A Tale of Two Solar Markets in the US

Sponsored by: EDF Renewables

When it comes to the utility-scale and residential solar sectors in the US, Daniel Cruise, partner at Lium Research, says current trends tell a tale of two markets. While research from the team at Lium points to a booming utility-scale market that is enjoying record construction starts, the residential market is struggling in California and beyond. Other highlights from our conversation include:

• With sourcing of solar modules a hot topic in the news, Cruise notes that NextEra is switching to Indian suppliers for many of its large scale solar projects.
• Cruise predicts 40 gigawatts of new solar will be interconnected to the grid in 2024, with an additional 50 gigawatts to follow in 2025.
• Noting a decline in the fervor surrounding overall renewables markets in the last year or two, Cruise shares his insights on suspected causes  ... and possible remedies. 

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Transcript

Note: This transcript was created using artificial intelligence. It has not been edited verbatim.

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This episode of the Renewable Energy SmartPod is brought to you by EDF Renewables. Across North America, EDF Renewables offers grid-scale, distribution-scale and on-site solar solutions that make solar energy more accessible and reliable than ever. Be part of the solar solution at EDF-RE.com. That website again is EDF-REcom. Or just click on the link in today's show notes. 

Sean McMahon  00:39

What's up everyone, and welcome to another episode of the Renewable Energy SmartPod. I'm your host, Sean McMahon and today, we're gonna be talking all about the state of the solar industry in the United States. To do that, I'm welcoming back to the show Daniel Cruise, a partner at Lium Research. About once a year I'd like to touch base with Daniel and the team at Lium because they use satellite technology, in addition to other methods to keep tabs on what's really going on in the solar industry. Interestingly enough, I just returned from a family vacation that included stops in Paris and London. And now that trip seems particularly fitting, because to hear Daniel tell it when it comes to the current state of the utility scale and residential solar sectors. It's truly a tale of two markets. 

And if you haven't had a chance to check out our most recent episodes, be sure to give them a listen. We heard all about the grid and transmission issues from Rob Gramlich at Grid Strategies. Few people know more about the grid than Rob, so I don't mind pointing out that at least one policy proposal that Rob predicted might take shape has already materialized since we released that episode. So tune in to hear more great insights from Rob. 

I also chatted recently with Chris Taylor, the CEO of GridStor. Chris and the team at GridStor are making big inroads in the battery sector. So it was great to hear his thoughts on what's in store for energy storage. 

And just a quick reminder, that if you want a daily dose of renewable energy news in your inbox, head on over to SmartBrief.com and sign up for the Renewable Energy SmartBrief or just click on the link in today's show notes. 

Right now. Let's get things rolling with Daniel Cruise from Lium Research. Daniel, welcome back to the show. 

Daniel Cruise  02:38

Thank you. Thanks for having me back on always enjoy doing these. It's a great podcast and love being here.

Sean McMahon  02:45

Yeah, it seems like we'd like to bring in about once every year and kind of check on things. So summertime is here. And so what better time then to start talking about some solar power? You and your team cover this sector very, very closely. What are some of the overall trends you're seeing in the solar market right now?

Daniel Cruise  03:00

Yeah, so broadly speaking, if you think about solar, we bucket it into different categories. We focus a lot on residential, and we focus a lot on utility, broadly speaking, same as pretty similar to a year ago. It's It's a tale of two different markets, the residential solar market is really having a difficult and challenging time right now. Whereas the utility scale market, and this is the big scale across large fields, is actually doing very well. And so for different reasons, each of those markets are kind of moving separately. Broadly speaking, the utility scale market, the market that's really cranking activity is up and to the right. In second quarter, there was more new construction starts than we've ever seen. So the utility scale market in the US is very strong.

Sean McMahon  03:58

Okay, and in terms of those new construction starts, location wise, is that kind of the usual suspects, Texas, California,

Daniel Cruise  04:05

Yeah, heavy Texas. And that's been a theme, Texas is really moving on on large scale utility solar, there is no doubt Texas is leading this market, California almost a little bit surprising is much slower. There's much fewer projects starting in California, I think if we look back at the big scale solar projects in California and second quarter, maybe three. So whereas in Texas, over the last quarter, you probably started 20. So a big, big, big difference. Now another surprise on the on the upside, where you're seeing a lot of activity is in the mid continent. So think about Illinois think about Iowa even think even further south and Louisiana like all of these areas are seeing increasing activity in record activity, as as it relates to utility scale solar. 

Sean McMahon  04:59

And then what other trends are you seeing? I mean, I know, I read when your recent research notes a lot to unpack in there. So besides the record construction starts, what are the trends are shaping the solar market on utility side of things?.

