In his keynote address at PV American yesterday, the Solar Energy Industry Association’s Rhone Resch observed that Solar is now the number one growth industry in the United States.
Market data from the DOE’s Tracking the Sun III backs him up.
Released at the end of 2010, this DOE report reveals that between 2002 and 2009 the residential solar PV market alone grew tenfold. The residential market grew at an average growth rate of over 40% per year to $1.1 billion by 2009. It then posted another 68% growth in 2010.
Perspective from other markets
To put this market growth in perspective, when CD sales were growing by 25% per year back in 1994, that market was described as ‘explosive’.
In more of a direct comparison, according to BusinessWeek DVD sales growth dropped from 29% in 2004, to 9% in 2005 and 4% in 2006. Meanwhile, residential solar outgrew the DVD market substantially at 40%, 15% and 31% respectfully and by 2010 had passed it in overall size.
Not driven by price
Counter to conventional wisdom, the most profound takeaway from this market data is that price declines did not contribute to the high US residential PV market growth over the past eight years. Eric Wesoff at Greentech Media, for example, recently provided an excellent article on “What Really Motivates Consumers to Install Residential Solar?” Wesoff provided the results of a recent market survey on consumer attitudes that underscored concerns on affordability.
Apparently, though, at least one critical installed cost level has been reached.
The new support programs introduced during this timeframe, such as the California Solar Initiative (CSI), have also helped (see: California Solar Initiative Racing Ahead of Plan). As outlined in the Wesoff article, factors beyond subsidies, such as awareness promotion, customer perception, service and an easier application process also contribute to market growth.
The CSI program is exhibiting breakout success. Yet if all of the CSI related residential installations were subtracted from the US market data totals, the US residential PV market still posted a remarkable 31% average growth rate between 2002 and 2009.
Installed costs did finally decline appreciably between 2008 and 2009. The continued growth trend from the previous six years, however, could have accounted for over 80% of the 2008 to 2009 growth. The success factors were already in place before the drop in installation costs.
Component costs declined, but so did subsidies
Market reporting firm Solarbuzz has documented the decades-long price decline for key components such as PV modules and inverters.
Where module pricing was relatively stable, the costs of all components declined by 22% during the 2002-2008 period. Subsidies, however, declined by 44%. The declining costs and declining subsides balanced each other out, net installed cost remained virtually constant.
The 2008 installed cost was just $0.01/kW below that of 2002. Per system costs actually increased during this period as the average system size grew by 5%.
Growth defies financial crisis
Astonishing given the fact that the majority of market relies on home equity lines and/or new credit facilities to purchase PV systems
Given that this timeframe bridged the housing crisis, the market growth is a phenomenal achievement. The majority of residential systems installed during this period were financed by the homeowners directly. Only 13% of CSI residential systems, for example, are third party owned.
Bridging the financial crisis, the US PV market reflected price inelasticity and even inverse elasticity (an increase in demand when prices rise).
US residential PV has been a recession proof market.
Market threshold price versus market clearing price
It is widely accepted that solar PV must meet a price of electricity comparable to the electric grid in order to achieve broad market acceptance. In the PV industry, this clearing price concept is known as ‘grid parity’. While component costs are dropping quickly, this level has not yet been reached. How then to explain the exponential market growth?
The average installed price per kW between 2002 and 2008 was $4.94/kW installed, and above grid parity for most US markets. At average US residential electricity pricing, this installed cost would require between 20 and 30 years to fully recover these installed costs.
What the residential PV market data suggests is that the $5/watt level may represent a market threshold price for residential PV in the US. Notably, some recent US residential installations are now achieving $5/watt before the benefit of subsidies.
The market data underscores that absolute grid parity is apparently not fundamentally required – in the residential market – in order to stimulate strong demand. This market threshold price response also confirms that other factors beyond simple economics are at play. Reaching nominal economic return (e.g. 20 to 30 years) appears to be an initial and powerful market acceptance threshold.
There are a lot of things going right in the US residential PV market.