The Solar Boom of the Mid-2020s: Solar Manufacturing Output/Oversupply, and Record Incentivization Mean Lower Prices to Deploy Compared to Wind

     Solar energy deployment is about to boom, particularly in the U.S. and Europe. Generous incentives provided by government spending such as the IRA have led to a glut of solar panels, bringing down prices. The EIA just forecasted record U.S. growth in solar deployment over the next couple of years. Specifically, they predicted that “U.S. solar power generation will grow 75% from 163 billion kilowatthours (kWh) in 2023 to 286 billion kWh in 2025.” That is an unprecedented rate of growth. I am a bit skeptical that it will happen that fast but many of the prerequisites are in place, so a boom is likely and imminent.  

 

     The IRA is projected to basically double solar, wind, and battery deployment compared to no IRA. By July 2023, one year into the IRA, Climate Power U.S. made the following graphic to show solar impacts:

 

     The graph below from Rocky Mountain Institute shows that since the implementation of the IRA, battery manufacturing and solar manufacturing have led growth:

 

     The International Energy Agency (IEA) reported that: “Global annual renewable capacity additions increased by almost 50% to nearly 510 gigawatts (GW) in 2023, the fastest growth rate in the past two decades.” This growth was led by China, who commissioned as much solar in 2023 as the entire world did in 2022. They also report that “the global power mix will be transformed by 2028.” China will remain the biggest solar deployer. Another snippet from the IEA’s report: Renewables 2023, With Forecasts to 2028, notes that oversupply is here:

“In 2023, spot prices for solar PV modules declined by almost 50% year-onyear, with manufacturing capacity reaching three times 2021 levels. The current manufacturing capacity under construction indicates that the global supply solar PV will reach 1 100 GW at the end of 2024, with potential output expected to be three times the current forecast for demand. Despite unprecedented PV manufacturing expansion in the United States and India driven by policy support, China is expected to maintain its 80-95% share of global supply chains (depending on the manufacturing segment). Although developing domestic PV manufacturing will increase the security of supply and bring economic benefits to local communities, replacing imports with more expensive production in the United States, India and the European Union will increase the cost of overall PV deployment in these markets.”

     An article in Business Insider about the IEA report notes that: “an estimated 45 gigawatts of modules in the US and 90 gigawatts in the EU had piled up, nearly twice the forecast installations for 2024.” I wonder if this glut of domestically produced panels will remain due to the higher costs of U.S. panels compared to those from China and Southeast Asia. China is still expected to retain 85% of the expansion of global solar panel manufacturing capacity through 2028. It should perhaps be noted that as before much of this manufacturing will be powered by coal. The report notes that the U.S., India, and other ASEAN countries are upping their output to try and compete with China’s monopoly. IEA also noted: “To survive in such a competitive market, manufacturers are focusing on cost-cutting and innovation. Large, vertically integrated companies will have an advantage, as they are able to control costs across the entire value chain.”

     Another advantage for solar in addition to lowering deployment costs is the speed of deployment. Solar farms can be constructed quickly. This can help reduce integration challenges, costs, and time. As the following graph from the IEA report shows, it is solar that will lead renewable energy additions by a big margin as wind additions are much smaller. That means the reliability issues associated with more solar power on grids will increase. Record deployment of battery storage will help a little as will transmission expansion and upgrades. It should be interesting to see how reliable our power grids are in 2028 and what our power costs are. From the report it looks like China, the EU, the U.S., and India in that order are poised to lead the renewables, mostly solar, boom to 2028.

 

     The IEA also notes that most of the revisions from the 2022 report have been upward. This suggests that the boom is indeed likely and imminent. Solar was revised upward by about 710GW (in capacity), with about 610GW of that capacity coming from China (85+%). The report predicts no wind boom, although there were very slight upward revisions, again mostly in China. Offshore wind, in particular, is facing economic issues that will slow down deployment both in the U.S. where there is no real supply chain, and in the U.K., where there is. Those economic issues will affect solar as well, but they will be offset by cheaper panels. The following graph from the report shows the dominance of solar deployment expected. However, this is capacity, so in terms of actual generation solar should be cut by about 50% based on average capacity factors for solar (about 17.5%) and wind (about 35%). I wish such forecasts were capacity-weighted so that they show more realistic data. Even if this is done, the boom will still be a solar boom, not a wind boom.

     One thing that could dampen the solar boom, especially in the U.S., is higher grid connection costs for solar. These costs have essentially doubled since 2020. Longer wait times in interconnection queues from three years in 2015 to five years in 2022. Both of these issues, higher costs and longer waits, are due to the need for grid and network upgrades. While these problems are being addressed, it is not certain how fast they can be implemented. 

 

 

References:

 

Solar and wind to lead growth of U.S. power generation for the next two years. Energy Information Administration. Today In Energy. January 16, 2024. Solar and wind to lead growth of U.S. power generation for the next two years - U.S. Energy Information Administration (EIA)

It’s the IRA’s First Birthday. Here Are Five Areas Where Progress Is Piling Up. Hannah Perkins,  Adam Aston, and Vindhya Tripathi. Rocky Mountain Institute. August 16, 2023. It’s the IRA’s First Birthday. Here Are Five Areas Where Progress Is Piling Up. - RMI

ONE YEAR OF OUR CLEAN ENERGY BOOM: THE 170,606 (AND COUNTING) NEW CLEAN ENERGY JOBS ACROSS THE UNITED STATES. UPDATED: JULY 25, 2023. Climate Power US. Clean Energy Boom Anniversary Report (climatepower.us)

Solar modules are piling up in warehouses as a massive supply glut has slashed prices by half, IEA says. Filip De Mott. January 16, 2024. Business Insider. Solar Modules Are Piling up in Warehouses As Supply Glut Slashes Prices (businessinsider.com)

Renewables 2023: Analysis and forecast to 2028. International Energy Agency. Revised, January 2024. Renewables 2023 (windows.net)