The following is a post from LinkedIn I thought I’d repost here–I’m going to try to write at least once per quarter on happenings in the industry, but this is my long term blog and seems like it’s a better long term repository.  – RJE
SEIA Solar Market Insight 2018 Year In Review (coordinated with Wood Mac)
SEIA Solar Market Insight 2018 Year In Review (coordinated with Wood Mac)

I’m going to challenge myself to post more information about the Solar industry in the US here on an ongoing basis. There are a few reasons, the first being posterity; the amount of information and change in the industry is vast and actually somewhat difficult to keep top of mind at a given point in the past. Day to day, it’s easy to say what’s happening, but if you asked me “What were the biggest stories in energy in 2018?” off the top of my head I’d struggle to explain specifics, though the general narrative is relatively clear. Another reason is networking and hearing other opinions–certainly digitally–but more importantly in person. I’ll be at the Solar Power Finance and Investment Summit in San Diego, as well as other industry events throughout the year, ping me if you want to meet up!

2018 was a tale of two halves for Solar. The uncertainty of tariff structure from the Section 201 case was sorted out but not instilled until February. That project financing certainty cast off the inertia for the development and investment communities to aggressively get back to work. Actual installations were about flat with 2017. The size of projects is up on average compared to previous years, which is a continuing trend from last year, my analysis segments projects in size buckets (50-100MW, 100MW+, etc.) and by quantity most segments are down, however the largest categories of projects grew in terms of total capacity. Put more simply, the number of installations may be down but the amount of PV installed is flat due to larger projects.

Overall costs of installations, with tariffs, are still at or below grid parity in terms of LCOE in much of the US. Even more fascinating is that the costs of building new can be better than that of existing coal, see must read info from Lazard’s annual report below. It can be less expensive to build new solar than run old coal.

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Demand for energy continues recent pace, though it was slightly up over the previous year by volume, actual growth rate is below inflation. It’s difficult to predict any large bump in electricity usage today, though many in the energy industry are bullish long term on electrification in all sectors. It’s still correlated to the general economy (look back at 2008 if you want some verification), but until electrification of transport and other sectors takes meaningful strides it’s difficult to imagine a world where new generation projects are driven by demand for more energy instead of by retirements of existing assets.

Solar installations being flat may sound like a non story, but overcoming major headwinds and legitimization of the technology is anything but. Natural gas was the clear winner last year, per FERC installation data, but energy as it stands seems like a three horse race with room for energy storage to become a major player. At this point I’m uncertain that it’s a horse, jockey, or another track entirely. Frankly I need to do more research on the technology and levers for installation, including Order 841. Storage will be an ongoing narrative for a long time.

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Gas is still relatively inexpensive and the above graph only shows net change in capacity. There were actually about 20GW installed versus 6GW of Wind and 4GW of Solar, per FERC updates. Actual installations for solar are significantly higher, as represented by SEIA and Wood Mac statistics in the header of this article. It’s really important to understand the methodology and inputs to these reports, particularly when thinking about the forecasted growth of the industry. All models are based on assumptions. Some assumptions are a lot easier to make than others, the interesting ones are much less predictable.

What assumptions should we be using NOW?

The easy ones are in front of us: utilities continue to implement Integrated Resource Plans with high levels of solar outside of Renewable Portfolio Standards (RPS). Legislators are introducing very lofty goals for clean (include nuclear) and renewable (does not) energy. In my esteem both are good outcomes, but replacing nuclear generation is really hard as it is a very large component of our energy in the US–9% of capacity and somewhere around 20% of actual energy, so I’m all for keeping the ones we have. See a snapshot of those lofty goals below from EQ Research:

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We went from “renewables can’t possibly supply a high penetration of our generation” to this in a very short time frame. Less time than I’ve been in the industry (3.5 years roughly).

It seems like a whole new world for energy comparatively with two years ago. The big reason? Discussing climate change is now at the very least palatable, and in many instances a major pillar for state and federal level candidates. Political winds have shifted and policy will be necessary.

The difficult assumptions to make are mostly social.

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Today, Friday March 15th, our youth are striking for climate across the globe.

My wife is a biology teacher in Minneapolis. Two weeks ago I asked her if her students talked about climate change. She said “Not really, there are some kids that do but it hasn’t been happening a lot.” She works in a pretty liberal school so that surprised me. I work in and follow a LOT of people in the industry so my lens on the world is very heavily filtered toward that echo chamber.

Last night, without prompting before sleeping, my wife said “I wonder how many of my students are going to the climate strike tomorrow?”

“What? Wait, I thought this wasn’t a big issue, but lots of kids are going?”

“I’m not sure yet, but seems like it. They are going to do a two hour sit in first, then take public buses to the capital and strike. Seems like it’s catching on quickly.”

The Green New Deal was discussed ad nauseam the last month. It’s a rallying cry more than passable legislation, but the pragmatic aren’t likely to win favor with young voters, as was showcased in the viral video the Sunrise Movement posted of Diane Feinstein explaining to children how sausage is made.

We are at the precipice of holistic change. It will start with energy, but it’s going to go further than that. Just how far, I’m not certain. And my belief is that the youth will be the driving force.

The plodding updates to expectations on resource plans, the corporate power purchase agreements, the utilities introducing more green options, all of those things will continue to happen predictably.

The youth movement around climate change is the wild card that we simply cannot predict and anyone who has a young person in their lives understands their will power is something to be reckoned with. The floor on renewable technologies is already very good. The ceiling is potentially astronomical but difficult to fully understand because it is predicated on a political will of the youth.

I’m rooting for them.