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U.S. Solar Market Overview

By Ladeene Freimuth, Jay Shin and Abby Degenhart Environment, Library

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The solar energy industry has innovated and scaled up rapidly in recent years, making it an attractive opportunity for impact investors. But in order to keep global temperature rise well below 2 degrees Celsius this century, humanity needs greater capital flow to meet the gap of approximately $700B per year in clean energy and climate finance. Impact investors are well poised to leverage the many investment vehicles available to them to address this financing gap and further support the growth of the solar market.

Driven by significant technological cost reductions, the solar industry is nearly ten times the size it was just one decade earlier. The global solar PV market will add over 100 gigawatts of capacity for the first time in 2018, with installations reaching 104 gigawatts — representing 6% annual growth.

Material costs are one of the main drivers affecting solar prices. Dramatic improvements in the solar panel chemistry, as well as related technologies that enable improved layering of materials to increase panel performance, have led to significant hard cost reductions. As capital expenditures and innovations in materials processing and manufacturing drive cost reduction, panel costs are likely to lower even further to at least 36% over the next 10 years, with average efficiency expected to rise 20%.

Policy considerations such as the investment tax credit (ITC), net metering policies and foreign tariffs have influenced demand and actual consumer adoption of solar energy, and expected improvements in market economics will be likely sufficient to drive further growth of the field. As the market matures, stakeholders must address challenges and changes around ownership and business models, regulatory structures, metering and other policy requirements that will impact the future trajectory of distributed solar generation.

The solar industry offers a variety of investment opportunities across asset classes that both “foster innovation” or “foster deployment” of clean technology by investing in solar companies and projects. This report analyzes different financial instruments and strategies for investing in solar including private equities, public equities, debt, fixed-income, cleantech funds, and more.

As solar develops there is increasing need for emerging technologies, both to address efficiency and to expand the number of applications for solar. This report outlines new developments in energy storage as well as technologies that are making solar energy more efficient and more widespread through different applications.

Risks such a commodity and cyclical risks are considered to help investors mitigate losses and drive capital towards long-term growth strategies. Due to the complexity of solar energy production and distribution, a number of risks occur along the supply-chain. Investors must consider how to evaluate both climate and financial risks along the entire value chain to ensure that impact investment is driving capital towards truly transformative technologies with the highest possible commercialization potential.

With maturing impact measurement practices and tools, the industry will add greater transparency and market information to “green” capital markets, encouraging more participants to join and increasing capital flows. Impact-minded investors can now assess their risk, return, and impact profiles, and choose from the various financial products and approaches discussed throughout this report. Utilizing the various depths of impact evaluation, investors can, with relative ease, deploy and verify that they are putting their money towards producing positive outcomes throughout the value chain.