Solar installations break records in Q1 of 2021, but face rising costs and supply chain issues
Energize Weekly, June 23, 2021
A record-breaking 5 gigawatts (GW) of solar capacity was installed in the first quarter of 2021, pushing total installed U.S. capacity to 100 GW – more than doubling in four years, according to an industry market report.
At the same time, the industry is beginning to face supply chain issues and price pressures, the report, by the Solar Energy Industries Association (SEIA) and consulting firm Wood Mackenzie, said.
Solar accounted for 58 percent of all new electricity generation capacity in the first quarter with utility-scale solar tallying 3.6 GW, 72 percent of the total, followed by residential, which saw 905 megawatts (MW) of installations.
Renewable energy – primarily wind and solar – made up nearly 100 percent of all electricity generation projects in the quarter.
“Demand for solar power continues to grow, but attention is now turning to supply chain constraints, which have heightened since the latter half of 2020,” Michelle Davis, a Wood Mackenzie analyst and lead author of the report, said in a statement.
Supplies of key inputs for solar modules and installations – including polysilicon, steel, aluminum, semiconductor chips, copper and other metals – are being pinched.
This led to price increases across all metals toward the end of the first quarter that are now starting to impact installers.
“Increasing demand for solar, combined with pandemic-related macroeconomic realities (such as increased shipping costs, microchip availability, and a residential home renovation boom) have led to increased commodity prices and delivery delays,” the report said.
The price of steel has more than doubled since the pandemic began, leading to increased prices and lowered availability of solar racking equipment and trackers, the report said.
So far, the rise in steel prices has mostly hit utility-scale projects, which require more steel for supports. Carport installations have also been impacted.
Polysilicon supply and demand are delicately balanced, so small production errors can make a big difference. The result is that after years of falling module prices, the first quarter saw prices stagnating or increasing.
Nevertheless, the effects on installed solar system prices were marginal through the first quarter with year-on-year price comparisons showing a decline.
The average all-in price for a utility-scale installation, with tracking technology, was 89 cents a watt in the first quarter of 2021, 11 percent lower than in the first quarter of 2020. Residential showed a year-on-year decline of 3 percent to $2.94 a watt.
“Price increases for manufacturers may not be felt immediately by customers due to time lags in procuring equipment and long-term supply agreements,” according to the report. “Further, manufacturers may still be estimating how much of these price increases they want to pass along to the customer, and how much they decide to absorb.”
Residential solar posted its largest-ever first quarter and second-biggest quarter on record, setting up 2021 to be the biggest year yet for the market.
Florida and Arizona had record-breaking quarters, according to the report, while Texas set a new first-quarter record (despite losing a week of activity during the February winter storm).
Texas led all states with 1.52 GW of new solar capacity in the quarter, followed by California, with 563 MW, and Florida with 525 MW.
Wood Mackenzie projects that the residential market will grow 19 percent year-over-year in 2021, with 3.8 GW of installed capacity.
The utility sector largest first quarter record is the prelude to a big year with 17 GW of projects under construction.
There were 347 MW of commercial solar installed in the first quarter, an increase of 19 percent year-on-year, but 35 percent less than in the fourth quarter of 2020. Community solar installation tallied 131 MW, down 15 percent from the first quarter of 2020.
Wood Mackenzie is projecting that the solar industry will continue to break annual installation records each year for the next three years before the federal investment tax credit is fully phased out under law.