The Inflation Reduction Act of 2022 has proven to be an economic driver of historic proportions, stimulating job growth, investment frenzy and rapid growth in solar installations. For example, according to the U.S. Solar Market Insight Q3 report from the Solar Energy Industries Association and Wood Mackenzie, the U.S. has added 75 GW of new solar capacity to the grid since passage of the IRA, representing over 36% of all solar capacity built in U.S. history. By 2029, total solar capacity is expected to double to 440 GW. Panelists on Day One of pv magazine USA Week discussed the facts behind the numbers, what contributes to lower costs and some of the bottlenecks to the solar buildout.
Day One panelists included Dominic Buergi, global head of services renewable energy Staubli; Lesley Hunter, senior vice president, policy and engagement, ACORE; Jarell Mason, strategic partnerships, manager, Helioscope Aurora Solar; and Joseph Wyer, principal analyst, energy markets and policy, Ohm Analytics.
Energy generation from renewables is increasingly cost competitive with fossil fuel sources. In fact, the levelized cost of electricity (LCOE) has fallen 90% since 2010, according to a recent report by the International Renewable Energy Agency (IRENA). In 2023, solar was 56% less than the weighted average of fossil alternatives.
Lesley Hunter of ACORE noted that solar is competing very well on cost. The average LCOE for utility-scale solar is below that of conventional generation. The cost declines are driven by economies of scale as policies incentive solar growth. She also noted that consumers are embracing solar, as the voluntary procurement numbers grow, and the technology has also advanced. A key point Hunter made was that operational costs of solar are far lower than those of traditional fossil fuel generation because the resource itself, the sun, is free.
Challenges that have put upward pressure on costs include supply chain issues and inflation; however, Hunter noted that this was spread across all technologies—not limited to solar. With reducing interest rates and localized supply chains, she expects the trend of competitive costs to continue. There are efforts underway to expand tariffs, Hunter said, adding that the tariff situation is unclear in light of the upcoming election. She cautioned that tariffs could cause costs to rise.
One area of tremendous growth since passage of the IRA is the ability to transfer tax credits, as covered in the presentation by Crux CEO Alfred Johnson. Hunter said the tax credits represent historic long-term stimulus as demonstrated by the $100 billion investment seen in new clean energy generation projects. “We are seeing tremendous benefits from how companies are able to use the tax credits; however, there are multiple issues that have unrealized final guidance,” Hunter said. She noted that Treasury announced phase four and final guidance is expected before the end of the year, although guidance on domestic content may not be finalized until next year.
With tax equities and transferability comes incredible complexity and a lot of different ways of structuring. Jarell Mason of Aurora Solar noted that the tax credits and transferability brings new opportunities to Aurora’s commercial and industrial customers as well as EPC firms.
On the distributed generation side, Joseph Wyer of Ohm Analytics said long-term outlook is very positive for the distributed space; however, in the near term it’s more mixed. Ohm forecasts that the residential market is down this year more than 20% due to net metering changes in Calif. and high interest rates across the nation. On the commercial side Ohm is forecasting growth for this year. Medium to long-term will be driven by IRA adders, especially the energy community adder, which Wyer noted are causing developers to eye expansion into specific states in order to take advantage of this adder. In the residential space, the domestic content adder will make the economics for solar-plus-batteries work, he said.
Staubli is a global manufacturer serving many markets, but it is manufacturing electrical connectors, critical to solar installations, in Windsor, Calif. Dominic Buergi noted that as the domestic content adder will be critical in advancing the company’s growth in the U.S., it will be watching closely for final guidance on how it is applied.
Electricity demand and pricing
Electricity demand is increasing in the U.S. in part from the move to electrification but also due to the rising number and size of data centers. Wyer said the increased demand for electricity is pushing up electricity rates, but he said that with increased distributed generation, solar is helping to generate the needed electricity. He noted that the utility-scale sector is experiencing a lot of bottlenecks like multi-year interconnection queues, so at the present time distributed generation is playing an important role in supply, which theoretically should keep the costs down.
If you look at electricity prices, multiple drivers are at play including increasing demand, Wyer said. Utilities need to spend more than $2 trillion over the next twenty years to replace aging infrastructure, which Wyer pointed out will come back to the customer in higher electricity costs. In long term project costs for residential solar are falling, so with the combination of rising electricity prices and solar costs trending down, it’s very positive for long-term residential.
Building resilience
Utility-scale solar combined with energy storage can shore up the grid and enhance resilience. Hunter noted that during recent weather events solar and other clean energy technologies perform well when the grid is under stress. She said that fossil fuel systems are more susceptible to damage and are subject to fuel supply disruptions, such as in the winter storm Uri in Texas when natural gas and coal accounted for nearly three-quarters of outages that occurred. As we continue to face additional extreme weather events, clean energy deployment can offer great benefits, but Hunter noted that we need to continue to expand the sector to prepare for these events and we need to accelerate transmission network to increase the reliability of the grid further.
On the residential side, interest in solar-plus-batteries is growing. Mason noted that especially in California now under NEM 3.0, battery storage is becoming even more important because there’s little incentive to send the clean energy to the grid. Wyer echoed that sentiment and added that there’s an uptick in storage attachment rates especially in areas impacted by recent weather events. He said customers should be thinking about participating in virtual power plants and noted that there are many attractive financing mechanisms.
Moving projects forward
On the utility side there’s a lot at play in rolling out large-scale battery energy storage systems including interconnection challenges. America’s interconnection queues have an unprecedented backlog of about 2600 GW of total generation and capacity, Hunter said. It takes a typical project about five years to move through the queue, according to Berkeley Labs, which Hunter said is an unacceptable pace to meet our climate targets.
A tool is available that can speed up interconnection of battery energy storage systems (BESS) called Surplus Interconnection Service (SIS), which enables utilities and energy providers to use an expedited study process that allows new generators that do not trigger transmission system upgrades to use an existing generator’s unused interconnection capability. Hunter noted that there are issues with implementation with certain power markets, such as PJM, which prevents battery storage from using the SIS process.
Insufficient transmission capacity is another challenge, and Hunter noted that building out transmission via improved permitting, planning and funding processes will enable more storage and clean energy to be added to the grid. When asked what might be on a 2025 wish list to move solar forward, Hunter said the release of a transmission investment tax credit would be at the top of her list.
