The U.S. solar industry installed 5.6 GWdc of new capacity in the second quarter (Q2) 2023, a year-over-year increase of 20%, according to the U.S. Solar Market Insight Q3 2023 report released by the Solar Energy Industries Association (SEIA) and Wood Mackenzie.

However, this also represented an 8% decline quarter-over-quarter (QoQ).

Notably, the total installed capacity for the year’s first half (1H) reached nearly 12 GW, a significant improvement compared to 1H 2022, when it was less than 8 GW.

In terms of its contribution to the electricity landscape, solar accounted for 45% of all newly added generating capacity in 1H 2023.

The solar industry is projected to add 32 GW of new solar capacity in 2023, a 52% surge compared to 2022.

The current cumulative solar capacity of 153 GW is predicted to expand to 375 GW by 2028.

“The United States is now a dominant player in the global clean energy economy, and states like Florida, Texas, Ohio, and Georgia are at the forefront of this job growth and economic prosperity. The solar and storage industry is delivering abundant clean energy that is generating tens of billions of dollars of private investment, and this is just the tip of the iceberg,” said SEIA president and CEO Abigail Ross Hopper.

Impact of the Inflation Reduction Act

The passage of the IRA in August 2022 generated a strong sense of optimism regarding the future growth potential of the solar industry. However, despite this optimism, the IRA has not yet been effective in advancing more solar projects to their final stages of development, leading to a standstill in pipeline expansion.

In the year leading up to the enactment of the IRA, there was an average procurement of 5.8 GW of utility-scale solar capacity every quarter. However, in the year following its passage, this average has dropped to 3.8 GW.

This trend is noticeable in several major commercial solar markets, such as Maine, Massachusetts, New Jersey, and New York, where the expectation was that IRA incentives would stimulate the development of projects under 5 MWac. In these regions, pipelines have either contracted or remained stagnant in recent times.

High interest rates, increased costs for hardware and labor, and a growing local opposition to clean energy projects have all contributed to pipeline stagnation. The uncertainty surrounding the qualification and claiming of IRA benefits has further compounded this challenge.Top of Form

Modules with Non-Xinjiang Chinese Polysilicon

It is evident from installation figures and the import of solar equipment in 1H 2023 that developers are adjusting their supply chains. The report emphasizes that no concrete evidence suggests that solar modules made with Chinese polysilicon are entering U.S. ports. Meeting compliance with the Uyghur Forced Labor Prevention Act (UFLPA) regarding Chinese polysilicon from regions outside Xinjiang has presented significant challenges.

Currently, solar equipment passing through ports predominantly relies on polysilicon sourced from North American or European suppliers. However, these sources constitute only a small fraction of the global supply of solar-grade polysilicon.

Developers have also been adjusting their supply chains in response to the impacts of the anti-circumvention investigation. In mid-August, the U.S. Department of Commerce (DOC) issued its final determination, confirming nearly all the provisions outlined in its preliminary determination released last December.

Starting in June 2024, new tariffs will be imposed on solar cell and module imports from Southeast Asia unless the importer can meet one of the specified exemptions. The evident outcome of these developments is the likelihood of higher costs for solar equipment in the U.S. market, at least in the short term.

Five-year Outlook

Beyond 2023, utility-scale solar is projected to grow annually at  9% due to contracted projects within the pipelines becoming operational. The growth trajectory for distributed solar markets is anticipated to exhibit fluctuations over the next five years. Residential solar is expected to grow by an average of 6% over the next five years, while non-residential solar is poised to increase by 8%.

Residential Solar

During Q2 2023, the residential solar market demonstrated substantial growth, with a 30% YoY increase, achieving a new quarterly record. While more than ten states achieved quarterly records, the growth was not as robust in traditionally larger markets characterized by lower retail rates, such as Arizona and Texas, where high-interest rates have posed challenges.

The report predicts a 9% growth rate for residential solar in 2023. This growth is primarily driven by states experiencing retail rate inflation. Remarkable sales made under California NEM 2.0 played a significant role in setting a quarterly record of 607 MW of statewide capacity in Q2 2023 and are expected to continue driving a surge in installations in the short term.

However, as California’s installations eventually decline, this year’s volumes are projected to align with those of 2022, with a significant 38% reduction expected for the state in 2024, leading to a 4% contraction in the national market. For all states except California, a 12% growth is anticipated in 2024 as the industry gains more from the IRA.

These factors collectively shape the expectations for an average annual national growth rate of 8% between 2025 and 2028.

Utility-Scale Solar

As outlined in the report, the utility-scale solar sector experienced a remarkable resurgence in Q2 2023, achieving its strongest performance for a quarter on record, growing 66% YoY.

Despite some improvements in inventory levels, the utility-scale industry continues to grapple with supply chain constraints. Despite these challenges, Wood Mackenzie’s forecast predicts that the total new utility-scale installations will reach 172 GW between 2023 and 2028.

Commercial Solar

Commercial solar installations showed a decline in a QoQ comparison, and a persistent trend of stagnation or reduction in major market pipelines remains. The report anticipates an 11% growth rate for the commercial solar sector in 2023.

Although capacity in Q2 203 decreased from Q1 2023, the number of projects increased by 7%.

Developers across the nation are grappling with a diverse range of challenges. Chief among these are issues related to interconnection and queue congestion, which result from slow progress in completing necessary studies and delays in obtaining prompt approvals for various interconnection-related applications.

The report forecasts the installation of over 12 GW of commercial solar capacity and an average growth rate of 8% over the next five years. In the medium term, installations are expected to decline as projects exempt from wage and apprenticeship requirements have largely become operational, and California’s pipeline of NEM 2.0 projects has been completed. However, long-term growth is projected to gradually increase due to the impact of the IRA and higher electricity rates. This year, a national total of 1.73 GW is expected to come online, growing to 2.5 GW by 2028.

Community Solar

In Q2 2023, community solar installations experienced a 16% YoY decline. Massachusetts, in particular, reported its lowest quarter of community solar installations since 2019, adding just 10.3 MW of new interconnected capacity. Notably, New Jersey did not record any new community solar installations during this period. However, New York saw a 15% YoY increase in installed capacity, contributing 52% of the total national capacity for 1H 2023.

Projections indicate that national community solar volumes will decrease by 6% YoY in 2023. The segment is poised to grow at an annual average rate of 11% from 2024 to 2028.

Solar System Pricing

In Q2 2023, national solar system prices were higher when compared to Q2 2022. Despite some alleviation of supply chain constraints and logistical challenges, costs have remained high in 2023. This was primarily due to increased labor expenses and a higher balance of system costs. Critical components such as modules and inverters have experienced YoY price increases ranging from 5% to 20% for the commercial and utility segments. Furthermore, labor costs have risen by 5% in 2023, primarily driven by the effects of inflation.

Specifically, the average residential solar system price has risen by 2% compared to Q2 2022, and the commercial solar system price has increased by 1% over the same period. In Q2 2023, the average prices for utility-scale fixed-tilt and single-axis tracker systems surged by 5% and 3%, respectively, compared to Q2 2022.

Solar installations in the United States grew 47% YoY to 6.1 GWac during Q1 2023, recording the best initial quarter for the country’s solar sector in terms of new installations.