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CoBank Releases Research Report on Expectations for the U.S. Solar Industry

Posted 10/9/2014

The U.S. solar industry will experience a surge in installations over the next two years as utilities and commercial enterprises rush to take advantage of a solar tax credit that steps down from 30 percent to 10 percent in 2017, according to a new report from CoBank, a major provider of financing to rural power cooperatives. The report, entitled “Elevated Expectations for the U.S. Solar Industry,” also argues that declining solar system costs, lowered financing costs, and increased quality and reliability of modules will help drive solar installations from a projected 7 gigawatts of total capacity this year to over 12 gigawatts in 2016.

At the same time, the industry will need to continue to drive down costs dramatically in order to avoid a significant slowdown in the future, the report says. In some cases, depending on wholesale electricity rates and cost of capital, all-in development costs for utility-scale projects, will need to drop by more than 30 percent from today’s levels to break even with an Investment Tax Credit (ITC) of 10 percent.

“A record amount of solar capacity will come online over the next two years,” said CoBank economist Taylor Gunn, author of the report. “Over the longer term, however, the industry will need to adjust to the pending reduction in the ITC, which will significantly impact the economics of solar installations.”

According to Gunn, there will be an overall decrease in solar system costs, although individual photovoltaic panel prices in the U.S. are predicted to increase through 2014. This is largely due to import taxes imposed by the U.S. Department of Commerce on Chinese and Taiwanese panel manufacturers. Gunn argues that the market will compensate for the rise in module costs by reducing overall system costs. The balance of system, or BoS, encompasses all components of a photovoltaic system other than the photovoltaic panels, including wiring, switches, mounting systems, inverter, battery bank and charger, as well as non-hardware costs such as permitting and financing. BoS costs account for approximately 50 percent of a system’s total costs, and innovation in the U.S. inverter market will drive the majority of BoS cost reductions over the next decade. “For systems in the U.S. that are greater than 100 kilowatts, BoS costs are projected to decrease by 30 percent in 2024, relative to 2013,” said Gunn.

In addition to declining system costs, financing costs are also coming down. Gunn suggests this is due to greater certainty around the production capability of photovoltaic systems and their ability to generate steady cash flows, as well as increase of capital entering the solar space. Referencing a National Renewable Energy Laboratory (NREL) study, Gunn notes that systems monitored for the first four years of operations produced on average 2 – 5 percent more energy than their projected targets. Quality has also improved. “Prior to 1987, a typical PV module warranty lasted 5 years, since then warranties have increased to 25 years and will likely cover 30 years by 2015,” said Gunn.

The new report was issued by CoBank’s Knowledge Exchange Division, a knowledge-sharing practice that provides strategic insights regarding the key industries served by CoBank. Knowledge Exchange draws upon the internal expertise of CoBank, deep knowledge within the Farm Credit System and boots-on-the-ground intelligence from customers and other stakeholders to enhance the collective understanding of emerging business opportunities and risks.

For more information, view Taylor Gunn offering a video brief on the report, or download a full copy of the report on CoBank’s website.

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