The US solar energy market had a scorcher of a year, but it’s about to cool off

These will probably cost less tomorrow than they do today.
These will probably cost less tomorrow than they do today.
Image: Quartz / Todd Woody
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2012 was a very good year for sunshine. Photovoltaic installations in the US jumped 76% in 2012 to a record 3,313 megawatts (MW) as turmoil among Chinese manufacturers pushed down the price of photovoltaic panels. They fell 41% in the fourth quarter of 2012 from a year earlier, according to a report by GTM Research and the Solar Energy Industries Association.

“Solar has leapfrogged from being one of the most expensive sources of power to the second or third least expensive source of power,” Arno Harris, chief executive of commercial solar installer Recurrent Energy, said on a conference call Thursday.

That helped the US market grow to $11.5 billion last year, up 34% from 2011, and give the US an 11% share of the global market. Total US solar installations now stand at 7,221 MW. At peak output that’s the equivalent of about seven large nuclear power plants or enough electricity to power 1.2 million households. With the European market slowing as the financial crisis continues, a healthy US market is crucial for debt-laden Chinese manufacturers struggling to reduce the massive capacity they built in recent years.

But a closer look at the numbers shows that last year’s growth is unlikely to continue in 2013. More than half of new installations in 2012 were photovoltaic power plants, which deploy thousands of solar panels to supply electricity to utilities. Eight of the 10 largest solar power plants in the country came online last year.

Those big solar projects were a response to renewable energy mandates. As states like California reach their targets, utilities are signing fewer contracts to buy electricity from photovoltaic power plants, especially as cheap natural gas from the fracking boom offers an attractive alternative.

With the falloff in so-called utility scale projects, GTM estimates that the US solar market will grow only 29% in 2013, an enviable growth rate in almost industry but less than half that of 2012.

Still, there are 3,100 MW of solar power plants under construction that will come online in the coming years, and contracts have been signed for a total of 10,500 MW. Expect a push to get those photovoltaic power stations built before the end of 2016, when a 30% tax credit for renewable energy is cut to 10%.

“Through 2016 it’s hard to imagine the US market shrinking,” said Shayle Kann, vice president of research at GTM. After that, the prospects for growth are a bit cloudier.