The recent financial difficulties for solar developers SunEdison and Abengoa have made headlines and raised questions of whether they foreshadow tough times for the industry as a whole. SunEdison, which has not been profitable in more than five years, faces, in the words of its yield co, a “substantial risk” of bankruptcy after the collapse of its merger with Vivint Solar. On March 29, Abengoa, the Spanish solar developer, filed for reorganization of its $16.5 billion of debt. While these developments are concerning, they are likely the result of the two companies expanding rapidly, including into areas beyond their core competencies, and those investments not panning out. In fact, the long-term outlook for solar remains strong, with the trade group Solar Energy Industries Association (SEIA) anticipating that by 2021, the United States will be routinely adding 20 gigawatts (GW) of solar power each year, far more than the record 7.3 GW added in 2015.
To be sure, even SEIA expects that while solar installations will grow by 119 percent in 2016, that growth is likely due to an over-build in anticipation of the potential phase-out of the investment tax credit. In 2017, there will likely be pull-back in the installation of utility-scale solar PV, with 2016 levels of installation not being achieved again until the end of the decade. While the investment tax credit has been extended until 2019 with step-downs running through 2020, other types of government support, both at the state level in the United States and internationally, have faced political pressure to be reduced or rescinded. In addition, some regulators believe that solar is a mature enough technology that substantial incentives are no longer required. The drop in oil prices also presents a two-pronged challenge to solar—dampening investors’ interest in the energy sector generally and making it more difficult for solar to compete on price. How long oil prices will remain at this level, however, is anyone’s guess. Finally, according to the U.S. Energy Information Agency, electric consumption dropped by 1.1 percent in 2015, the fifth decline in the last eight years.
Despite some potential short-term headwinds, the long-term drivers for solar’s outlook remain very good. Prices for solar PV dropped an average of 17 percent per kilowatt generated in 2015, with the biggest declines taking place in the utility-scale sector. Increased efficiency and economies of scale from contractors and developers will result in continued price drops, making solar price competitive even in an era of cheap oil. Additionally, many experts have argued the link between oil prices and solar development is, at best, a limited one. Because increasingly less electricity is generated using oil, and more and more is generated using solar, the correlation between the demand for one or the other is decreasing. Moreover, in a time of fluctuating commodity prices, solar represents price stability, with known and controllable start-up costs and only maintenance costs over the long term. Lastly, while there has been some pullback in government-backed solar incentives, new incentives and support are likely, particularly as countries seek to meet their Paris COP 21 emissions reduction targets.