Here’s Why Solar Farms Are Booming in the U.S.

Sep 12, 2016

Solar panels on the rooftops of homes might be the most visible, and emblematic, form of solar energy. But it's the solar panels that make up the sprawling farms built on the ground in remote regions of the U.S., selling energy to utilities and big companies that are driving the boom in the solar industry overall this year.

According to the analysts at GTM Research, almost 14 gigawatts of solar panels could be installed in the U.S. by the end of 2016, and over 70% of that will come from what they call "utility-scale" solar farms. These solar farms generate energy using thousands—or even—millions of panels, often piping energy long distances to residents and companies to use to power homes and offices.

Approximately 14 gigawatts is enough solar energy to power 2.3 million homes, and is the equivalent of about 14 large natural gas or coal plants. That figure is also 85% more than the amount of solar panels installed in all types of systems in the U.S. in 2015.

Of course, big solar farms are much larger than rooftop solar on a per-system basis, so it's not all that surprising that they'd collectively supply more power. One rooftop solar system could generate several thousand kilowatts, while a solar farm could generate tens or hundreds of megawatts.

That said, these big solar farms are attractive for a variety of reasons to utilities and power companies across the United States. They also seem to be an easier sell, at least at this point, compared to homeowners buying solar panels for their roofs.

The solar companies building these large farms are often able to obtain the lowest price of solar energy available. Some have gotten record-low prices, like four cents per kilowatt-hour, making solar energy cheaper than fossil fuels in some regions.

The prices for utility-scale solar farms has become so cheap that even some non-utility companies are joining in, including Apple (aapl), which is buying tons of solar to power its operations, stores, and data centers.

Comparatively, installing solar panels on a home rooftop is generally more expensive on a per kilowatt hour basis thanks to the added costs of a solar company's consumer marketing and sales—as well as labor, permits, and roof gear. Still, installing solar panels on home rooftops is expected to continue to get cheaper over the coming years.

Utilities and power companies are also more comfortable with the infrastructure and concept for these large solar farms compared to rooftop solar systems. The utility-scale solar farms look more similar to traditional forms of "centralized" energy generated by large natural gas and coal plants, and then delivered to customers along the traditional power grid.

In contrast, "distributed" solar on rooftops requires a fundamental change in the grid as well as a transformation of the concept of who should generate energy. With customers generating their own energy on their roof, the traditional relationship with the customer is flipped.

Solar companies building large solar farms are also aggressively taking advantage of the important U.S. incentive that gives solar companies a 30% tax credit on the price of a solar system. While home rooftop solar systems can also tap into this tax credit, the percentage incentive is large enough that it is making these really big solar farms—which can cost tens or hundreds of millions of dollars—far more economical.

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Then there are the regulations that utilities and power companies are facing. In many areas like California and Nevada, utilities need to make sure a large percentage of their energy is clean, and they're commonly turning to big solar farms (and wind farms) as the quickest and cheapest ways to get there.

In addition to the winds behind the back of the big solar farms, rooftop solar has faced some hurdles in 2016. Some states, like Nevada, have been removing incentives for rooftop solar after deciding that customers without solar roofs were taking on additional costs associated with the customers with the solar roofs.

Other rooftop solar markets, like California, appear to have been so successful that many so-called early adopters have already bought rooftop solar panels. Thus, the growth rate in rooftop solar in California is slowing down. That means future sales in similar markets and states will need to derive from more mainstream, less eager, and more price-sensitive customers—a harder sell in general.

For the first time, California accounted for 42% of all rooftop solar panel installations in the second quarter of 2016, which is its lowest share in years. At the same time, other less traditional markets, like Texas and Utah, are growing their share of rooftop solar customers. During the first half of 2016, 11 states added more than 25 megawatts of rooftop solar, while only seven added that amount in the same period in 2015, according to GTM Research.

Solar in the U.S. is growing rapidly on both rooftops and on the ground in large sprawling farms. But at this point in this stage of the solar industry, it's the big solar farms that are dominating. Yet some day down the road, that could flip.

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