Daniel Cruise  05:11

Yes. On the utility scale side, it's something we've been talking about recently. And it has to do with the actual energization and the interconnection. And so what I just talked about previously was the new construction start, that's when you get out, you start clearing land, you start site prep, you get ready to start to deliver equipment. Well, a typical timescale, it's going to take you about a year or so year and a half to get that project actually energized and interconnected onto the grid. Well, what we've seen recently is those interconnections after being bottlenecked, for the last call it 24 months are now starting to finally find their way into the interconnection. And so what we're seeing is, in addition to new construction happening at a pretty good clip, now you're seeing it actually happened on the interconnection side. And that's why you're continuing to see big interconnection numbers and big installation numbers that are coming to fruition. And that's really been been a big surge lately.

Sean McMahon  06:23

Okay, and then one other thing I saw in your research note from Lium was a comment about next era, and how they're switching to modules from India. What does that say to you? 

Daniel Cruise  06:34

Yeah, so this isn't anything NextEra would would say publicly, and it's not something they put out. But we watch a lot of NextEra projects, and we a lot of watch a lot of the equipment that they use, we follow that fairly closely. And we've noticed a trend for a multiple number of projects where they have started to use panels from India. This has been a broader trend that we've seen over the last 18 months, actually, since the original ADC VD was was was kind of introduced a year and a half ago, we've seen a move from Southeast Asia and from Chinese manufactured panels to panels from India. It's interesting to us that now we're seeing the biggest player in the market, potentially now also moving in that direction.

Sean McMahon  07:26

That certainly caught my eye. I cover the the tariffs and all that stuff in Southeast Asia and all the you know, Commerce Department, things like that. And like you said, a huge player like NextEra doing that. Do you think others will follow suit, or other bigger developers already doing that?

Daniel Cruise  07:40

Yeah, good. Good question. I think that companies have already started, you can see that from from tracking some of the import data that we track, we've already seen a pretty big push from India. And as we get into more uncertainty around tariffs, and around ADC VD, it only stands to reason that more developers may look at Panels coming from India as an alternative, now that I think will be balanced by an influx of what will likely come from the United States manufacturing. And so but if I'm a developer, and I'm looking at my five year plan, I probably look first to the US manufacturing capacity. And I look at that and say, Can I get panels here? And then number two, though, I'm probably looking at India and saying, Hey, is is there legitimate panels coming from India that I can get comfortable with? That I can use and then three, then I'm going to Southeast Asia, which historically has been 80% of our imports, I think maybe a long way of saying imports from Southeast Asia, whether or not we add tariffs or not are becoming less and less relevant as we look out over the next two years, five years and 10 years.

Sean McMahon  08:57

Okay, well, I'll certainly keep my eye on that. And then any other trends and use utility scale solar side of things?

Daniel Cruise  09:05

One thing I would mention is, as we look over the what I would call the short to medium, maybe the medium term. So when we look at medium term, we're looking out 2025, maybe early 2026, what is activity going to look like and new construction going to look like next year? For us? That's very key to understanding how investments are moving in and how stocks potentially will move in the near term. So as we look out the 2025 One thing that has caught our eye from from a cautious standpoint, is the number of approvals that we see for big scale interconnection agreements have actually been a little bit lower than what we would have liked. In other words, 2023 was a very, very big year for approvals. There's a bunch of developers were getting projects approved. A bunch of other utilities were approving these for multiple number of reasons this has now started to slow a bit. So you're not really that pipeline is starting to plateau, and actually potentially coming down where we don't have that as big of a pipeline as we would have liked as we head into 2025 and 2026. So something I think it's too early to make big calls around this, but something to keep in mind. As we start to look out the next 12 months next 18 months,

Sean McMahon  10:27

We'll be right back. 

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Sean McMahon  10:56

So shifting now to the residential side of the solar market, you said it's kind of really a tale of two markets. So what are you and the team at Lium seeing when it comes to residential,

Daniel Cruise  11:06

So very different. There we're seeing a market that is, is down, and it's down a lot. And so this year, through mid July, the market compared to last year is down about 35%, part of its California, California, obviously, they went through what's called NPM 3.0, where the the volumes, their decline because of the way that they were structuring the market. So that's an obvious reason for why it declined. The other reason, though, is the other markets outside of California, other markets outside of California are still down 20% year over year, what's driving that is more just overall interest rates are higher, the economics are harder, harder, look at power prices may not be going down, but they haven't necessarily been going up at the same clip. And so the broader market, as it stands in 2024, for residential solar is very weak. 

Sean McMahon  12:01

Do you see that turning around anytime soon? Or is that contingent on interest rates? Or what do you think?

Daniel Cruise  12:08

No, the short answer is no. I think you still have some some time. I think there's there's a lot of people in the in the market that anticipate we are in a rebound. In fact, one of the large inverter companies in phase had earnings yesterday and they gave a more rosy picture of the residential market in in in earnest probably anticipate the market to start recovering as of now or already has started to recover. And by fourth quarter of this year, we'll be up considerably. We're taking a bit different view, a bit more cautious view. To date, we have not yet seen tangible evidence that the market is improving in a meaningful way. And so I think it's going to take something bigger to happen something like either in let's say interest rates start to decline faster than expected. Or maybe it could be some urgency around the ITC credits going to not going to be around or so some sort of urgency that can get people moving. But as of now, like, we don't see any reason to expect a sharp, sharp V shaped recovery in the residential solar market. 

