The US grid-scale solar space is gazing at a bright, tax credit-electrified horizon despite macroeconomic and geopolitical clouds, according to the S&P Global Market Intelligence 2024 Solar Investment Outlook in the US. State forecasts spotlight sunny financial prospects across most of the country, including in the underdeveloped, renewable portfolio standard-disinclined — but solar-friendly — Southeast. For solar developers, the region could turn into a new version of the Wild West as saturation sets in among current market leaders.
Once essentially confined to powering small electronics, photovoltaic energy is now one the country's fastest-growing sources of electricity production. The technology accounted for 3.4% of overall US utility-scale generation output in 2022, and Market Intelligence Power Forecast projects the metric will come close to 17% by 2033 as the grid-scale solar generation fleet grows from the current 85 GW to a forecast 464 GW — overtaking wind in terms of installed capacity by 2025. The current large-scale solar pipeline alone features nearly 262 GW of additional capacity.
Current forecasts for solar deployment in the country, however, could prove conservative, considering recent developments. At the macro level, for instance, high costs of capital and financing, while impacting the entire energy value chain, particularly affect the capital-intensive wind sector across the green energy landscape. Currently planned investments into wind projects could be diverted to solar as a result. Concomitantly, falling solar panel prices could magnify this trend.
That said, the solar space is not immune to external shocks, notably geopolitical ones. A wave of investments into domestic panel manufacturing hit US shores in the wake of the Inflation Reduction Act of 2022, and the many benefits — notably tax credits — the law heaps on developers to bring production home. But US solar remains reliant on outside markets for panels and components, such as wafers, polysilicon and cells. This presents risks amid fraying international relations and a fragmenting global marketplace.
Key regional takeaways
Western US states of Arizona, California and Nevada have skyrocketing solar pipelines, with 44.6 GW in development cumulatively across these three states. This footprint is expanding, however, with another six Western states having at least 2 GW of solar in planning. Robust solar resources, increasing net capacity value and renewable portfolio standards-driven renewable energy credit additions are driving a favorable financial outlook for solar across the region, although the pairing of battery storage is increasingly important as high penetration is leading to curtailment and diminishing peak demand credits.
Texas ranks second in installed capacity at 13.9 GW, but its pipeline suggests the state will surpass first-place California before long with over 90.0 GW in planning — more than the next seven states combined. Despite negligible state clean energy targets, forecast financials for solar look remunerative, although long-term market saturation could begin to undercut revenues.
The Southeast has significant growth potential in the solar market, as nonexistent clean energy requirements and economic legacy fossil fuel generation have hindered development in the region to date, with a couple of exceptions. High average solar insolation and the long-term extension of the investment tax credit (ITC) scheme, however, are leading developers to the untapped market. Low costs of entry are expected to lead to favorable financial returns over the next decade, with states such as Alabama, Louisiana and Mississippi ripe to join solar energy veterans Florida and North Carolina.
Across the Midcontinent ISO and PJM Interconnecion LLC, the favorable outlook for solar continues with state-level energy targets, strong corporate demand due to datacenter growth, and the federal ITC driving robust growth in Illinois, Michigan, Ohio and Virginia, among many other markets. Forecast combined revenues are sufficient to easily meet debt service thresholds in all markets over the next decade, with projects expected to make a full equity return throughout most of the period. Like other similarly high-penetration markets, however, increased deployment is expected to erode energy revenues in several states.
New York is another solar development focal point because of the state's renewable energy requirement of 70% by 2030. With only 1.6 GW in operation, plenty of headroom remains for aggressive development, with a pipeline of over 10 GW. The financial outlook is favorable over the period, but market saturation is expected to drive increasing curtailment rates and plummeting effective load-carrying capability values, which will cut into the state's solar revenue stack.
Visualization by Allen Villanueva and Rameez Ali.
For wholesale prices and supply and demand projections, see the S&P Global Market Intelligence Power Forecast.
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