Distributed solar has played a significant role in the growth of U.S. electricity capacity, contributing to 43% of new additions between 2019 and 2023. A recent report from the Lawrence Berkeley National Laboratory (LBNL) provides a comprehensive analysis of the current state of distributed solar, highlighting its rising adoption, cost trends, and impacts on the energy landscape.
Distributed solar growth and Market Trends
The LBNL report, “Tracking the Sun 2024,” reveals that 4.5 GW of distributed solar was installed in 2023, bringing the total capacity to over 45 GW across more than 5 million systems. This growth represents an 8% increase in capacity from the previous year, though the number of new systems rose by only 3%, indicating a shift towards larger system sizes.
The report also notes a slowdown in residential solar growth, with installations rising by just 4% in 2023, compared to 21% in 2022. This deceleration is attributed to factors such as higher interest rates, increased equipment costs, and policy changes in key markets like California, which recently reformed its net energy metering (NEM) system.
Despite these challenges, California remains the largest contributor to residential solar capacity, accounting for 45% of total installations in 2023. However, its share is declining as other states like Florida, Texas, New York, and Massachusetts expand their solar markets. In fact, 13 states saw year-over-year growth in residential solar installations, with Florida, Texas, and New York emerging as key players. Distributed solar is projected to continue expanding its market penetration, contributing significantly to new capacity additions.
Cost Trends and Declining Prices
One of the most encouraging findings from the LBNL report is the continued decline in distributed solar costs. Median prices for residential solar systems fell by 6% in 2023, reaching $3.20 per watt (W). Similarly, commercial and non-residential systems saw price reductions of 3% and 6%, respectively, with costs dropping to $2.10/W and $1.70/W for large non-residential systems.
These price declines are part of a longer-term trend, with residential solar costs falling by 66% since 2010. The report attributes these reductions to several factors, including technological advancements, economies of scale, and increased competition within the market.
However, the report also highlights significant price variability across states. For example, residential solar prices range from $2.50/W in Texas to $4.30/W in Illinois. This variation is influenced by factors such as local market conditions, state policies, and labor costs.
Impacts of Policy Changes
The report underscores the importance of state policies in shaping the distributed solar market. In California, recent changes to the NEM system have shifted incentives towards battery storage, leading to a surge in solar-plus-storage installations. In 2023, 54% of residential solar systems in California included batteries, up from 41% in 2022.
This trend towards solar-plus-storage is expected to accelerate, driven by declining battery costs and increasing resilience needs. As of 2023, 21% of all U.S. residential solar installations included battery storage — a significant increase from just 7% in 2019.
The report also examines the impact of the Inflation Reduction Act (IRA) on the distributed solar market. While residential solar prices have declined in most states, commercial and large non-residential systems have seen price increases in some areas. The IRA’s investment tax credit (ITC) is expected to play a crucial role in driving future growth, particularly in underserved markets.
Addressing Barriers to Distributed solar growth
Despite the positive trends, the report identifies several barriers that could slow the expansion of distributed solar. High interest rates and inflationary pressures have dampened growth in recent years, particularly in the residential sector. Additionally, policy changes in California and other states could create uncertainty for consumers and businesses.
To address these challenges, the report recommends targeted policy interventions, such as expanding access to financing, streamlining permitting processes, and enhancing consumer protections. It also highlights the need for continued investment in research and development to drive further cost reductions and technological innovations.
The report concludes that distributed solar will play a vital role in the U.S. energy transition, providing clean and affordable power to millions of households and businesses. As the market continues to evolve, policymakers, industry leaders, and consumers must work together to ensure that distributed solar remains a cornerstone of the nation’s energy future.
