The renewable energy industry has experienced tremendous growth in recent years, and that growth is expected to continue. For example, a recent report from the International Energy Agency forecasted that the world would add as much renewable power in the next 5 years as it did in the past 20.
Solar power is one of the types of renewable energy experiencing the most growth and attracting the most investment. The IEA report suggests that solar manufacturing may increase by as much as $25 billion over the 2022-2027 period. And a report from Fortune Business Insights projects that the global solar power market will grow from approximately $235 billion in 2022 to $374 billion by 2029.
Some of the trends driving growth in the solar power market include:
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Growth of Residential Solar
The residential solar market has seen explosive growth in recent years, as homeowners increasingly turn to solar panels as a way to reduce their energy bills and reduce their carbon footprint. According to data from the U.S. Energy Information Administration, residential solar power installations rose by 34% from 2.9 gigawatts in 2020 to 3.9 gigawatts in 2021. And in the second quarter of 2022, residential solar set its fifth consecutive quarterly growth record, according to the Solar Energy Industries Association.
Rise of Community Solar
“Community solar” projects, in which developers of small distributed solar arrays sell subscriptions to the energy produced by the panels, are also becoming increasingly popular, driven in many cases by state programs such as Virginia’s Shared Solar program. These projects provide a way for businesses and households to access the benefits of solar energy without installing their own solar panels. Many programs reserve capacity for low-income customers or provide special incentives to promote energy justice policy goals.
Focus on Energy Storage
As the use of solar energy continues to grow, energy storage (battery) solutions have become increasingly important. This is because solar panels generate energy only during the day, and large-scale battery installations store the energy generated during the day to put on the grid during periods when the sun is not shining. According to research company Reportlinker, the global residential solar energy storage market is expected to grow from $5.06 billion in 2021 to $12.59 billion by 2026.
Expansion into Emerging Markets
The growth of the solar industry is not limited to developed countries, as emerging markets are increasingly investing in solar energy. This is due to the need for affordable and reliable energy in these countries, as well as the desire to reduce carbon emissions and meet climate change targets. Examples include Morocco, which, according to the World Bank, has renewable energy projects that make up two-fifths of its installed energy capacity, and India, which has the fastest-growing rate of renewable electricity growth of any major economy.
Government Incentives
Government support has been a key driver of the growth of the solar industry, through a combination of subsidies, tax credits, and other incentives. In many countries, these policy measures have helped to reduce the up-front costs of solar energy and make it more accessible to a wider range of people. The recent passage of the Inflation Reduction Act (IRA) in the United States is expected to drive significant renewable energy investment. Some estimates suggest the IRA, together with the private investment it would incentivize, will help create or preserve around 1 million jobs from 2023 to 2032, and would contribute approximately $1.7 trillion to U.S. GDP over the same period.
Technological Advances
The solar industry has also benefited from a number of technological advances in recent years, including improvements in photovoltaic (PV) panel efficiency, which has enhanced the performance of solar panels and made them more reliable and cost-effective. Companies that specialize in the manufacture and sale of solar panels have been at the forefront of these technological advances, and have driven the growth of the industry.
The War in Ukraine
War, sanctions, inflation and oil supply instability have led to increased demand for alternative sources of energy, such as solar. A recent survey of executives at companies across G20 economies sees the Ukraine war speeding up the pace of the transition to cleaner energy, including solar power, rather than slowing it down.
The solar industry’s rapid growth is leading to significant investment from a range of sources, including venture capital firms, private equity firms, and strategic investors such as solar manufacturers, including producers of photovoltaic solar modules such as First Solar, Inc., and traditional energy companies, such as BP, Shell and Chevron, who are making investments to transition toward cleaner energy sources.
Venture capital and private equity, in particular, have invested heavily in solar recently, pouring $7 billion in solar companies and projects in 2022—more than 50% greater than the $4.5 billion invested in 2021 , according to a report by Mercom Capital Group.
Some of the most significant findings of the Mercom Capital Group report include:
- Global venture capital and private equity funding (VC) in the solar sector in 2022 came to $7 billion, a 56% increase compared to $4.5 billion in 2021.
- Public market financing in 2022 totaled $5.1 billion, 32% lower than the $7.5 billion in 2021.
- In 2022, announced debt financing came to $12 billion, a 24% decline compared to $15.8 billion raised during 2021.
- A total of 128 mergers and acquisition (M&A) transactions were recorded in 2022—the highest since 2010 including eight deals exceeding a billion dollars each.
- There were 268 large-scale solar project acquisitions in 2022 compared to 280 transactions in 2021.
In terms of where dollars are flowing within the solar industry, the report suggests that two of the main targets for investment include (i) companies developing new solar technologies, such as thin-film solar technologies, (ii) solar storage companies, and (iii) solar developers and installers.
So what’s in store for 2023? As Yogi Berra once said, “It's tough to make predictions, especially about the future.” However, many of the trends identified above that have driven solar growth to date seem fairly well-rooted. In the United States, in particular, the approximately $370 billion allocated to renewable energy spending in the IRA should bolster investment across the entire sector, including in solar. This includes renewable energy spending by tax-exempt entities, such as not-for-profit higher education institutions and local governments, who now are eligible for federal renewable energy tax incentives (to learn more about this, please read my colleague Eric Hurlocker’s article in the Virginia Mercury).
In short, the future looks bright for solar. comment↓
