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Solar Construction Costs Continue Historic Decline, Providing Cushion Against Trade Disputes

A recent report from the U.S. Energy Information Administration (EIA) confirmed significant cost curve progress for the U.S. solar industry, offering encouraging signs that developers will successfully weather international trade disputes and continue to drive historic deployment. 

The EIA concluded that average costs for solar PV systems continued to decline on an annual basis from 2013 to 2017, noting a 37% drop in costs for solar PV generators during this period in a recent “Today in Energy” blog post.This compares favorably during the period with a 13% drop in costs for wind generators and a 4.7% drop in costs for natural gas systems.  Over that same time period, solar was the only technology of the three to experience decreases in average construction costs each year.  

Why This Matters

Despite the headwinds of a well-publicized trade war that includes tariffs on many solar components, market growth in solar generation projects increased for the first quarter of 2019 to a historic high, as noted below, with significant utility-scale development and residential solar growth occurring. The Commercial & Industrial space had a more modest first quarter, down from 2018 figures. However, significant growth overall is still expected during the next five years (from 2019-2024), with recent decreases in construction costs providing some cushion against market shocks such as tariffs on international imported components.  

While decreasing construction costs and continued growth in solar PV investment and deal activity are promising signs for the market in 2019, industry players should also monitor the recent trend of developers stockpiling panels to lock in the 30% federal tax creditas this rush for panels may impact prices in the near future.3  Also see here for a Foley webinar on September 19th addressing the start of construction guidelines. 

Summary of Construction Cost Decreases by Technology

 Average U.S. Constructions Costs per Generation Technology, 2017 (EIA)

 Technology

 Capacity Added 

 Average Cost
per kW ($/kW)

 Average Change in Costs
from 2013

 Solar PV

 5.0 GW

 $2343

 -37%

 Wind (onshore)

 5.8 GW

 $1647

 -13%

 Natural Gas

 10.5 GW

 $920

 -4.7%

During the time period of these cost decreases, the installed capacity of new solar generation assets increased by 5.0 GW in 2017, while natural gas generation assets increased by 10.5 GW and wind by 5.8 GW.  Solar generation projects accounted for 37% of total new electricity generation construction costs, or $12 billion for the year.  The EIA attributed the drop in construction costs for solar PV systems to decreasing costs for crystalline silicon axis-based tracking panels, with such panels accounting for more than half of the solar PV capacity added at new plants overall in 2017. 

Recent Growth

With a view to today’s market, Figures from the latest Solar Energy Industries Association (SEIA) U.S. Solar Market Insight(June 2019) forecast the number of U.S. solar market installations to double over the next five years, from two million at the end of the first quarter of 2019 to four million in 2023, as opposed to the slight decrease in investment in 2016 and 2017 as reported by EIA.  The industry’s installation of 2.7 GW (DC) for the quarter marks the best first quarter for the market and a 10% jump from a year ago.  The majority of new capacity (1.6 GW) came from utility-scale solar installations.  SEIA also anticipates total U.S. PV capacity to more than double over the next five years.  A summary of SEIA’s observations are below.

 Market Data from U.S. Solar Market Insight - SEIA (June 2019)

 Market

 Q1 2019 Installations

 Trend

 Residential PV

 603 MW (DC)

 Up 6% from Q1 2018
 Down 8% from Q4 2018

 Non-residential PV

 548 MW (DC) 

 Down 28% from Q4 2018
 Down 18% from Q1 2018

 Utility PV

 1633 MW (DC)

 Forecast for 2019 - 2024 is up 
 by 5.1 GW (DC)
 Utility PV Pipeline is 27.7 GW (DC)

In addition to increased investment and installation, SEIA reported the continuing trend of falling costs of PV systems in 2019.  Price reductions in components, design/engineering, supply chain, permitting, and labor prices have led to historic lows in PV system pricing across the solar market. 

Update: After this article was originally posted, SEIA released an updated U.S. Solar Market Insight report(September 2019)  for the second quarter of 2019.  The report highlights a continuation of trends noted above, including the rebound of residential solar, a continuing decline for non-residential non-utility scale PV, and significant growth in the pipeline for utility PV projects, now estimated at 37.9 GW (DC).  The report estimates 17% growth in installed capacity through the full year 2019, and based on a strong second quarter, added an additional 6 GW to the five-year forecast. The report continues to project a doubling in total installed U.S. PV capacity over the next five years.

Andrew Miller is a contributing author to this article.

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U.S. Energy Information Administration, “Average U.S. Construction Costs for Solar Generation Continue to Decrease”. September 3, 2019, https://www.eia.gov/todayinenergy/detail.php?id=41153

See Foley & Lardner LLP, “Beginning Construction Continuity Safe Harbor Extended for National Security Concerns”, Foley & Lardner LLP Renewable Energy Outlook, July 15, 2019, https://www.foley.com/en/insights/publications/2019/07/construction-safe-harbor-national-security

3 Groom, Nicola, “Expiring U.S. solar subsidy spurs rush for panels”, Reuters, July 19, 2019, https://www.reuters.com/article/us-usa-solar-subsidy-focus/expiring-u-s-solar-subsidy-spurs-rush-for-panels-idUSKCN1UE0CO.

4 Solar Energy Industries Association, “U.S. Solar Market Insight – Executive Summary”. June 2019, https://www.seia.org/research-resources/solar-market-insight-report-2019-q2

5 Solar Energy Industries Association, “U.S. Solar Market Insight – Executive Summary”. September 2019, https://www.seia.org/research-resources/solar-market-insight-report-2019-q3

© 2019 Foley & Lardner LLP

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About this Author

Darin M. Lowder Partner Foley Energy Finance Corporate
Partner

Darin Lowder is a partner and business lawyer with Foley & Lardner LLP. He is a member of the firm’s Finance Practice. Although Darin’s practice extends to all aspects of business law, he currently focuses his practice on energy, project finance, project development, and related tax and public financing. Darin is also a member of the Energy Industry Team.

Darin has experience with numerous project technologies including commercial, utility-scale, and residential-scale solar photovoltaic systems; onshore and offshore wind development; biomass and biofuel projects; and other...

202-295-4084
Miriam A. Cross Associate Foley Finance Corporate Transactions Energy
Associate

Miriam A. Cross is an associate and business lawyer with Foley & Lardner LLP. She is a member of the Finance & Financial Institutions and Transactional & Securities Practices, and the Energy Industry Team. Ms. Cross regularly represents investors, lenders, and project developers in all aspects of the development and financing of renewable energy generation facilities with a focus on tax credit transactions. Ms. Cross has represented clients in over $1B of project finance investment in large scale utility, commercial, and community renewable energy facilities and facility portfolios.

During law school, Ms. Cross was a summer associate with Foley. She was an intern for the Honorable Jimmie V. Reyna in the Court of Appeals for the Federal Circuit. Ms. Cross also interned in the corporate legal department of large business intelligence software company based out of Washington, D.C. 

202-295-4490