Residential Solar Power Is Breaking Records – Solar Prices Increase

The Solar Energy Industries Association (SEIA) publishes the US Solar Market Insight report each quarter, in collaboration with the consulting firm Wood Mackenzie. Their 2021 Q4 report was published on December 14, and the outlook is promising despite recent supply chain issues around the world.

source: Alternative Power Solutions Inc.

  • The US exceeded 100 gigawatts of solar power capacity early in 2021, and more than 15 gigawatts were added between January and September 2021.
  • A total of 5.4 GW were added in the third quarter, and data for October – December 2021 will be available in the next SEIA report, which is expected for March 2022.

Solar power accounts for 54% of the new generation capacity installed in the US during 2021, making it the electricity source with the fastest growth. Wind power follows in second place, representing 35% of new capacity. This means solar and wind power account for 89% of total capacity additions in 2021, while natural gas represents 10% and all other sources only account for around 1% (this includes coal).

  • Fossil fuels still dominate the grid, providing 60% of the electricity used in the US according to the Energy Information Administration. Natural gas represents 40%, coal represents 19%, while petroleum is used to generate the remaining 1%.
  • However, this could soon change with the current growth rate of wind and solar power. Renewables are providing 20% of the electricity consumed, and more than half comes from solar panels and wind turbines.

For the first time on record, the US installed more than one gigawatt (1,000,000 kilowatts) of residential solar power in a single quarter. More than 130,000 home solar systems were set up in Q3 2021, at an average price of $3.06 per watt. If this pace can be sustained, the US will soon be installing over 500,000 home solar systems per year!

Across all market segments, the total solar capacity added in Q3 was 5.4 GW – this includes commercial, community and utility-scale projects.

Here we will summarize some interesting facts from the latest SEIA Solar Market Insight report. Based on the data gathered for the first three quarters, the following have been the top 10 solar states in 2021 (in descending order):

  1. Texas
  2. California
  3. Florida
  4. Virginia
  5. Indiana
  6. Illinois
  7. Colorado
  8. North Carolina
  9. New York
  10. Nevada

Solar power has been growing at an impressive rate in Texas, with 4,523 MW installed between Q1 and Q3 2021. For comparison, California installed 1,899 MW in that same period, while Florida installed 1,219 MW. California has been the leading solar state for many years, but Texas has taken the lead for the first time in 2021.

Residential Solar Power

As mentioned above, Q3 2021 was excellent for the residential solar industry, with more than one gigawatt installed. Texas is the leading solar state if you consider all industry sectors, but California remains on top if you only consider the residential sector. The state installed 373 MW of home solar systems in Q3 alone, while Texas was in a distant second place with 90 MW. Together, these two states deployed 463 MW of home solar power.

The proposed (currently delayed and embattled) Build Back Better Act from the Biden Administration includes a possible extension of the federal tax credit for solar power. Currently, there is a 26% tax credit that decreases to 22% in 2023 and 0% in 2024.

With the proposed extension, the tax credit would increase to 30%, and it would remain available from 2022 to 2026. If this happens, Wood Mackenzie expects an additional 5.8 GW of home solar power to be deployed within five years.

Commercial and Community Solar Power

The adoption of commercial and community solar power has been slower than in the residential sector, but there is steady growth. According to the latest SEIA report, commercial solar power grew by 327 MW in Q3 2021, while community solar power grew by 180 MW. Together, these two market segments added 507 MW of capacity.

The growth of commercial solar power is 4% less than one year ago, and this slowdown can be attributed in great part to supply chain issues. However, the SEIA and Wood Mackenzie are forecasting a recovery for 2022 and 2023.

Illinois and New Jersey have both introduced laws and incentives that favor commercial solar power, creating a positive outlook for this market segment in both states.

On the other hand, community solar power is growing 56% faster than one year ago. Illinois could also take the lead in community solar, since the state’s Energy Transition Act provides financial incentives for this market segment.

Commercial and community solar projects tend to have similar sizes. However, the SEIA classifies them separately since there are important differences between the two markets.

The concept of commercial solar power is used to describe systems used by large consumers like shopping malls, factories, schools, and agricultural facilities. On the other hand, community solar systems are shared by many users, who can participate as shareholders or subscribers.

Utility-Scale Solar Power

Utility-scale solar farms account for the largest share of growth in Q3 2021, according to the latest data provided by the SEIA. The capacity added in this market segment was 3.8 GW, which represents two-thirds of the total 5.7 GW reported. The Solar Market Insight report also stated that 6.1 GW of new contracts were signed in Q3 2021.

The outlook for utility-scale solar power is positive, but these projects are the most vulnerable to supply chain issues due to their sheer size. This market segment would receive a major boost from a federal tax credit extension, with an additional 36 GW installed by 2026.

Are Solar Power Prices Increasing in the US?

The SEIA also gathers pricing data for solar power systems, considering all market segments. Their latest data shows an increase with respect to one year ago, and this can be largely attributed to supply chain issues. The following table compares current solar prices with those from last year:

Solar Market Segment Q3 2020 Prices Q3 2021 Prices Price Increase (%)
Residential $2.99 per watt $3.06 per watt +2.34%
Commercial $1.37 per watt $1.45 per watt +5.84%
Utility (Fixed Arrays) $0.82 per watt $0.89 per watt +8.54%
Utility (Tracking Arrays) $0.95 per watt $1.01 per watt +6.32%

Solar power prices have increased across all market segments, but the effect is more pronounced in commercial and utility-scale projects.

As mentioned above, these larger projects often depend on imported solar panels, which makes them vulnerable to delayed shipments. The high inflation reported across many industries and labor shortages in many parts of the US are also among the factors increasing solar prices.

The upfront cost of solar power systems is expected to continue to increase due to ongoing inflation, even if supply chain issues are resolved.

However, a possible extension of the Investment Tax Credit (ITC) would help decrease the net cost for solar owners. Also, keep in mind these are average solar prices throughout the US, but many states like Massachusetts and New York offer lucrative incentive programs that make solar panels much more affordable.

Despite the recent inflation and supply chain issues, going solar is a great decision for homeowners and businesses alike. High-quality solar panels normally have a product warranty of at least 10 years, and there are now some top brands offering 25 years.

Solar panels can achieve a payback period of less than 8 years under the right conditions, which means the warranty will still be active when you recover your investment.

Slow Supply Chains and Inflation: The Main Challenge for Solar Power in the US

Based on the latest SEIA report, the future looks bright for the US solar industry. However, there is one key obstacle to overcome: the disruption and saturation faced by supply chains around the world. This has been caused by a combination of issues, including the COVID-19 lockdowns and the Suez Canal blockage early in 2021.

The US solar industry is not free from the effects of slow supply chains. As you can see in the data above, solar power prices have increased compared with one year ago.

Projects are also being slowed down, and Wood Mackenzie has forecast that solar capacity additions in 2022 could be 25% lower than previously expected. This represents 7.4 GW of solar generation that are being delayed due to supply chain issues.

However, the impact of supply chain issues is mostly felt by developers of large-scale solar projects. In the residential sector, the growth forecast for solar power is 4% higher than in the latest report.

Many large-scale projects depend on imported solar panels, which makes them vulnerable to delayed shipments. However, if you’re considering a home solar system, there are several local brands that offer top quality – SunPower and Silfab are two examples. Many solar brands from overseas have also set up manufacturing plants in the US, to serve the local market more efficiently.

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