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Why Solar Energy is a Smart Bet

By Direct Energy Business
solar

If projections for 2018 hold true, solar will officially be the most popular new energy source in the United States.

The surging popularity of renewables isn’t news to anyone who pays attention to trends in energy. But until recently, no single source had emerged as a clear-cut winner of the renewable energy popularity contest.

That was true until the fourth quarter of 2017, when new solar panel installations first surpassed wind and natural gas turbine installations. The trend continued through the first quarter of 2018, when new installations once again surpassed those of other energy sources. Bloomberg reported last month:

Developers installed 2.5 gigawatts of solar in the first quarter, up 13 percent from a year earlier, according to a report Tuesday from the Solar Energy Industries Association and GTM Research. That accounted for 55 percent of all new generation, with solar panels beating new wind and natural gas turbines for a second straight quarter.

This is a noteworthy development for two reasons.

Resilient and Flexible Manufacturing

Firstly, earlier this year, U.S. President Donald Trump imposed a tariff as high as 30 percent on solar equipment made outside the U.S.

At the time, the move was expected to drive up prices and hurt domestic demand for solar panels. Given that over 80 percent of new solar installations in the U.S. used imported panels, domestic solar installers faced a choice: either buy more expensive U.S.-produced equipment, or else pay 30 percent more for the same Asian-produced equipment they were buying before. In either case, the tariff was expected to put the brakes on solar’s recent runaway popularity.

So how was new solar able to win out over other energy sources, even with the President’s new tariff driving up the cost of new installations? It’s math. Between 2010 and 2018, the average inflation-adjusted cost of utility-scale solar panels dropped a staggering amount: from roughly $1.90 per watt in 2010 to about $0.30 per watt in 2018 -- a drop of almost 85 percent.

It appears that in the tug-of-war between international trade policy (which is making solar panels more expensive in the U.S.) and technological development (which is making solar panels cheaper worldwide), the latter has been overwhelmingly more influential.

In 2012, President Barack Obama imposed a steep tariff on solar panels from China, which imported more at that time than any other nation; in the five years since, even cheaper solar panels manufactured in Malaysia and other Asian nations have filled the gap and helped drive down the cost of solar installations overall.

Does this mean that U.S. manufacturers could increase production to fill the supply gap, much the same way Malaysia did when President Obama imposed the solar tariff on China? The ever-dropping cost of manufacturing makes this seem like a possibility, and many companies including our own Centrica Business Solutions are already ramping up stateside solar equipment production. Now that we know there is enough demand to sustain a high rate of new installations, even in the absence of cheaper Asian imports, the future certainly looks bright for solar manufacturers.

A Very High Ceiling

Secondly, we need to keep in mind how high the ceiling is for solar energy use.

In 2017, renewables altogether accounted for just 11 percent of total U.S. energy consumption. And of that 11 percent, only 6 percent was solar energy. In case you’re wondering, 6 percent of 11 percent is 0.66 percent.

To put this in perspective: if the annual energy consumption of the United States was a McDonald’s Big Mac burger (540 calories), our solar energy consumption would be equivalent to only one third of the lettuce on that burger (3.5 calories).

Sure, the United States is investing more in solar than ever before. But compared to other countries, the U.S. is downright solar-phobic. According to a recent report by the International Renewable Energy Agency, total solar energy capacity in the U.S. in 2017 was about 42.9 GW. Sound like a lot? The same report listed Germany at 42.4 GW for 2017. But the U.S. is about 26 times the size of Germany, and is home to quadruple their population. Yet Germany’s solar energy capacity almost matched that of the United States in 2017.

The U.S. has a lot of ground to make up.

A watt-per-capita calculation (aiming to compare a country’s solar energy capacity and its population) puts these three countries at the top of the list for 2017:

Germany: 511
Japan: 336
Italy: 322

How does the U.S. score?

United States: 132

The United States isn’t at the bottom of the list, but we are nowhere near the top, either. Looking again at Germany, we should note that their watt per capita count is about four times that of the U.S. In other words, to match Germany’s relative solar capacity, the U.S. would have to quadruple its current solar installations.

Here’s how some other countries are doing:

United Kingdom: 193
France: 99
China: 93
Canada: 79
India: 14

The point is that solar energy has an immense amount of room to grow in the United States. We are on our way, but the numbers suggest that the industry is still in its very, very early infancy. Widespread solar adoption is underway in other parts of the world, and there’s no reason it can’t happen here, too.

Looking to unlock the power of solar energy in your business? Check out solar solutions from our sister company, Centrica Business Solutions.

Browse Solar Solutions

Posted: July 16, 2018

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