Starting a solar project in 2023? You’ll benefit from fewer barriers and more funding support than last year.
TL;DR
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Supply chain shortages, global instability, and costly capital all hindered solar projects in 2022.
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Solar will become more commercially viable in 2023, as supply chains are restored.
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Budgeting priorities and emissions reporting are making solar projects more urgent.
Solar’s time in the sun has arrived. 2023 looks to be a banner year for solar, as the sector ramps up to bring projects from 2022 over the line, and meets demand driven by improved supply chains and tax incentives.
This is in stark contrast to 2022, when spikes in shipping costs and solar component prices, supply shortages, record inflation, and rising interest rates all made solar projects more expensive. Consequently, new solar capacity declined 23 percent in 2022.
Moreover, rising carbon taxes and stricter emissions reporting requirements made starting solar projects more urgent than ever.
Fortunately, solar resumed its rapid growth trajectory in 2023, accounting for over half of all new planned U.S. generating capacity. That puts solar on track to more than double its all-time record for new installations set in 2021.
In 2023, the solar sector is well placed to overcome the barriers it faced in 2022, by marshaling funding to help large energy users fulfill new emissions reporting requirements.
1. Supply chain costs are falling
Supply chain disruptions fueled rising costs and shortages for solar projects in 2022. After years of COVID-related disruptions in China—the world’s largest solar manufacturer—supply lines have shortened by focusing on domestic production.
At the same time, global shipping costs have fallen 85 percent since their peak last year, as pandemic-related shortages ease. This also lowers costs for solar projects still relying on foreign components.
Overall, sustained relief from supply chain woes is expected to materialize in the second half of 2023. According to a Solar Energy Industries Association (SEIA) report, commercial solar projects look to increase by 17 percent, as the Inflation Reduction Act‘s(IRA) impact grows and the solar industry navigates new U.S. trade rules.
Additionally, polysilicon—a key solar component—is more abundant after supply shortages sent prices to over $30 per kilogram in 2022. Prices dropped by 54 percent between August 2022 and January 2023, and are projected to stabilize at $10–15 per kilogram in 2023.
Global polysilicon capacity is forecast to balloon to over 1.2 million tonnes by the end of 2023.
Solar projects launched this year will benefit from cheaper components and logistics costs. This will reduce the impact of inflation and lower project risks. Large energy consumers worried about delays and project cost overruns from supply issues can rest easier in 2023.
2. Domestic solar manufacturing is increasing
Supply costs for solar projects are also decreasing as the U.S. shifts production away from Asia. Trade rules that limited imports from Asia hampered the U.S. solar sector last year, but these issues will subside as domestic production adjusts.
Hundreds of solar projects were put on hold in 2022 as Washington investigated Southeast Asian producers—responsible for 80 percent of U.S. solar panel imports. Consequently, new solar projects declined 46 percent in 2022-23.
The U.S. also banned polysilicon imports from Xinjiang, China due to forced labor concerns. Xinjiang produces 50 percent of global polysilicon. As a result, over 1,000 solar shipments were seized at U.S. ports in 2022.
This ban coincides with a push to increase U.S. solar manufacturing, as the IRA’s new tax incentives and domestic content rules are increasing domestic production.
Through February, 18 solar manufacturing projects (85 GW of annual capacity) have been announced in response to the IRA, according to the Department of Energy.
For example, First Solar is opening a third factory in Ohio later this year, with another in Alabama slated for 2025. These investments bring the company’s U.S. production capacity to roughly 10 GW.
Overall, the U.S. is on track to triple solar manufacturing capacity by 2024.
Solar projects that get started in 2023 will benefit from the IRA’s domestic content tax credits and cheaper prices. Domestic components protect solar projects from trade disputes and overseas supply chain issues.
3. Solar tax incentives are rising
The IRA has increased and expanded tax credits for solar projects. Solar credits were initially set to drop, which would have made commercial projects less viable.
For instance, the federal solar investment tax credit (ITC) was set to drop to 22 percent in 2023 and 10 percent in 2024. Instead, it has been raised to 30 percent. Solar projects can now also claim production tax credits (PTC) each year instead of the ITC. These changes effectively extend the ITC and PTC at their full rates for eligible projects until 2033.
Similar tax credits were announced by Canada last fall, and are expected to come into force this spring.
Additional credits are available if projects meet domestic content rules, are located in a low-income community, or near a closed coal mine or power plant (a further 10 percent for each). For example, a $1 million solar project meeting all criteria could receive up to $600,000 worth of ITC credits.
Leveraging these credits to start a solar project in 2023 reduces the total cost of the project, making it easier to secure funding, and shortening the repayment period.
4. Innovative funding solutions are mitigating capital costs
Record inflation and rising interest rates stymied solar projects last year. Left unaddressed, the rising borrowing costs will prevent energy users and solution providers from leveraging declining solar manufacturing costs. In response, companies are changing the way they fund projects.
Flexible funding solutions, particularly performance contracting, sidestep capital blockers and competing budget priorities, by structuring repayment as an operating expense. This minimizes risk, aligning monthly costs with realized savings. This allows businesses to start their energy projects, while remaining cash flow positive throughout the repayment term.
5. Emissions reporting standards will be implemented this year
The U.S. Securities and Exchange Commission (SEC) now mandates public companies to disclose their emissions, including from their energy purchases, and value chains. Therefore, many private businesses will need to start reporting emissions to their enterprise customers.
Proactive companies are using solar to reduce emissions and maintain their most lucrative supply contracts. Solar projects quickly pay for themselves, and once repaid, can help fund core business objectives and additional sustainability projects.
Meanwhile, Canada’s carbon tax is rising by 30 percent to $48 (CAD $65) per tonne of carbon dioxide equivalent (CO2e) in 2023. Even in regions without carbon pricing, new disclosure rules will impact energy users this year.
How EnPowered helps solar projects reach for the sun
The solar sector faced many hurdles in 2022. High supply chain costs, trade disputes, rising capital costs, and declining tax incentives all slowed solar adoption. These barriers increased risks, making companies more hesitant to start new projects.
Fortunately, changing production trends, and better tax incentives will bolster the solar industry in 2023. Solution providers and energy users can benefit by identifying and accessing the right funding solution for their project. This makes it easier to get approvals, both from the energy consumer’s finance team, and funders.
EnPowered Payments helps solar providers grow revenue by overcoming sales blockers and increasing the efficiency of their sales team when offering funding options (such as performance-contracting) to customers. Payments helps customers stay cash flow positive and acquire solar solutions with no upfront costs by making monthly payments that align with their savings.
Ready to learn more? Reach out today to take full advantage of solar’s sunny outlook in 2023.