Sean McMahon  13:12

But we'll keep an eye on that as well. I want to shift for a second now to the storage sector. Obviously, a lot of these projects, you know, utility or nowadays, even residential, you know, the hope is there's a storage component to it. What are you seeing in that market?

Daniel Cruise  13:25

All good things I would say. I think that bear market is one of those where demand is up supplies continues to get better. We have a real need for it across regions. So yeah, United States battery storage market, the way that we see it is very firm. battery costs are going down. So it depends on which part of the supply chain, you're part of which you may be benefiting or not. But overall, like costs are coming down for batteries and demand is going up. So I would say across utility scale and the distributed market storage is good right now.

Sean McMahon  14:00

Now, Daniel, we've been spent a lot of time talking about solar today a little bit about battery. But I want to step back for a second and just ask you your view on the broader renewables market, right, every single corner of it. What's going on any trends you're seeing there just to kind of take the temperature of what's happening? What do you see right now.

Daniel Cruise  14:18

So if I think broadly around renewables and specifically around investment in renewables, which is what we focus on, mostly, I would kind of characterize it as some of the fervor has gone out of the space, especially compared to a couple years ago. There's just doesn't feel like there's as much passion around the renewable space as there was a couple years ago and maybe not even a year ago.

Sean McMahon  14:42

All right, anything you think that could revive that passion? Are we talking, you know, just market trends, elections? What are we what do you think? 

Daniel Cruise  14:50

Part of it, I think is an ebb and flow. You see this happen over the over decades, the ebb and flow in the investment in renewables. I was covering this space too. Many years ago and solar space in the late 2000s. And, and solar was was blown and going. But then it took a turn with the other way. So part of its ebb and flow. The other thing that could get it going is there's got to be some urgency, I think the IRA array was very good, because it gave investors along fairway to look at. But on the other side, it reduced the urgency. And so think about like this, if I had, if I'm coming to the end of the year, and I've got an ITC credit that's about to roll lower or roll off, I'm going out and I'm hiring an installer to install solar on my house before that rolls off. And so there was constantly this urgency out there. Now, with a 10 year ITC, I don't have that same urgency. And so I think something like that has to kind of, obviously, it's not good to have a roll off and things like that, but some other something that drives urgency to get it going.

Sean McMahon  15:57

Some kind of mechanism to you know, make people giddy up. 

Daniel Cruise  16:01

Yeah, yeah, something I don't know what it is, but something like that. 

Sean McMahon  16:05

Okay, and then, you know, you've been on the show a few times. So you know, that I like to ask you for bold predictions about what might check out in the marketplace. We've already made a couple, you know, kind of tell us what to watch in the next 1224 months, things like that. But anything else being specific to solar or broadly speaking renewables, you know, take it away. What do you got?

Daniel Cruise  16:24

You know, one that comes to mind, I touched on it a little bit earlier is the interconnections in how much solar comes on in the United States over the next 12 months. In 2023. We interconnected about 25 gigawatts dc into the grid in 2024. I think we will do 40 gigawatts Dec. 2025. We'll do 50.

Sean McMahon  16:55

Wow, you're out there. 

Daniel Cruise  16:57

Yeah. And so in really in the way that we look at and the data we have, it's actually not as much of a bowl presumptive prediction, as is what it sounds like. Because we can see the projects are already in the queue. We can see what started construction, we can see which ones are progressing through installing panels, we can see which projects are already finished and just waiting for that interconnection. So for us it's not doesn't feel like a bold prediction. But as you look at the broader way that people look at it, like going from 25 gigawatts to 40 gigawatts is going to be a big deal. I think it will surprise a lot of people in the fact you can follow that up again, with a 50 gigawatts. I think it was only five years ago, we weren't even at 50 gigawatts total. So these are, these are pretty big numbers.

Sean McMahon  17:43

Okay, well, we'll keep an eye on that for sure. Listen, Daniel, always enjoy bringing on the show and to our listeners out there. If you haven't already, look up Lium research, find your way to their research notes. It's very insightful, make you smarter about the renewable energy market overall. So Daniel, thank you very much for your time.

Daniel Cruise  17:59

Sean, thanks so much.

Sean McMahon  18:01

Well, that's our show for today. But before we get out here, I want to say one final thank you to the exclusive sponsor of today's episode. EDF Renewables. If you liked this podcast, please share it with your friends and colleagues. And be sure to follow us on Apple, Spotify, YouTube, or wherever you get your podcasts. You can also follow us on X, formerly known as Twitter. Our handle there is @RenewablesPod. And if you'd like a daily dose of renewable news delivered to your inbox, head to SmartBrief.com and sign up for the Renewable Energy SmartBrief. The Renewable Energy SmartPod is the production of SmartBrief, a Future company.