it’s a real threat, you’d have to acknowledge that in 2013, utilities have been taking solar very seriously indeed. As Kann noted, “2013 has been huge in that regard.”
This year, battles have raged around the country between solar advocates and utilities, on balance turning out pretty well for the solar industry. That doesn't mean that all utilities fight it; some are even investing directly in solar, or in solar projects. Whatever their reaction to solar, utilities are definitely taking it seriously.
4. Solar must be bankable.
On this count, we're partway there: according to Kann, “Solar is kind of bankable.”
What does "bankable" mean? Solar must be financeable and a mainstream source of investment. It's headed in that direction. Residential solar financing is growing, doubling from $1.2 billion in 2012 to $2.3 billion so far this year. New tax equity investors are getting into residential solar, a big improvement since that was a bottleneck in the past. And this has been a big year for securitization. SolarCity’s first offering of $54 million wasn't huge, but the next one will be bigger -- and it was a major milestone for solar financing that served as a proof of concept.
So although financing is not where it should be for solar to be mainstream, 2013 was a year of "some big precedent-setting events."
Yes, solar is becoming mainstream
The upshot is that in the aggregate, solar is on the way to becoming mainstream -- closer than Kann thought before measuring it against a checklist.
GTM is even confident enough in solar to attempt a 15-year forecast, something they've been hesitant to do before. That forecast predicts more inroads for solar. We now have about 11 GW of cumulative capacity on the grid, and GTM predicts that by 2027 that will reach 158 GW. That would mean that solar would account for about 15% of all electric capacity in the U.S. -- compared to 0.5% today. When you account for capacity factor, that comes to about 10% of electricity production.
Though that might not seem mainstream, it's significantly more than what we have today. And Kann notes that the GTM forecast is conservative.
He left the conference audience with these questions: What would it take for this forecast to be too small by half -- for solar to be more like 20% of solar electricity generation? What are the technical, regulatory, financial, and policy barriers? And how can we lay the groundwork to make solar mainstream?