US solar energy growth to slow as Washington priorities shift

A new report by the Solar Energy Industries Association and Wood Mackenzie forecasts a decline in new U.S. solar energy installations over the next five years, with 2030 capacity expected to be over 10% lower than in 2025, due to federal policy shifts favoring fossil fuels and tariffs. While the industry installed 10.8 gigawatts in Q1, a 7% year-over-year decline, potential cuts to clean energy tax credits being considered in Congress pose a significant threat to further growth despite strong demand from corporate buyers and recent factory openings. Residential installations also fell 13% in Q1 due to high interest rates and unfavorable policies, though growth is expected between 2025 and 2030 due to rising electricity rates.

Analysis

The U.S. solar energy sector is projected to experience a decline in new installations over the next five years, with 2030 capacity forecasted by the Solar Energy Industries Association and Wood Mackenzie to be over 10% lower than in 2025. This anticipated contraction is attributed to a federal policy shift favoring fossil fuels and new tariffs on essential imported materials like steel and aluminum. While solar comprised 69% of new electricity generation in the latest quarter and Q1 2024 installations reached 10.8 gigawatts (a 7% year-over-year decrease but near historical highs), significant policy risks loom. Potential cuts to clean energy tax credits from the 2022 Inflation Reduction Act (IRA), currently under consideration in a Republican budget bill, and the prospect of the IRA's repeal, pose substantial threats to the industry's growth, which has been supported by these credits for the last three years. Despite these challenges, eight new or expanded solar factories commenced operations in Q1, and demand from corporate buyers for utility-scale projects, which accounted for 9 GW of Q1 installations, remains a key driver. However, residential installations fell 13% in Q1 to 1.1 GW, impacted by high interest rates, tariffs, and less favorable state policies, though this segment is expected to recover and grow between 2025 and 2030 due to rising electricity rates. Overall U.S. solar installations are forecast to be 48.6 GW in 2024, declining to 43.5 GW by 2030, highlighting the constraining effect of federal policy uncertainty on long-term development.

Key Decisions for Investors

• Investors should closely monitor U.S. legislative developments concerning the Inflation Reduction Act and clean energy tax credits, as their status will critically influence solar sector performance.
• A cautious stance on new U.S. solar investments may be prudent given the projected installation decline and policy headwinds, with a preference for companies exhibiting robust utility-scale project pipelines or resilience to tariff pressures.
• Consider the divergent sub-sector outlooks, particularly the sustained corporate demand in utility-scale solar versus the anticipated medium-term recovery in the residential segment, when assessing specific investment opportunities.