More Federal Incentives Needed to Drive Solar Growth

July 23, 2009

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Although the United States has become one of the more aggressive nations in promoting renewable energy thanks in part to support from the Obama Administration, it is still lagging behind solar market leaders like Spain and Germany, according to a new report from Pike Research. A key finding reveals that federal level tax credits and depreciation incentives are not currently enough to encourage sustainable demand growth in the U.S. solar market.

The study, U.S. Solar Energy Demand, indicates that for sustained growth to occur in the U.S. solar power market, the federal government needs to increase incentives. However, the study cites that some states and municipalities have taken the lead in providing incentives through a variety of mechanisms ranging from upfront rebates and property tax credits to renewable energy credits and even European-style feed-in tariffs. These states include California, New Jersey, Florida, Vermont and New York, with solar demand heating up in certain markets such as California and New Jersey.

Even though there is demand for solar installations in the U.S., the credit crisis has resulted in tight funding for these projects because banks are unwilling to lend to projects that have undetermined cash flows, according to the study. “The weak supply of tax equity combined with heightened credit requirements has led to numerous project cancellations and delays nationwide, with over 75 MW, totaling$450 million, of idle projects in New Jersey alone,” said George Kotzias, industry analyst for Pike Research, in a statement.

The study concludes that over the next five years a combination of federal and state incentives together with falling module prices and lower installation costs will help increase demand in the U.S. for solar power. Pike Research estimates that some crystalline modules are currently selling at less than $2.00/Wp.

In addition, the Obama Administration’s emphasis on climate change is also expected to help drive the U.S. to a global leadership position in solar PV market share by 2014. Currently, Europe accounts for over 72 percent of global installed solar capacity as of 2008, according to Pike Research. The report projects that the U.S. solar market will surpass Spain in 2009 and will top Germany by 2013.

Utilities, which are just now getting serious about meeting RPS goals, will likely take the lead in developing new solar projects, said Pike Research. Support has lagged behind primarily because utility customers would see a rate increase of up to 10 percent in their utility bills.

In addition to government incentive, financing and solar PV market forecast analysis, the study also includes internal rates of return on a state-by-state level and detailed cost components for solar project developments.

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Reader Comments

The main problem is actually that electricity prices in the US are artificially low, mostly through regulation. Charging US consumers a truer price for electricity would significantly reduce the payback times for renewable installations such as solar PV and solar thermal, and naturally encourage their adoption.

The same is true for energy efficiency, and proven by the highly successful CERT program in the UK.

Chris Ronketti | July 27th, 2009

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