A new report from the Solar Energy Industries Association (SEIA) and the Wood Mackenzie research group said the U.S. solar sector is expected to add a record 33 GW of new generation capacity in 2023, a 55% increase from 2022.

The groups said that even with growth expected to slow over the next year due to economic and interconnection challenges, solar energy is expected to be the largest source of generating capacity on the U.S. power grid by 2050. The report released Dec. 7 said that government policies supporting solar power are among the reasons for the industry’s rise.

“Solar remains the fastest-growing energy source in the United States, and despite a difficult economic environment, this growth is expected to continue for years to come,” said SEIA president and CEO Abigail Ross Hopper. “To maintain this forecasted growth, we must modernize regulations and reduce bureaucratic roadblocks to make it easier for clean energy companies to invest capital and create jobs.”

The report said solar accounted for 48% of all new electric generating capacity in the U.S. through the first nine months of this year, with total installed solar capacity of 161 GW from about 4.7 million installations. The groups said that by 2028, U.S. solar power generation capacity is expected to hit 377 GW.

“Organizations across numerous industries—including defense, industrial, data center and healthcare—are leveraging access to solar PV [photovoltaic] as a local source of sustainable and resilient power,” said Doug Mackenzie, vice president, Energy Resilience, for JLL, a company which focuses on renewable energy and sustainability solutions.

Challenges to Sustained Growth

“The U.S. solar industry is on a strong growth trajectory, with expectations of 55% growth this year and 10% growth in 2024,” said Michelle Davis, head of solar research at Wood Mackenzie and lead author of the report. “Growth is expected to be slower starting in 2026 as various challenges like interconnection constraints become more acute. It’s critical that the industry continue to innovate to maximize the value that solar brings to an increasingly complex grid. Interconnection reform, regulatory modernization, and increasing storage attachment rates will be key tools.”

The report’s authors wrote that the “growth outlook for the U.S. solar industry remains strong, averaging 14% annually over the next five years. However, sustained growth will become more challenging in the longer-term as interconnection bottlenecks and transmission capacity suppress the pace of installations.”

The authors noted that 2024 could be more challenging for the sector, in part due to policy changes in states such as California. SEIA and WoodMac said the residential solar segment installed a record 210,000 systems in the July-September period this year, but changes to net energy metering policy in California, which took effect in April, make it less profitable for solar customers there to send power back to the grid.

Analysts have said the measure reduces the value of solar energy by 70% to 75% for those customers, and increases the payback period for solar systems. A WoodMac analysis earlier this year said the solar payback period in California, which had been five to six years, will jump to 14 to 15 years as a result of the NEM 3.0 legislation. Amir Cohen, general manager of SolarEdge Technologies North America Solar Business Unit, in an interview with POWER earlier this year discussed the impact of how similar rules in other countries impacted the solar market.

“If energy becomes more expensive to buy than it is profitable to sell, it is more cost-effective to store your energy for personal use when the sun goes down,” said Cohen. “What you get is a net metering market shifting to a self-consumption market, in which solar plus storage becomes the norm.”

Interest Rate Impacts

Higher interest rates, which increase financing costs for solar power systems, also are having a negative impact on solar adoption, particularly for the residential market. Thursday’s report said that’s expected to lead to lower residential installations next year—off as much as 12%—before growth resumes in 2025.

The report said that higher financing costs also have impacted utility-scale solar, along with transformer shortages and interconnection bottlenecks. The authors said the utility-scale sector recently saw its lowest level of new contracts signed in a quarter since 2018. They noted, though, that an improved supply chain for solar modules helped support a record 12 GW of utility-scale installations from January through September of this year.

“The utility-scale segment installed just over 4 GW in Q3 2023, representing 58% growth over Q3 2022, when supply chain constraints were severely suppressing installations, and flat compared to last quarter,” the report said. “This segment has already installed nearly as much capacity through the third quarter [of 2023] as all of 2022, mostly due to abating supply chain constraints.”

Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).