Inflation Reduction Act to Help US Solar Installations to Triple by 2027: Report
Solar market to grow by 40% or 62 GW of additional capacity through 2027
September 13, 2022
Overall solar installations across all market segments in the United States are likely to triple in size, increasing from 129 GW to 336 GW in the next five years, a report by the Solar Energy Industries Association (SEIA) and Wood Mackenzie has said.
The Inflation Reduction Act (IRA) will help the United States solar market grow 40% or 62 GW of additional capacity over baseline projections through 2027, according to the report.
According to the U.S. Solar Market Insight Q3 2022 report jointly released by SEIA and Wood Mackenzie, despite supply challenges slowing the market, solar accounted for 39% of all new electric generating capacity additions during the first half of 2022.
The IRA would deliver billions of dollars in taxes and other incentives to U.S. solar manufacturers. It will equip them with government support to compete with Chinese and Canadian solar energy products.
The country’s solar market alone represents around 4.5% of America’s electricity mix. The report highlights that the developments in the utility-scale sector will lead to the solar sector’s growth until 2027 with 162 GW of new capacity additions.
In the second quarter (Q2) of 2022, the U.S. installed 4.6 GW of solar capacity, down year-over-year by 12% and up 12% from Q1 2022. Installations would have been higher if not for supply chain constraints and the uncertainty of the anticircumvention probe.
The report highlights that IRA will pave the way for more provisions that would benefit the U.S. solar sector. Implementing the Act will help establish standalone storage ITC, providing more options to finance and deploy storage and helping support a grid with more variable generation.
IRA will also help bring in tax credits and incentives for several zero or low-carbon technologies that will accelerate electrification and help the country meet its carbon footprint. Electric vehicles would be able to avail of expanded tax credits, ultimately boosting the electrification of the transport sector.
SEIA President and CEO Abigail Ross Hopper observed, “This report provides an early look at how the IRA is going to transform America’s energy economy, and the forecasts show a wave of clean energy and manufacturing investments that will uplift communities nationwide. With this incredible opportunity comes a responsibility to clearly address concerns over forced labor and ensure that we have ethical supply chains throughout the world.”
Despite a rosy outlook for the next five years, solar installation forecasts for 2022 dropped to 15.7 GW, the market’s lowest total since 2019, due primarily to a Commerce Department tariff investigation.
With the enforcement of UFLPA, several Tier 1 modules remain detained. The U.S. solar industry had expected that UFLPA would require certain documentation under the Withhold Release Order (WRO).
However, unlike in WRO, Customs and Border Protection has been seeking sourcing documentation for the quartzite that is processed into polysilicon for solar modules, which needs documenting the sources of metallurgical grade silicon. Utility-scale projects that need large shipments of modules are the most impacted as developers are pessimistic about procuring modules for the remaining year.
Meanwhile, the industry awaits clarity on the exact requirements once CBP releases the first shipments, which, per the report, can happen soon as a few manufacturers have started filing admissibility packages with CBP.
In June, the White House waived new tariffs on solar imports from Southeast Asian countries for two years, providing some relief to the market. However, the report finds that the Uyghur Forced Labor Prevention Act (UFLPA) that took effect in June 2021 could limit solar deployments through 2023.
Principal analyst at Wood Mackenzie and lead author of the report Michelle Davis asserted, “The Inflation Reduction Act has given the solar industry the most long-term certainty it has ever had. Ten years of investment tax credits stand in stark contrast to the one-, two-, or five-year extensions that the industry has experienced in the last decade. It’s not an overstatement to say that the IRA will lead to a new era for the U.S. solar industry.”
The U.S. residential solar segment set a record for the fifth consecutive quarter, with around 180,000 American households installing solar in Q2. According to the report, the IRA is set to drive an additional 7.3 GW of residential solar capacity until 2027. The new standalone storage tax credit across all market segments is expected to improve grid reliability.