The Current and Future State of Solar

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Shayle Kann, Head of GTM Research, gave a rundown on the industry at the GTM Solar Summit

The 2017 GTM Solar Summit is under way and already, there have been a number of excellent sessions. Shayle Kann, Head of GTM Research, started the day off with his Keynote: The Next Stage of Solar. Shayle looked back at 2016 and then ahead to predict where the solar market is headed.

Looking back at 2016, two distinct stories arose. One was a struggle manufacturers faced. The other, an industry that’s continuing to grow and expand.

The struggle of solar companies

It’s no secret that a number of solar companies have been struggling since 2016. In particular, module manufacturers have found it difficult to turn a profit. Kann described 2016 as a tale of two halves for panel manufacturers.

Half one showed strong growth, and panel manufacturers leapt to increase production to meet demand.

But despite the growth of the U.S. market, demand decreased globally in the second half of the year by approximately 16%. This was due mainly to a tightening Chinese market. Not realizing this was happening, panel manufacturers continued to increase production, causing a massive oversupply of panels. This, in turn, caused prices to crash by 38% in just half a year. They’ve since recovered slightly but remain quite low.

Understandably, manufacturers struggled — and some even went bankrupt. This caught the public’s eye, and people began to worry about the state of the solar industry. But 2016 wasn’t all bad news.

The continued growth and diversification of solar

Despite lower demand in the second half of 2016, solar still grew by over 50% worldwide. And in the United States it grew 95%, almost doubling the total installed capacity in a single year. It was also the first time solar became the largest source of new generating capacity.

And sources of this growth are diversifying.

Utility-scale solar made up approximately two-thirds of installed capacity, but within that segment alone, a number of new markets popped up. Not to mention increased traction for community solar and residential solar loans.

Compare this to 2014, and we can see how much the market has changed.

New market opportunities were clearly a key factor driving growth.

Price as a driving factor

While plummeting panel prices were hard on manufacturers, they were a boon for the industry.

In 2010, multiple incentives had to be stacked together in order to make solar cost competitive.

But due to cost decreases, this is no longer the case. In many instances today, solar is the cheapest form of generation — even without the ITC.

As you can see, utility-scale solar comes in cheaper than coal and nuclear and aggressively competes with both natural gas and wind. While incentives help with that today, GTM predicts that by the time the ITC runs out, solar will be the cheapest choice for utilities.

Dominion as an example

Kann used Dominion Energy as an example of solar’s price driving growth. As a big, integrated utility, Dominion runs models to create an integrated resource plan (IRP). This shows which types of power will make up Dominion’s overall capacity.

Dominion saw a 24% cost decline in solar in less than a year and adjusted its model in response. Between 2016 and 2017, Dominion’s estimate of installed solar capacity more than quadrupled. And this is doesn’t even take the potential of the Clean Power Plan into account.

Dominion is not alone in this.

These twelve large utilities would double our amount of installed utility-scale solar if their plans are implemented.

What comes next?

Assuming solar continues to get cheaper, we can expect the market to continue expanding and penetration to continue increasing. With that comes the dreaded duck curve that California knows so well.

California has already experienced days of negative wholesale pricing, and the state could see even more this summer.

Most of the country doesn’t need to worry about this yet, as Kann says it takes approximately 10% penetration before the curve starts to show up. Still, this will become an issue for more and more states going forward. The grid will need to become increasingly flexible to handle these changes.

How solar stays competitive in the long term

Kann sees multiple pathways for solar to grow and increase market penetration. These include:

  • Continual solar cost declines
  • Expanded grids: regional networks and high-voltage transmission
  • A lot more traditional flexible capacity: natural gas, advanced nuclear, or carbon capture
  • Next-generation flexibility: energy storage, electric vehicles, and demand response

Kann argues that solar will need to continue getting cheaper just to outrun its value decline. As the duck curve gets more extreme, solar becomes less valuable, and costs need to decline to keep ahead.

But this doesn’t actually deal with the problem. Expanded grids can help in the short-term by allowing power to be traded from high production areas to high demand areas.

In the long term, flexibility will be key. This will likely begin with natural gas peaker plants, but next-generation flexibility could be the real game changer.

Kann believes energy storage shows particular potential, and he uses South Australia as an example. South Australia has a lot of wind power and has suffered some serious blackouts due, in part, to grid instability. Kann notes that it would only take 400 MW (1,700 MW/h) of energy storage to even out the demand curve.

This really isn’t much. The country already has over 100 MW of storage capacity planned.

Long-term growth looks good

Kann left the audience with a final slide, which shows GTM’s prediction for solar’s long-term growth.

GTM predicts approximately 17% market penetration by 2035 with over $2.8 trillion invested and 3,000 GW constructed. This is by no means guaranteed, but it sure looks promising.