The U.S. solar industry installed 6.1 GW of solar capacity and had its best first quarter in history, according to the U.S. Solar Market Insight Q2 2023 report released by the Solar Energy Industries Association (SEIA) and Wood Mackenzie.
The performance was driven in large part by supply chain challenges abating and delayed solar projects moving forward.
Wood Mackenzie said it now expects the solar market to triple in size over the next five years, bringing total installed solar capacity to 378 GW by 2028.
The strong quarterly report was tempered by news that the community solar segment installed 212 MW, a 13% decrease from Q1 2022. The report blamed the segment’s poor performance to ongoing interconnection challenges.
The report said the 2022 Inflation Reduction Act spurred a surge of new manufacturing announcements, with domestic module capacity expected to rise from fewer than 9 GW today to more than 60 GW by 2026. At least 16 GW of module manufacturing facilities were under construction as of the end of the first quarter.
An ongoing challenge for the industry is the lack of qualified EPCs to meet booming demand for solar projects. Incentives in the Inflation Reduction Act only stand to magnify the shortfall.
“The first holistic problem is that there are just not enough skilled workers to perform all of the work,” Chris Dunbar, CEO of Blue Ridge Power, a leading utility-scale solar and storage EPC, said on the Factor This! podcast.
Top-tier developers still receive “healthy” competition from the five or so EPCs jockeying to build their projects, Dunbar said, and there’s enough work to go around. These projects have a buildable site, realistic timelines, a clear path to financing, and at least a portion of the feasibility and engineering work completed.
But for projects lacking in one or more of those critical areas, developers likely will have a tough time securing a qualified EPC in today’s solar market.
Tax credit clarity
The Biden administration provided some clarity during the quarter on how the IRA’s adder credits will be applied. The law contains new credits that can be used in conjunction with the solar Investment Tax Credit, like the domestic content, energy communities, and low-income adder credits. In particular, the energy communities and low-income adder guidance will help drive solar and storage investment in underserved communities.
Even so, the repot said that challenges remain with the implementation guidance for the domestic content adder credits in the near-term.
Because the rules to comply with the domestic content adder credit are complex and there is currently no crystalline silicon solar cell manufacturing capacity in the United States, it could take a few years before the credit can be widely used. SEIA also said the rules fail to provide specific directions for the residential market, leaving this market segment without clarity.
Michelle Davis, head of global solar at Wood Mackenzie and lead author of the report, said in a statement that qualifying for the domestic content adder will be a “very complex process for solar project developers.” She said that even after crystalline silicon cell manufacturing is established, many other components will need to be produced domestically before projects can qualify.
Utility scale rebound
The utility-scale market rebounded from what the report said was a difficult 2022 with a record 3.8 GW of installed solar capacity. More module importers were able to satisfy documentation requirements under the Uyghur Forced Labor Prevention Act (UFLPA). The report said this enabled more solar equipment to make it to project sites and allowed the industry to restart its pipeline of delayed projects.
The residential segment installed 1.6 GW of solar capacity in the first quarter, a 30% increase from a year earlier. The report said the residential market segment is on track to add 36 GW of solar over the next five years, growing at an average annual rate of 6%. Higher interest rates and economic headwinds, however, were causing some buyer hesitancy, the report said.
The commercial market also had a record first quarter, with 391 MW installed, putting the segment on track for 12% growth in 2023.
Florida ranked as the top solar state in during the first quarter thanks to 1.46 GW of utility-scale solar installations. Florida installed over 70% more solar capacity during the quarter than the next highest state, California.
The solar industry accounted for 54% of all new electricity generating capacity added to the grid in during the quarter.
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