In the third quarter (Q3) of 2024, the U.S. solar industry installed 8.6 GWdc capacity, marking a 21% year-over-year (YoY) increase but a 13% decline from the previous quarter, according to the U.S. Solar Market Insight Q4 2024 report by Wood Mackenzie and Solar Energy Industries Association (SEIA).

Overall, solar photovoltaic (PV) accounted for 64% of all new electricity-generating capacity in the U.S. through the quarter, making solar the country’s leading source of new generating capacity.

Residential PV

In Q3 2024, the residential solar market added 1,128 MWdc, a 39% YoY decline. Over the first three quarters of the year, total residential installed capacity dropped by 33% from the same period in 2023, with 39 states experiencing declines.

Several factors contributed to this downturn, including the bankruptcy of key installers and financiers, with two of the top-ranked companies from 2023 exiting the market. This has left behind incomplete sales pipelines and orphaned projects that will require time for other firms to take over.

Additionally, many installers reported that summer sales did not see the typical increase, as consumers have been holding off due to higher interest rates, election uncertainty, and milder weather in some regions, which led to lower residential energy bills.

Despite a 50 basis point drop in interest rates in September and a 25 basis point cut in November, financing rates and consumer activity showed little improvement. As a result, many installers do not expect an increase in installation volumes for 2024 compared to last year. Given the continued low capacity in Q3, WoodMac has further reduced its 2024 outlook by 9%, now anticipating a 26% YoY decline in residential solar capacity. Even with a potentially stronger fourth quarter, the segment is expected to contract significantly in 2024, as the late interest rate cuts had limited impact.

According to the report, while California’s residential solar market began to show signs of recovery in Q3, the state is still projected to experience a 40% decline in installations for the year. However, cautious optimism exists for the residential solar market moving into 2025. While slower sales in the first half of 2024 led to fewer installations, many installers report a rebound in sales volumes during the second half, which will help fuel recovery in 2025 as these projects are completed.

Wood Mackenzie expects the residential solar market to add over 6 GWdc and grow by 21% in 2025. This growth will be driven by factors such as a stabilizing California market (albeit at a lower level), momentum from interest rate cuts, a recovering loan market, the rise of third-party ownership options with new players and innovative products, and the rush to qualify projects for the domestic content ITC adder.

WoodMac anticipates continued growth in 2026 with an 18% increase. Over the long term, the market is projected to grow at an average annual rate of 9% from 2027 to 2029, with growth slightly tapering off toward the end of the period as market penetration reaches higher levels in certain states.

Commercial PV

The commercial solar market had an exceptional third quarter, installing 535 MWdc, representing a 44% increase YoY and a 17% quarterly rise. This strong growth was primarily driven by the continued deployment of California’s NEM 2.0 projects, but other states like Illinois, New York, and Maine also saw significant growth. Less mature commercial solar markets such as Arkansas, Delaware, Michigan, Oklahoma, and Washington also experienced strong installation volumes.

Developers have become more innovative in making projects financially viable, with programs like the Rural Energy for America Program gaining traction, especially in rural areas. This initiative has increased installations in states like Iowa and North Carolina. Universities have also been active drivers of commercial solar adoption, with institutions such as Brown University in Rhode Island and Emory University in Georgia installing solar systems on their campuses this year.

Commercial Sector Forecast

WoodMac made substantial adjustments to its commercial solar forecast this quarter, particularly for the near term. While California’s NEM 2.0 projects continue to be deployed, they take longer to come online than initially expected. Consequently, WoodMac now expects commercial solar installations in California to continue growing until 2025, with a decline not anticipated until 2026.

For states outside of California, the introduction of prevailing wage and apprenticeship requirements will slow the pace of development in 2025. New projects over 1 MWac must meet these requirements to qualify for full tax credits, and many developers rushed to start construction on a significant portion of their active pipeline before the requirements took effect in January 2023. As a result, much of this pipeline will be completed by 2025, leading to a slight reduction in commercial solar volumes from 2025 through 2027.

Despite this, the report finds that the national commercial solar market is expected to grow by 19% annually in 2028 and 18% in 2029. This growth will be driven by increased development activity, particularly in the largely untapped Midwest and Southeast regions.

Utility PV

The utility-scale solar sector had a record-breaking third quarter, with 6.6 GWdc of capacity installed,  44% YoY growth. The contracted pipeline remains strong, with 5.3 GWdc of new contracts in Q3 2024, marking a 120% from the same period last year. This is the first time since 2019 that contracted utility-scale projects have seen a YoY increase in Q3. However, the total contracted pipeline did decrease by 1% from the previous quarter, totaling 74 GWdc, as installation volumes slightly outpaced new contracts.

Wood Mackenzie projects that 195 GWdc of new utility-scale solar will come online from 2024 to 2029, representing a 5% increase from its prior forecast. This upward revision is driven by a strong project pipeline that had previously faced delays but is now advancing with construction in the second half of 2024. WoodMac expects these delayed projects to be completed in 2025 and 2026.

The project pipeline is concentrated in major states such as Arizona, California, Illinois, Michigan, and Texas. Additionally, states like Illinois, Washington, Oregon, and Oklahoma are expected to see their first utility-scale projects larger than 1 GW come online in 2028 and 2029.

WoodMac’s current forecast assumes the policy landscape remains stable. It expects continued strong demand in the utility-scale sector, primarily driven by utility and corporate procurements, resulting in an average annual buildout of 33 GWdc over the next five years. However, growth will be constrained by factors such as labor shortages, limited high-voltage equipment supply, and delays in interconnection.

Solar system pricing

According to the report, the distributed generation (DG) segment saw YoY price reductions in system costs. In Q3 2024, the residential segment decreased by 4%, reaching $3.33/Wdc, while the commercial segment saw a 12% decline to $1.44/Wdc.

Despite rising costs in balance-of-plant areas such as labor, engineering, and customer acquisition, the overall system price dropped as module prices fell by 35% YoY, averaging $0.31/Wdc for the DG segments in Q3 2024.

For the utility-scale segment, system prices were $1.06/Wdc for fixed-tilt systems and $1.20/Wdc for single-axis tracking systems in Q3 2024, reflecting a 1% and 2% increase, respectively, compared to Q3 2023. While module prices decreased, higher labor costs offset these savings as EPC contractors worked to comply with prevailing wage and apprenticeship requirements to qualify for IRA incentives. Additionally, inflation and an ongoing labor shortage increased labor costs by 10% YoY in 2024.

Modest Growth Likely

Looking ahead, WoodMac expects the U.S. solar industry to grow by an average of 2% per year over the next five years. The industry is projected to install at least 43 GWdc annually from 2025 onward and reach a cumulative total of nearly 450 GWdc by the end of 2029.

Despite robust demand for solar, annual installation forecasts are somewhat constrained by challenges such as interconnection delays, labor availability, supply chain issues, and policy limitations. While policy changes could impact deployment, solar remains the dominant source of new energy-generating capacity in the U.S.

According to the report, the growing demand for solar is driven by its cost competitiveness, environmental benefits, low water usage, and technological advancements. Utilities, independent power producers, and corporate offtakers increasingly view solar as the key to U.S. energy independence.

In Q2 2024, 9.4 GW of new solar power capacity was added in the US, a record second quarter.

U.S. proposed new incentives under the Inflation Reduction Act by offering tax credits for electricity produced with low or zero greenhouse gas emissions, aligning financial assistance with environmental objectives.