The portion of the U.S. large-scale solar pipeline attributed to commercial and industrial offtakers continues to balloon, according to new research from Wood Mackenzie Power & Renewables.
The overall solar market continues to grow, with the contracted pipeline of projects now standing at a historic 37.9 gigawatts. But WoodMac senior solar analyst Colin Smith called the growth in corporate solar deals “particularly striking."
“In an industry where we’re seeing continued year-over-year growth, to have corporate market share grow even faster than that is quite impressive,” said Smith.
Utility purchases outside of state mandates have traditionally led the majority of large-scale procurement, and still do, accounting for 53 percent of projects contracted in the last year. But the share of the pipeline connected to corporate deals has stretched to 17 percent of projects announced in 2019. That’s a significant uptick from just several years prior, compelling WoodMac to boost its long-term forecasts for the utility-scale solar market.
“Back in 2016, we saw over 1 gigawatt of projects with a corporate offtaker come online,” said Smith. “That was about 10 percent of projects, and that was quite astonishing.”
WoodMac forecasts that corporate procurement will rise to more than 20 percent of new solar additions in the next five years. That growth stems in part from the increasing number of companies adopting renewables strategies and sustainability goals, which allows corporations to take advantage of cheaper electricity costs while donning a green-friendly image popular with consumers.
Smith, however, argues that clean energy procurement is no longer just good PR; many companies, he says, are beginning to view climate change as “an existential threat to their own business.”
That view aligns with the opinions of the larger public. A recent CBS News poll found that 64 percent of U.S. respondents view climate change as a crisis or serious problem, and 56 percent of respondents feel something should be done immediately. Businesses and industrial companies can play a significant role in climate action — they account for about 70 percent of the country’s total electricity demand.
On the path to overtaking wind
The increase in solar procurement from corporate offtakers dovetails with another trend: the rising prominence of the resource compared to wind. While corporations have generally favored signing wind power-purchase agreements, that’s changing as solar becomes more cost-competitive. WoodMac analysts believe that by the mid-2020s, solar will overtake wind as the go-to resource for corporate buyers.
Recent high-profile deals in the solar space include a partnership between Recurrent Energy and Anheuser-Busch for 222 megawatts (AC) and a Facebook deal with Longroad Energy Partners for 379 megawatts. Both projects are located in West Texas.
This week brought another notable announcement: An Ikea partner that owns and operates solar panels installed on the Swedish chain’s stores purchased its first offsite solar capacity. Ingka Group signed deals to buy stakes in 403 megawatts of solar power from two solar projects located in Utah and Texas from Copenhagen Infrastructure Partners. Previously, Ingka had only invested in wind.
Part of the rush to solar has to do with the step-down of the federal Investment Tax Credit, which is lurking just beyond 2019. Though the ITC’s permanent 10 percent credit offers solar a lingering advantage, the phaseout has created an impression that bargains on solar have a time limit.
“It’s just like a Labor Day sale that everyone is rushing to take advantage of,” said Smith. “There’s a feeling among corporates that they need to lock in lowest prices now. [...] That artificial [cliff] of missing out on a deal, I think, is driving more procurement now than we expected to see otherwise.”
Though analysts expect slowing growth as the ITC steps down, the industry looks set to remain healthy in the 2020s. Solar advocates are also fighting for an extension of the credit, which would significantly boost the solar industry beyond currently projected levels.
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