Following years of growth, 2024 could be the year that decides whether solar becomes the country’s dominant renewable power source or gets bogged down by long-standing regulatory and financial hurdles.
“In 2024, we see continued growth, which is good, but also significant headwinds. It’s how we do against those headwinds that will determine whether we meet our projections,” said Sean Gallagher, vice president of policy at the Solar Energy Industries Association (SEIA).
The industry is coming off a banner year, with a record-breaking number of installations and an increasingly large share of generation that helped keep the lights on amid a summer heat wave.
Although final numbers aren’t available, the U.S. added roughly 33,000 megawatts of solar production capacity in 2023, up more than 50 percent from 2022, according to a December report from SEIA and Wood Mackenzie.
Demand for clean energy to meet decarbonization goals — including the Biden administration’s goal of a carbon-free power sector by 2035 — as well as government incentives from the 2022 Inflation Reduction Act helped drive up demand across the country. New policies to promote community solar, coupled with billions of dollars from EPA, are elevating that corner of the solar market.
Now, SEIA is projecting 10 percent growth in installations in 2024, with 14 percent annual growth over the next five years. The U.S. Energy Information Administration says solar power in 2024 could generate 14 percent more electricity than hydroelectricity, to date the largest source of zero-emissions electricity in the country.
The agency’s Short-Term Energy Outlook released in January also forecasts nearly 80,000 MW of solar coming online in two years, representing an 84 percent increase in generating capacity.
But behind the rosy projections are potential roadblocks. A limited domestic solar manufacturing marketplace, coupled with trade barriers set to kick in this year, could mean a diminished supply of cheap solar equipment. Interconnection challenges continue to slow down projects, while some states are reducing policies that once offered a hefty incentive for homeowners to install solar.
High interest rates that have made it harder for developers and homeowners to invest in new solar systems are expected to fall, although it’s unclear when and by how much.
“In the renewable energy world, never do all the pieces come together and align at once,” said Marlene Motyka, U.S. renewable energy leader for the consulting firm Deloitte. “The industry is used to these challenges, but the demand is there, and that could help overcome the factors that result in increased costs for renewable energy projects.”
The Biden administration, which has made solar deployment a key part of its climate agenda, has taken steps to address the headwinds, including temporarily loosening some trade rules to boost imports and encouraging interconnection reform that makes it easier to connect solar to the grid
Here are four issues to watch with the U.S. solar industry in 2024:
Domestic manufacturing
The Biden administration’s push to build a robust domestic manufacturing base for solar panels is set to come to a head this year, with the expected opening of the country’s first cell, wafer and ingot manufacturing plants.
Some of the growth is being driven by the 2022 Inflation Reduction Act, which offered a tax credit known as 45X that rewards domestic manufacturers producing clean energy products.
Analysts say they are expecting more company announcements to harness available credits. Earlier this month, Microsoft said it plans to purchase 12 gigawatts of American-made solar panels from a South Korean company Qcells’ Georgia factory, which is slated to come online this year.
According to data collected by Deloitte, announced manufacturing projects could more than triple the country’s solar module capacity in 2024 compared to 2023 and could meet the country’s demand before 2030. That would not only lean on the 45X credits but also potentially drive down the prices of equipment that would not have to be imported.
However, what happens in the interim could determine where the solar industry goes in 2024. Gallagher said SEIA is putting pressure on the Biden administration to “avoid self-inflicted wounds” in the form of trade policy that drives up the costs of some imported equipment and panels. That includes restrictions on equipment to make solar wafers that is currently only made in China.
There will also be continued debate over the administration’s temporary pause on tariffs for solar panels imported from four Southeast Asian countries, which is set to expire in early June. The Biden administration enacted the moratorium in June 2022 to give the solar industry time to grow despite evidence that China was dodging existing trade barriers by assembling equipment in Cambodia, Malaysia, Thailand and Vietnam.
The pause has been supported by solar developers who say higher tariffs could imperil projects that were planned or under construction, but it has also been criticized as offering support to China.
Two U.S. companies — Auxin Solar and Concept Clean Energy — filed a complaint in December against the Biden decision in the U.S. Court of International Trade, arguing that the move harmed a domestic manufacturing base that “has been gutted by unfair Chinese trade practices.” The companies request that the moratorium be overturned. The timing of a decision is unclear.
Pol Lezcano, a solar analyst for BloombergNEF, said in an email that the group expects a “final rush of solar module imports before new tariffs kick in [in] June 2024,” which will lead to further short-term price declines in modules.
With prices declining, Lezcano added, “it will be critical for announced U.S. solar module factories to secure long-term offtake agreements and U.S. module buyers to reinforce their commitment to buy from U.S. plants,” which would show the market viability of those factories.
