Solar’s Highs and Lows: How Economic Shifts Are Reshaping a Decade of U.S. Solar Growth
The U.S. solar industry has experienced substantial swings in the last decade with a marked contrast between the rapid expansion from 2014 to 2022 and the more challenging environment from 2023 to 2024.
Period of Growth: 2014-2019
From 2014 through 2019, the solar industry in the U.S. experienced remarkable growth. This expansion was driven by several key factors, including decreasing solar photovoltaic (PV) panels costs, technological advancements, modest interest rates, and substantial federal incentives such as the Investment Tax Credit (ITC). During this period, the average annual growth rate of solar installations was about 25%, with residential and commercial sectors contributing to the surge. The total installed solar capacity grew significantly, with the industry adding more than 13 gigawatts (GW) annually by 2019, up from just over 6 GW in 2014.
This period also saw an increase in financing options, making solar more accessible. Solar loans became popular, allowing homeowners to spread the installation cost over several years. Power Purchase Agreements (PPAs) and leasing options also gained traction, enabling consumers to install solar panels with little to no upfront cost, further boosting adoption rates.
The COVID-19 Pandemic Years: 2020-2022
The U.S. solar industry displayed notable resilience during the COVID-19 pandemic, continuing to grow despite significant disruptions. In 2020, the industry installed 19.2 gigawatts (GW) of new capacity, a remarkable achievement given the supply chain issues, labor shortages, and project delays caused by the pandemic. The shift to remote work increased residential interest in solar, as homeowners sought greater energy independence.
In 2021, the industry built on this momentum, adding 23.6 GW of capacity, setting a new record. The extension of the Investment Tax Credit (ITC) and low interest rates further fueled this growth, while federal support for renewable energy under the Biden administration provided additional incentives. This period of expansion laid the groundwork for the record-breaking installations that followed, even as it set the stage for the challenges that emerged with rising interest rates in subsequent years(Data & analytics solutions, SEIA.org, EIA Homepage).
Recent Declines: 2023-2024
In contrast, the period from 2023 to 2024 has been characterized by a slowdown in the growth of solar installations, primarily due to the rise in interest rates and other economic challenges. The Federal Reserve’s aggressive rate hikes, intended to combat inflation, have had a dampening effect on solar financing. Higher interest rates have made loans more expensive, reducing the financial attractiveness of solar installations for homeowners and businesses alike. This shift has led to a noticeable contraction in the residential solar market, with 2024 projected to see the first annual decline in installations since 2017.
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The impact of high interest rates is particularly evident in states like California, where changes in net metering policies have further complicated the financial calculus for solar adopters. As a result, many consumers are delaying or reconsidering their solar investments, leading to a significant reduction in installation volumes. In fact, the first quarter of 2024 saw the lowest residential solar capacity additions in two years.
Despite these challenges, utility-scale solar projects have continued, driven by ongoing federal support. However, even this sector faces hurdles, such as supply chain constraints and trade policy uncertainties, which could limit growth in the near term.
A Deeper Look at the Numbers
While electricity prices have risen, they have been relatively stable in inflation-adjusted terms. The following graph plots the average price of electricity in US cities by month, the blue line tracing out the raw price and the orange line the inflation-adjusted price. In inflation-adjusted terms, the price of electricity has remained quite steady. Consequently, interest rates have been the major driver in residential and commercial users’ adoption of solar energy. (Average Price: Electricity per Kilowatt-Hour in the U.S. City Average (APU000072610) | FRED | St. Louis Fed (stlouisfed.org))
Before we turn to our permit data, let’s look at the SEIA’s data tracking total solar installations:
In the above, one can see that there has been a distinct leveling off in the rate at which total solar installations are increasing (i.e. a smaller number installed since the interest rate went up).
Our Kukun permit data tells a similar story regarding the residential and commercial side. With the interest rate hike, solar installations have declined.
Conclusion
The stark contrast between the growth period from 2014 to 2019 and the more recent declines highlights the significant impact of economic conditions on the solar industry. While the long-term outlook for solar remains positive, with expectations of recovery starting in 2025, the industry’s short-term prospects are closely tied to interest rates and policy developments. As financing costs stabilize and new technologies emerge, the solar industry is expected to resume its growth trajectory, contributing to the broader transition toward renewable energy.
This analysis draws on multiple sources, including insights from the Solar Energy Industries Association (SEIA) and industry reports from Wood Mackenzie and the U.S. Energy Information Administration (EIA). These sources provide a comprehensive view of the factors influencing the solar industry’s performance over the past decade.
If you have an interest into diving deeper into solar energy, or any other aspect of the housing industry, please contact us about data sales at brenden.shue@mykukun.com.
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Franklin Carroll
Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.
Published September 6, 2024
