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Why market predictions are always wrong, but sometimes useful: Tracking solar and storage market forecasts at SPI

This year’s Solar Power International (SPI) was noteworthy not only for who and what were there — an estimated 20,000 attendees crowding 250,000 square feet of show space in the Anaheim Convention Center — but also for what wasn’t.

Of my six SPIs, the 2018 industry trade show and conference was the first I can remember where some internal controversy, anxiety or flashpoint was not looming over the event. Rather than worrying about the latest sunsetting policy or incentive, different segments of the clean energy industry seemed at peace with one another, or at least able to have constructive discussions about their points of disagreement.

In other words, the solar industry might finally be settling into its role as a mainstream electric power source as the energy sector transforms across the United States and globally.

A case in point was the Market Outlook for Solar and Storage session I moderated on the second day of the conference, which may have been the first SPI workshop ever that was so crowded even members of the SEPA team couldn’t get in the room.

Three panelists — Andrea Romano from Navigant, Logan Goldie-Scot from Bloomberg New Energy Finance ( BNEF), and Thomas “TC” Maslin from IHS Markit — shared their firms’ forecasts for annual capacity additions of solar and energy storage through 2025. They all generally agreed that solar would remain increasingly cost effective versus other new sources of generation, and that, with continued cost reductions, the energy storage market would also see ongoing growth.

At the Market Outlook for Solar and Storage session at SPI (left to right): Tanuj Deora of SEPA, Andrea Romano of Navigant, Logan Goldie-Scot of BNEF and TC Maslin of IHS Market.

However, each analyst provided a very different outlook on how robust the domestic market for new solar would be in 2025. Navigant remains bullish on the outlook for solar capacity additions through the middle of the next decade; by 2025, Romano said, the industry would be putting over 30 gigawatts (GW) a year of new solar online. BNEF has a more tempered view, with growth tapering off to 10 to 15 GW over the next seven years. IHS Market is the most conservative, anticipating 9 to 12 GW for the next few years before a market collapse in 2024 and 2025 leaves the industry limping along at 2 GW a year.

 

Source: BNEF, Navigatn, IHSMarkit, SEPA Analysis

When pressed to discuss their differences, the first explanation the panelists provided went back to policy — in this case, state, rather than federal. State renewable portfolio standards (RPS) have been major drivers for solar growth, but most of those currently in effect across the U.S. could be met by 2023. The result could chill the market substantially, as would the ramp-down of the federal investment tax credit (ITC) from 30 percent to 10 percent. BNEF’s Goldie-Scot sees the drop in policy support being offset in part by increasing power demand fed by the electrification of transportation, but mostly due to ongoing consumer demand for renewables.

Navigant’s Romano added yet another driver for growth — new increases in state level renewable targets. California and Hawaii have all recently upped their RPS goals to 100 percent by 2045; while New York has raised its RPS to 50 percent. Meanwhile, gubernatorial candidates who support 100-percent renewable goals are on the ballot in Colorado and Illinois this November.

The key to understanding such forecasts — and their differences — lies not only in the anticipated market size (though that is undeniably interesting) but understanding how variables can impact growth, and by how much. The differences in forecasts at SPI builds on the value of investments in business and market development — in this case, building upon industry momentum to expand the solar market.

Whether through engaging with consumers or state legislatures, we could see $10 to $30 billion of new opportunities in one year alone in less than a decade. Of course, executing on that idea also involves a range of variables, but the solar industry, now reaching a new level of maturity, is well positioned to realize that upside by building on prior market development investments.

Energy provocateurs

The session got even more interesting and insightful when I asked each of my panelists to share a “provocative statement” with the audience. Navigant’s Romano kicked it off, saying solar and storage are overhyped as complementary technologies.

As expected, the audience mostly disagreed. But as Romano further explained, the value of energy storage transcends pairing it with intermittent generation — such as solar. Equally valuable applications for the technology can be found in responding to fluctuations in load and providing grid services to back up more traditional generation, and transmission and distribution systems. As such, storage should be evaluated independently of solar and deployed where it makes sense for technical and economic value, she said.

The fact that storage co-located with solar qualifies for the federal ITC results in market inefficiencies, and diverts storage from deployments where it may actually have the most value.

BNEF’s Goldie-Scot also got strong audience pushback for his assertion that value stacking is causing real harm to the deployment of energy storage.

He explained that value stacking — in which a storage project captures multiple value streams based on the different services it can provide — has been successfully exploited by project developers and operators to build a positive business case for their projects. However, the market value of the individual services provided — such as energy price arbitrage, capacity firming and ancillary services — is often not enough to get a project to pencil out.

As a result, Goldie-Scot argued, value stacking was effectively shrinking the overall market for storage, creating a disconnect between what investors and entrepreneurs see as a large market, and the smaller market that would be actually addressable in the short term.

I view this fascinating level of disagreement between the experts on stage and in the audience as yet another sign of the industry maturation. The questions we challenge ourselves with — just like the sharper, more differentiated pitches from exhibitors — reflect our industry’s growing sophistication.

The fact that we don’t have a single existential challenge we have to collectively fight but instead can debate forecasts and policy nuance is a signal that the decades of hard work across the fronts of policy, technology, development, and business models have paid off. However, maturity does not reduce the pressure for ever more difficult and incremental improvement. As discussed in Anaheim, strong market growth rates are by no means assured. As we shift the industry’s overarching story from demonstrating the relevance of solar technologies to competing for market share with decreasing levels of policy support, our ability to collaborate and constructively disagree will be more important than ever.

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