ITC impact: Q4 shift toward sustained growth in utility-scale solar

By Ryan Edge and Nick Esch

2015 saw an unexpected dip in the utility-scale solar market, with new completed projects down from the previous year by more than a gigawatt, a 33 percent drop.

But, based on research and analysis by the Solar Electric Power Association (SEPA), these figures do not signal a market slowdown. Rather, the 2015 fourth quarter figures suggest a transition — with modest growth balanced by a robust pipeline of projects under construction — all driven at least in part by the recently extended federal investment tax credit (ITC).

Basic figures for the final quarter of 2015 show 51 new solar power plants of 5 megawatts (MW) or greater were completed, for a total of 1,187.5 MW of additional generating capacity. Cumulative new capacity for the year was 2,359 MW — sharply lower than the 3,550 MW that came online the year before.

Total utility-scale solar capacity in the United States at the end of 2015 was 10,729.8 MW, according to SEPA’s figures.

Figure 1: Utility-scale solar market growth by quarter. (Source: SEPA and SNL)

Further breaking down the Q4 numbers, completed projects were distributed across 12 states including lower-profile markets such as Indiana, Utah and Maryland, a growing indication of solar’s cost competitiveness in new locations across the country.

As ever, California led the market with 12 projects, totalling nearly 400 MW, closely followed by North Carolina, which energized 24 projects totalling 317 MW.

Table 1: Utility-scale project pipeline (Source: SEPA and SNL)

Of the 51 projects completed, four were utility-owned and four others had non-utility power purchase agreements (PPAs). Totaling just under 56 MW, the utility-owned plants, are split, two each, between Duke Energy Progress and Public Service Company of New Mexico. The non-utility offtakers included the U.S. Navy, Nellis Air Force Base and George Washington University. The remaining 43 projects have utility PPAs.

Table 2: Offtakers for utility-scale projects competed in Q4 (Source: SEPA and SNL)

Crescent Dunes, the 110-MW concentrating solar power (CSP) plant, came online in Tonopah, Nevada in November. It was the first CSP project completed since the 280-MW Mojave Solar Project in Q4 2014, as well as the largest single project completed last quarter and, at least for now, the last CSP plant in the U.S. pipeline.

Another notable project from last quarter was the 750-MW McCoy plant, which energized a first phase of 99.3 MW. At maximum build-out, McCoy could be the largest solar power plant in the United States — 30 percent larger the 579-MW Solar Stars project currently in the top spot. Both projects are in California.

The caveat here is that NextEra Energy Resources, the project developer on McCoy, has thus far only secured one 250-MW PPA with Southern California Edison and has previously said it would build the project in phases, depending on subsequent contracts. At present, the remaining 500 MW are unsubscribed — and whether California’s recently increased renewable portfolio standard of 50 percent by 2030 will stimulate utility appetite for larger-scale projects remains uncertain.

What’s going on with solar pricing in the U.S.? Find out in SEPA’s new market snapshot here.

The 791.4 MW that broke ground in Q4 represent nine projects, all but two of which are in the Southwest. The outliers include a 5.4-MW project in Maryland for the Archdiocese of Baltimore and an 8.5-MW project for the North Carolina Electric Membership Corporation.

However, we do not see this figure as an indication of a slowing market, in view of the 7,987.7 cumulative pipeline now under construction. All that appears to have occurred is an adjustment, with higher figures now projected for 2016 and beyond, as shown in Figure 2.

Looking ahead, 11 projects totalling 286 MW were announced last quarter — with geography again a significant factor. Seven of the 11 projects are in still-developing solar markets — four in South Carolina, and one each in Rhode Island, Maine, and Maryland — yet another sign of the improving economics of solar, possibly coupled with the extension of the ITC.

The ITC effect

Clearly, the most important development affecting the utility-scale market in Q4 was the extension of the federal investment tax credit, previously set to expire at the end of this year. The extension ensures that projects now under construction can receive the full 30 percent tax credit even if they are not completed by the original expiration date at the end of 2016.

The new parameters for the tax credit also include a planned step-down that — with the likely drop in solar costs — should allow gradual industry adjustment approaching 2022.

2017-2019 – 30 percent
2020 – 26 percent
2021 – 22 percent
2022 – 10 percent for commercial entities; zero for individuals

Up until Congress passed the extension in mid-December, market data showed a rush of planned projects set to come online this year, but almost no new construction in the pipeline beyond the expiration. In the two quarters prior to the tax credit extension, a small number of projects were announced with completion dates in 2017.

Now that the ITC has been extended and market uncertainty alleviated, our original growth projections for 2015 have shifted rather dramatically to 2016, as shown in Figure 2. Whether we might see further shifts in project completions toward 2017 or 2018 remains to be seen.

Figure 2: Utility-scale solar market forecast before ITC extension (Source: SEPA and SNL)

Extending the incentive should preserve market growth in states where solar has only recently become cost effective, such as Utah, South Carolina and Indiana. These states also have lower electricity costs, so market growth is strongly linked to supportive policies, such as the ITC extension, and falling solar costs.

In more mature markets such as Hawaii and California, where policy makers have recently raised renewable portfolio standards — to 100 and 50 percent, respectively — the extended ITC should help lower project costs overall, which in turn, should benefit ratepayers. In addition, falling solar costs will also reduce the total value of the credit for individual projects.

Certainly, the extension lays a foundation for a much more sustainable growth curve going forward, with utility-scale projects continuing to drive market expansion.

Disclaimer:
This analysis by the Solar Electric Power Association (SEPA) draws on primary data from SNL Energy and independent sources. SEPA’s quarterly or annual totals may differ from other sources for a variety of reasons. All SEPA megawatts are utility-compatible grid capacity (AC); SEPA’s totals also include only projects 5 megawatts or greater. Project announcement, construction and completion dates can be interpreted differently and assigned to differing quarters or years. Updates or corrections are welcome; send to [email protected].

Ryan Edge is a Research Analyst at SEPA. He can be reached at [email protected]. 

Nick Esch is a SEPA Research Associate. He can be reached at [email protected].