After watching solar installations decline 16% in 2022, solar industry analysts expect to see a rebound in 2023. But the year ahead is so uncertain that Wood Mackenzie has forecast three potential scenarios.
The difference between the three scenarios is relatively small—with a roughly ten percent difference between the baseline scenarios and more optimistic and pessimistic scenarios, according to Michelle Davis, lead distributed solar analyst at Wood Mackenzie.
Solar developers could see more projects move ahead by the end of the year if enforcement of the Uyghur Forced Labor Prevention Act relaxes, Davis said. Whether the IRS publishes guidance on the implementation of the Inflation Reduction Act before the end of the year is another key issue to watch, she said.
The final numbers for 2022 put total U.S. solar installations at 20.2 GW, 16% below the total from 2021, according to a joint U.S. Solar Market Insight released Thursday by the Solar Energy Industries Association and Wood Mackenzie.
With a rough year behind it, Wood Mackenzie anticipates that the solar industry could rebound in 2023. Installations could grow 41%, reaching 28.4 GW, barring further disruptions. But what, exactly, the year ahead will bring remains a real question.
The solar industry faces a significant amount of uncertainty in the year ahead, Davis said—more than the usual uncertainty about the future. Much of whether the industry rebounds in the latter half of 2023 depends on what happens to supply chain disruptions created by the Uyghur act. Based on past experience, she said Wood Mackenzie expects enforcement of the act to ease up by the second half of the year, which should allow for the flow of imported solar panels to return to something approaching normal. But “it’s tough to say whether that will come to fruition,” Davis said.
On top of that, there is also the question of what it will take for developers to qualify for the investment tax credit adders created by the Inflation Reduction Act. The difficulty of qualifying for tax credit adders tied to, for example, serving low income communities, could significantly influence the percentage of solar projects that continue to receive the full tax credit.
Nobody know for sure when that will happen—optimistic estimates suggest the IRS could publish its guidance in the next three to four months. More pessimistic projections say the guidance may not be published until the end of the year.
And then there’s the domestic content requirement. Wood Mackenzie is tracking planned solar manufacturing projects that could increase domestic capacity to 25 GW of solar modules per year, Davis said. But it’s likely, she said, that some of the announced facilities will be delayed, or perhaps not built at all.
The difference between last year’s utility-scale and residential solar markets illustrates the potential importance of domestic supply chains. While utility-scale solar installations fell 31% in 2022, residential installations grew 40%. The fact that about half of the solar panels used in residential projects are assembled in the U.S. is responsible for a great deal of that difference, Davis said.
Depending on the outcome of these policy questions and other factors, the U.S. could install more than 50 GW of solar per year by 2027, or installations may stall at around 30 GW per year, according to Wood Mackenzie’s projections.
In spite of the relatively large number of factors the firm’s analysts included in their three-scenario projection, the difference in outcomes between the scenarios is relatively small, Davis said. Positive outcomes could increase installations by 10%, or negative outcomes might reduce them by about 11%. While the relative difference is small, Davis said, it equates to about $30 billion in capital investments.
“There is money and investment tied to what’s going to shake out in the next nine months,” she said.