Solar power will continue to benefit from legislation in US: report

Increased solar panel production in the US will lead to lower panel costs, which will drive growth, according to industry research report.

The solar power industry in the United States will experience substantial growth over the next five years, with favourable legislation making solar power cost-competitive with other energy generation sources, according to IBISWorld, the nation’s largest publisher of industry research. Through 2016, increased solar panel production will lead to lower panel costs, which will drive growth as the cost of the industry's main input declines. As a result of these trends, industry revenue is forecast to rise at an average annual rate of 11.4 per cent through 2016.

According to IBISWorld’s latest statistics, general economic conditions are anticipated to strengthen as consumer income increases and businesses invest more. As these trends prevail, growth in electricity demand is anticipated to follow. Demand for solar power will rise in tandem with electricity demand as firms seek to diversify energy sources and "green" electricity becomes more of a focus for the United States. However, despite expected favorable government incentives over the next five years, government legislation beyond 2012 will depend on the makeup of congress and the newly elected president. This will moderately limit revenue growth.

The solar power industry has experienced bright days over the five years to 2011. Generous government incentives have pushed revenue growth by providing tax credits for investing in solar power and by enacting renewable portfolio standards (RPSs). These standards, enacted in 29 states, require local utilities to generate electricity from renewable power as a percentage of their total energy portfolio. Increased interest in green technology also influenced industry performance by sparking interest in technologies that displace other types of energy generation sources, such as coal and gas.

Favorable government assistance and local-government regulation regarding renewable energy has benefited companies like, NextEra Energy Inc., MEMC Electronic Materials and Abengoa Solar. The increase reflects a high level of assistance for the industry, which normally has a hard time competing against traditional energy-generation commodities, such as natural gas and oil. The assistance, provided in the form of federal tax credits and RPSs, has pushed solar-electricity generation higher. Furthermore, as the global recession began, a glut in the global supply of silicon occurred, and Chinese solar panel and module manufacturers could not sell their products at prerecession rates. As such, solar power producers acquired panels at cheaper prices. In turn, they experienced higher profit margins and undertook projects that were otherwise not profitable.

According to IBISWorld analyst, Justin Molavi, Government assistance is expected to continue to help solar industry players in the US compete with other energy generation technologies by lowering the cost of solar projects. State mandates for renewable-energy power will continue to translate into higher industry revenue. Additionally, firming US economic growth during the next five years will contribute to more robust demand conditions for electricity generators. As consumers have more income and businesses invest more, demand for electricity will continue to increase. As a result, industry firms are expected to benefit from the continued push into renewable-power generation, which will lead to increased solar-power output.