In the past year alone, questions have been raised about solar’s ability to survive amidst struggling stock performance, bankruptcies, as well as policy and regulatory changes. As a result, it is understandable that there are concerns about whether solar can grow and sustain itself, and whether the industry remains too dependent on subsidies and other taxpayer support.
For context, the US has a history of subsidizing energy industries, according to What Would Jefferson Do, a report published by venture capital firm DBL Partners. Compared to other energy sources such as coal, and oil and gas, renewable energy subsidies have been significantly lower. For example, the federal commitment to subsidies for oil and gas was five times higher than for renewables during the first 15 years of each subsidies’ life.
The key to solar's growth will be innovative technologies and a new role for distributed energy resources...
That said, unlike more traditional energy resources, solar will continue to move toward an unsubsidized future as it continues to grow into a more established industry. The key to solar’s growth will be innovative technologies and the creation of a new role for distributed energy resources (DERs). DERs offer consumers a clean alternative to traditional grid energy, providing them with financial benefits while paving the way for more energy independence. That is why, despite the economic and political turmoil within the solar industry this past year, particularly among publicly-traded companies, demand for solar has not slowed down. Rather, innovative new technologies and declining equipment prices will ensure continued adoption.
Solar emerges as a key player
In the second quarter of 2016, the US solar market installed 2,051 megawatts of solar, a 43% increase year-to-year, according to the U.S. Solar Market Insight report from GTM Research and the Solar Energy Industries Association (SEIA). As proven by the solar industry’s resilience in the face of a dynamic, changing landscape, it is clear that solar is emerging as a key player in the energy future of America, making the industry competitive with more traditional energy sources.
In the first half of 2016, solar accounted for 26% of all new electric generating capacity brought online across the US. The residential solar segment, in particular, has grown 29% annually and is expected to see continued growth as new markets such as Utah and Texas enter the picture. Residential PV was the fastest-growing sector of the US solar industry in 2015 and has grown by 64% from 2014-2015. That number underscores the industry’s increasing ability to stand on its own and compete in the market alongside other established energy resources.
The impact on utilities
This high demand for residential solar and other DERs has begun to threaten traditional utilities’ ability to retain customers. The historic utility system, which once held a perfect monopoly over energy customers, is now seeing residential customers decrease their energy usage significantly by using solar, energy efficiency, demand-side management and other technologies. This has had a significant impact on traditional utilities’ ability to recover the fixed operating costs required to maintain costly but increasingly obsolete infrastructure.
The future of energy will be marked by a disruptive moment that will ultimately open the electricity marketplace, making way for new players to come in and turn the traditional utility model upside down. DERs, such as the combination of solar and residential energy storage, are expected to be the key that turns the wave of energy independence in the near future. The US energy storage market, for example, will prove to be a game changer, as it is expected to grow nine fold from 22g MW in 2015 to 2.1GW by 2021, with a valuation of $2.9 billion, according to the U.S. Solar Market Insight report.
Moving toward an unsubsidized future
While the rapid adoption of distributed energy is a threat to traditional utilities, leading to public debates over policies such as net metering, DERs are the natural progression of energy systems—much like smart thermostats and home energy management devices—with consumers increasingly embracing a decentralized grid. For instance, until recently, states around the country offered local and state subsidies to homeowners who installed a solar system, and when they were phased out, the industry continued to see growth in those markets. The declining equipment costs of solar panels and increased market penetration over time has only made the solar industry more of an established energy services provider than an emerging tech startup. Combine those factors with the advancements in storage and other DER technologies, and the future of unsubsidized solar may just be closer than anyone thought.
Written by John Berger, CEO of Sunnova