This is Why Solar Panels Will Boom Early Next Year

November 9, 2015, 6:26 PM UTC
SunEdison Interconnects 16.4 Megawatt Solar Power Plant for Davis-Monthan Air Force Base. Photo Credit: Davis-Monthan Air Force. (PRNewsFoto/SunEdison) THIS CONTENT IS PROVIDED BY PRNewsfoto and is for EDITORIAL USE ONLY**
Photograph by AP/PRNewsFoto/SunEdison

The global market for solar panels is expected to soar to a record high in the first half of 2016 because of strong demand as well as favorable policies in the U.S. and China, says a new report from research firm IHS Technology.

However, in the second half of 2016 and into 2017, growth is expected to slow after the U.S. lowers its solar tax credits and a push by China to install more panels ends.

IHS says that manufacturers will produce 16.82 gigawatts of solar panels in the first quarter next year followed by another 17.73 gigawatts in the second quarter. One gigawatt is nearly the equivalent energy produced by a large gas or nuclear plant.

That means that manufacturers will produce almost 35 gigawatts of solar panels in the first half of 2016. That number is huge, particularly compared to the amount of solar panels worldwide. In the U.S., 22.7 gigawatts of solar panels are currently in operation.

The expected increase in the first half of 2016 is also a significant jump from this year. In the first quarter of 2015, manufacturers produced 12.76 gigawatts of solar panels, and another 15.14 gigawatts in the second quarter of 2015.

Part of the reason why the global market for solar panels is set to boom in the first half of next year is because policies in the U.S. and China encouraging it. But they the incentives will slow down in the second half of 2016 and into 2017.

At the end of 2016, the U.S. will reduce an important 30% tax credit for customers to 10%. As a result, solar sales, particularly to utilities, are expected to slow in 2017. Furthermore, U.S. solar installers like SolarCity (SCTY) are expecting a difficult year in 2017. But before the slow down, utilities and companies are rushing to take advantage of the tax credit before it is cut.

Likewise, IHS says that China recently announced a big new quota for solar panel installations, and many of those panels will be connected by the summer of 2016 to receive government incentives. But following that solar push, China’s market will likely slow in the second half of 2016, says IHS.

The solar panel market is relatively new and still relies on incentives in many countries. As the industry matures and relies less on government subsidies, the boom and bust cycles may be less pronounced.

Overall, the market for solar panels is expected to continue to grow globally beyond 2017. As the cost of installing and making solar panels continues to drop, the technology will increasingly be more attractive to customers as an alternative to fossil fuel-based energy.

To learn more about solar watch this Fortune video:

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