CAn InCEntIvES SuStAIn
thE SolAr Boom?
Federal tax credits
that fueled U.S.
installations in 2008
are likely to help
counter the effects of
the global recession
by LARRY SHERWOOD
uilding on years of double-digit
growth, 2008 saw dramatic and
accelerated increases in both
solar photovoltaic (PV) and
solar water-heating installations
in the United States. Grid-connected PV installations alone
increased by 83 percent. These
installations doubled in California, allowing
that state to maintain its standing as the largest U.S. market for photovoltaics. Installation
growth was also impressive in states that, like
California, offer solar incentives.
Larry Sherwood (larry@sherwoodassociates.
com) is president of the consulting firm Sherwood Associates. The solar data reported here
were collected for the Interstate Renewable
Energy Council (IREC) as part of a grant from
the U.S. Department of Energy. A full report
on the data will be published soon and will be
available on the IREC website ( irecusa.org). Previously, Sherwood served as executive director
of the American Solar Energy Society.
Although state incentives are a key determinant for where solar is installed, the federal
investment tax credit (ITC) had a big influence
on the market in 2008. It will continue to influence the market in 2009 and beyond. Expiration of the ITC was scheduled for the end of
2008, so the ITC’s future was uncertain until
late in the year. As a result, developers signed
many contracts for new installations with a
delivery date in the last quarter of 2008.
In October, Congress renewed the federal
ITC for eight years, removing the $2,000 cap on
residential tax credits and allowing utilities to
claim these tax benefits for the first time. In February, Congress further enhanced the federal
incentives with several new features, including a
two-year option for grants. The global recession
has slowed the pace of installations, but based
on preliminary data from the first quarter of
2009, we can expect installation growth to continue. Financing is more difficult, but installed
costs are declining and the federal stimulus legislation has opened up new markets.
PV Installations nearly Double
Last year, annual U.S. PV installations
(including both off-grid and grid-tied) grew 65
percent over 2007 levels, to nearly 340 mega-
watts DC (MW ). Growth in grid-connected
installations has been especially strong, with 83
percent growth in 2008 following on 53 percent
growth in 2007. Since 2005, the annual installed
capacity of PV has more than tripled. (See fig-
ure 1, this page.) Nearly 19,000 homes and
businesses connected PV to the grid in 2008.
Both residential and nonresidential installa-
tions grew significantly in 2008 (see figure 2,
facing page). However, nonresidential installa-
tions increased much faster. While residential
installations grew by a strong 34 percent, non-
residential installations more than doubled.
California continues to dominate the U.S.
market. California doubled its installations in
2008, compared with 2007, and now represents 62 percent of the U.S. grid-connected
market. Rounding out the top five states are
New Jersey, Colorado, Nevada and Hawaii.
With the exception of New Jersey and
Nevada, every one of the top 15 states grew
by at least 85 percent. Oregon, Hawaii, North
Carolina and Pennsylvania more than tripled
their annual installations compared with 2007.
It is important to note that all of the top 10
states have major state or utility incentives
for PV installations. State renewable portfolio standards also appear to be an important
market driver. North Carolina and Pennsylvania now have major solar installations due to
renewable portfolio standard policies.
Improved Incentives, Installed
Prices Shape PV Market
During 2008, when the federal ITC was
capped at $2,000 for residential installations,
there was no cap for commercial installations.
This meant that federal incentives were significantly higher for commercial PV systems.
As a result, commercial PV installations grew
at a much faster pace. The average size of a
residential installation increased 7 percent, to