Interconnection roadblocks
Ample supplies of solar equipment doesn’t mean much if there’s nowhere to put it, a point being emphasized by the solar industry as many projects are unable to connect to a crowded grid.
“Welcome to the new year, same as the old year,” said SEIA’s Gallagher. “Across the country, across all market sectors, whether it’s a big project or a small rooftop project, interconnection takes too long and is too unpredictable.”
The Federal Energy Regulatory Commission took a major step to address complaints about interconnection last summer through Order No. 2023, which sought to reform the process and prioritize projects that can show commercial readiness.
In October, the Department of Energy issued a draft road map showing more interconnection reform possibilities, including setting a time limit for renewable projects. That road map is set to be finalized this year.
Those steps are helpful, Gallagher said, but may not be enough to get solar online fast enough to meet demand. Instead, he said, it will take concerted work from regional transmission operators and states to address the issue. A model could come from the 13-state PJM Interconnection, which says reforms it instituted last July could clear the way for more than 72,000 MW of clean energy projects to come online before mid-2025, including by prioritizing projects further along in development.
Some changes at the state level are occurring — Massachusetts, for instance, adopted interconnection changes for small renewable systems last year — but Gallagher said conversations remain active “on all levels.” That includes in the U.S. Congress, where legislators could continue long-simmering discussions on energy permitting.
Another issue to watch is potential changes to siting, including policies that remove challenges to new renewable energy projects. The Bureau of Land Management has announced plans to update the Solar Programmatic Environmental Impact Statement this year, potentially allowing developers easier access to build utility-scale projects on public lands across 11 western states.
Net metering changes
As smaller-scale rooftop solar installations grow more popular and affordable — in part thanks to federal tax credits — several states are reevaluating a key policy incentivizing homeowners to use the technology. Under net metering, rooftop solar customers are reimbursed for excess electricity they generate and provide back to the grid — sometimes at the same rate they would pay for that power.
While net metering has been credited with reducing the payback period for expensive solar systems and getting more panels on roofs, some states have started reducing how much they reimburse solar owners over concerns that the payments come at the expense of low-income households.
Arizona has an open rulemaking on its net metering rules, and other states like Florida, Colorado and Arkansas have weighed changes to their programs. North Carolina, Hawaii and Idaho are among the states that cut the rates paid to customers last year.
Some states are also looking to replace the one-for-one net metering policies with a more complex regime known as net billing, which values solar differently based on its impact to the grid. California — the nation’s largest solar market — made a controversial move with net metering last year that lowered the expected return for solar customers and resulted in a steep drop in sales. Environmentalists have challenged the rules in court and last week elevated their challenge to the state Supreme Court.
Before the end of 2023, Idaho joined California, replacing the net metering rules for Idaho Power, the state’s largest electric utility, with a net billing strategy that reduces the overall rate paid to solar owners and compensates them more for energy dispatched when the grid is stressed. That essentially incentivizes battery storage.
While less than 2 percent of Idaho homes have solar, the new state plan could have a deflating effect on a still-emerging market, said Alex McKinley, owner of Boise-based Empower Solar.
“I’m confident growth won’t happen the same way if a reasonable outcome had come from this,” McKinley told E&E News. “This will turn people away from solar because their return on investment will be lower. It’s a frustrating situation to know that we won’t have the growth that will probably happen in other parts of the country.”
Adam Rush, a spokesperson for the Idaho Public Utilities Commission, said in an email that the rules the commission approved in December are set up so net metering participants “receive a fair credit rate,” while “ensuring all other customers aren’t unfairly being financially harmed.”
Autumn Proudlove, associate director of policy and markets at the NC Clean Energy Technology Center at North Carolina State University, said that states that reduce net metering rates have seen reductions in solar deployments. While there may be a logic to replacing traditional net metering with a structure that is based on timing and grid conditions, it may not make sense if the goal is to get more solar on rooftops, she said.
“Net metering has the advantage of being simple. The payback is based on the retail electricity rate and is generally pretty favorable,” Proudlove said. “A net billing structure is more complicated. It can be a difficult sell to customers because it’s harder to convey and may be less financially attractive.”
Interest rates
After years of raising interest rates to fend off a potential recession, the Federal Reserve has indicated that it may lower them three times in 2024. That’s welcome news to the renewable energy industry, which has seen high interest rates stymie projects large and small.
“When rates went up last year, … it really flowed through and impacted the cost of building and financing renewable projects,” said Deloitte’s Motyka. “I think developers will all be happy to see interest rates drop. It helps them be competitive and sustain some margins in the marketplace.”
According to a Wood Mackenzie analysis released in November, interest rates also dealt a blow to the rooftop solar market, as homeowners and businesses saw loans balloon. The analysis cited data from the EnergySage platform and found that the average annual percentage rate on a solar loan rose from 2.5 percent in the third quarter of 2022 to 6.1 percent a year later.
