US solar power is poised for $100bn growth surge

Analysis from Bloomberg New Energy Finance shows that the US market for photovoltaic and solar thermal electricity generation (Concentrating Solar Power) will grow annually by 42% to reach 44GW by 2020 – as long it can attract $100bn of investment in the period.

Rapidly declining equipment costs combined with stronger government support have set the stage for explosive growth in the US solar market over the next decade, according to Bloomberg New Energy Finance, the world’s leading provider of research and analysis in clean energy and the carbon markets. Solar-powered generating capacity – using photovoltaic and solar thermal electricity technologies – could reach 4.3% of the nation’s power capacity by 2020, depending on the industry’s ability to attract an estimated $100bn of investment.

The US today has just 1.4 gigawatts of installed solar power capacity, ranking it fifth globally. But that could rise to 44 gigawatts by 2020, according to Bloomberg New Energy Finance. In a new report, forecast capacity from large-scale solar thermal projects is projected to rise from 0.4 gigawatts currently to 14 gigawatts by 2020. For photovoltaics, the group anticipates a 34% annual growth rate to 30 gigawatts by 2020.

Bloomberg New Energy Finance research shows that the cost of a typical photovoltaic module has dropped by more than half over the past two years. However, solar power is still expensive compared to other power sources. The group’s latest analysis places the unsubsidized cost of best-in-class photovoltaic and solar thermal electricity generation at just below $200/megawatt-hour — nearly four times the equivalent cost for a coal-fired power plant ($56/megawatt-hour) — and between two and four times the cost of onshore wind power.

Policy measures such as tax credits, capital expenditure grants, generation incentives and renewable electricity credits will remain a key driv! er of solar uptake in the US for at least the next three years. The current drop in solar costs is taking place just as such policies are being implemented by the Federal and various State governments, which is expected to lead to rapid growth in commercial, utility and residential solar power.

Bloomberg New Energy Finance expects the commercial sector to lead the way with around half of all photovoltaic installations between now and 2020. After taking into account incentives currently available, Bloomberg New Energy Finance estimates that commercial-scale photovoltaic systems can obtain unlevered returns of 8-14% in states such as Hawaii, Texas, New Jersey, and Massachusetts.

More sophisticated financial structures using leverage, combined with further drops in the cost of technology and in the scale of projects, will make commercial-scale solar photovoltaics even more attractive to investors. By 2020 over 3% of commercial rooftops are projected to have such systems in! stalled if current incentives are maintained.

Utility and residential systems will each contribute one-quarter of future installations. Photovoltaic systems can compete better on a retail level than on a wholesale level as retail electricity prices are significantly higher and solar photovoltaic modules can be installed at the user’s location, rather than centrally. Bloomberg New Energy Finance expects residential-scale solar to have been installed on 2.4% of US houses by 2020.

In its analysis of returns available to investors, Bloomberg New Energy Finance found that the amount of sunshine (known as ‘insolation’) alone is a poor indicator of system returns by State: high electricity prices and generous incentives are far more important.

“Policy, rather than sunshine, will remain the US’s greatest solar resource for the next few years," said Milo Sjardin, Bloomberg New Energy Finance’s US head of research. "By the middle of this decade, h! owever, the US retail solar market will be driven by fundamental, unsubsidized competition, which should transform the US into one of the world’s most dynamic solar markets.”

Michael Liebreich, chief executive of Bloomberg New Energy Finance, said: “There is a very positive growth story for solar in the US: a few more years of support, and then the engine of unsubsidized competitiveness will take over – and the world will never be the same. The important thing right now is to ensure policy stability, to give investors confidence during this critical period. The US solar industry will require private sector investment of $100bn during the next decade, and any hint that the government’s commitment to clean energy could waver and investors will run for cover.”

The analysis quoted in this release is from a recently published report by Bloomberg New Energy Finance entitled “Quantifying the US solar market: system returns and new build projections”. The full report, which is included in the company’s Solar Insight Service, combines policy analysis and economic modeling to identify investment opportunities across states, and models renewable electricity credit markets and technology adoption rates to forecast the size the future US solar market.