The utility scale solar business has been the driving force behind the U.S. solar market over the last few years, accounting for a bulk of the earnings of large solar companies such as First Solar (NASDAQ:SPWR) and SunPower (NASDAQ:SPWR). Utility scale solar installations grew by nearly 58% in 2013, accounting for nearly 60% of overall solar installations in the United States.  However, project pipeline replenishments have been on the decline of late, with installations outpacing bookings, particularly for the largest and most lucrative projects with sizes above 200 megawatts (MW). According to a report by Goldman Sachs, installations at utility scale solar projects in the U.S are expected to grow at just 8% from 2013 to 2016, while the rooftop solar market will grow at a rate of about 45% over the same period.  In this note, we take a look at some of the possible reasons behind the slowdown.
Reasons For The Slowdown
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1) Utility Companies Have Met Their RPS Requirements: Solar power installations by utility companies in the U.S. have been driven primarily by regulatory requirements rather than by cost or load management considerations. Over half of all U.S. states have enforced the renewable energy portfolio standards that require utility companies to derive a certain percentage of their electricity from renewable sources. However, of late, utilities in the largest solar markets such as California, Arizona and New Mexico have significantly ramped up their renewable capacity, meeting their state mandated requirements and sometimes even exceeding it.  Some utilities have also locked in their future requirements; for instance, California’s three largest utility companies have already identified projects to meet their longer term requirement of deriving 33% of solar power from renewables. 
2) Lack Of Suitable Land, Time Consuming Permitting: Unlike residential and commercial solar installations, which are typically mounted on rooftops, utility scale solar projects need to be ground mounted on large swaths of land. Given the recent boom in utility-scale solar, identifying suitable land with good solar resources and a proximity to transmission lines has become a problem. Additionally, large solar projects are subject to clearance from regulators at the federal, state and locals levels. The entire process of siting and permitting is time consuming, taking as long as three to five years. 
3) Funding Costs: Several large solar projects in the U.S. were built using loans secured by the government’s solar loan guarantee program, which expired in 2011.  This program helped project developers obtain relatively low-cost funding for some of their largest projects, some of which are still under construction. Following the phaseout of the program, it is possible that solar companies could find it difficult to find financing at attractive rates.Notes:
- Solar Market Insight Report 2013 Year in Review, SEIA [↩]
- First Solar Seeks More Rooftops as Utility Plants Shrink, Bloomberg, March 2014 [↩]
- First Solar Seeking Growth to Replace Giant Desert Plants, Bloomberg, March 2014 [↩] [↩]
- Siting & Permitting, SEIA [↩]
- Loan Programs Office, U.S. Department of Energy [↩]