Solar Industry: Infrastructure Is The Missing Ingredient

Nick Sousa, Kapitall There's no denying solar energy could be the next major energy source. Just look at a solar energy potential map and lower California, Nevada, Arizona and New Mexico will catch your eye with a deep red color stretching across the region. Most investors have been focusing on increasing U.S. installation rates, dropping solar panel prices, and improving panel technology in order to champion the solar power industry. However, infrastructure is a key factor that will continue to limit solar power’s potential in the U.S. [More on this topic: Utilities vs Solar, Can They Ever be Friends?

The current U.S. power grid consists of mostly 345-499 kV and 500-699 kV power lines. These lines are also old and poorly suited for long distance electricity transmission. 700-799 kV lines and 1,000 kV lines are what are needed for long distance transmission, and you can find a few of these lines in the Midwest and upstate New York. There is also a long 1,000 kV line running from southern California to Oregon. 

There is a clear divide in the U.S. power grid between the western region, eastern region, and Texas. This separation means the U.S. is poorly suited to take advantage of the southwest’s high solar power potential. With no efficient way of getting electricity from the desert to major demand centers like Chicago and New York, solar power on the east coast will continue to be small pet projects for businesses and households who are trying to “Go Green”.

Interactive chart, compare average analyst ratings in the past two years for some of the top solar industry stocks. 

For the solar power industry to reach full commercial potential, the proposed new 765 kV and AC-DC-AC links need to break ground. This would allow solar produced electricity to efficiently flow from west to east. Although there is a strong energy demand in places like Texas and California, which are near by solar energy hot spots, most of the biggest demand centers are farther east. For example, Florida demands 231,209,612 MWh per year and both Illinois and New York demand around 144,000,000 MWh annually as well. To put things in perspective, total retail electricity sales in Arizona and New Mexico combined don’t even break 100,000,000 MWh.

When new transmission lines are built, it will mean that major solar power plants can get electricity to the places where it’s needed most. Current growth in solar panel installations is strong in percentage terms, but a 76% bump isn’t all that great after you realize that total installed capacity in the U.S. is only 3,313 MW. If all these panels operated at full capacity year round (realistically capacity factors are usually under 25%), solar power would currently only meet 20% of the annual electricity demand of New York.

The U.S. solar industry is still at its infant stages and has a lot of room for growth. As an investor, I would keep my eye out for infrastructure investments in new high voltage lines on the U.S. power grid between major production and demand centers. Once the infrastructure is there, a boom in solar power production in the southwest will likely follow. Until then, the industry will continue to be dragged down by high investment costs for smaller scale projects and rely on a belief in investment in green energy rather than pure profit seeking. 

Eye Candy

Looking to dig deeper into the solar industry? You’re not alone. Nine out of ten Americans now think it's important for the U.S. to develop and use solar power, while state and local governments are increasingly adopting pro-solar policies. When you also consider the decreasing panel costs and more efficient technologies and you may agree it's time for investors to seriously consider this space. 

The following infographic produced by Kapitall highlights the current state and potential of the industry. Click to expand.


- Nick Sousa, Kapitall