by Issi Romen, BuildZoom
For decades, the notion of capturing solar rays to produce clean energy on a grand scale has been an elusive dream; today, there are signs that this may finally be changing.
One indication of this is that firms promoting rooftop solar systems are becoming familiar brands, whose ads, slogans and sales booths are an increasingly common sight. What’s more, some of the larger firms in the space are now publicly traded companies with valuations in the multi-billion dollar range. Ten years ago, most of them did not even exist.
Using BuildZoom data on approximately 75 million building permits throughout the U.S., we set out, with several questions in mind, to navigate the solar power landscape:
- At what rate are new solar power systems being added? Is the rate picking up?
- What parts of the country lead the trend?
- Is the rest of the country following in the same path? Which contractors are performing solar installations?
If you’re coming into this report with an existing understanding of the solar industry, you may be questioning our method: when has anyone ever studied the industry using building permits?
The answer is ‘Never’ – that is, until now.
Traditionally, information on trends in solar power has been pieced together from state agencies administering solar incentive programs, and from electric utilities monitoring grid interconnections. Building permit data are a previously untapped, complementary source of information on the solar industry, which is valuable because it allows us to detect trends – often well in advance of traditional methods.
Building permit data offer a significant advantage compared to the traditional sources because they reveal trends sooner.Building permits are required before installation can begin, and long before grid interconnection takes place (note: some systems are kept off the grid). As a result, building permit data provide an early indication of grid interconnection numbers subsequently provided by utilities. Moreover, building permit data often track permit applications, which provide an indication of new solar projects even earlier than issued permits. Although solar incentive programs have applications of their own, which also signal new projects early on, the administering agencies typically release statistics with a substantial delay.
Solar is growing meteorically
Over the last decade (2005 to 2014), the estimated rate at which new solar power systems were added grew more than twenty-fold! In 2005, only about 10,000 new solar systems were introduced nationwide; by comparison, in 2014, some 230,000 were added. In the graph below, which shows the growth of solar power, the blue line and the bars report monthly and annual figures, while the dashed line shows a 12-month moving average to isolate the trend.
Estimated Building Permits for New Solar Power Systems
This graph represents building permits for all types of solar power projects, including residential, commercial and utility-scale projects, but it primarily captures the rise of residential and commercial solar power. Although the number of utility-scale projects is also growing quickly, such projects account for only a negligibly small share of building permits (and a disproportionately large share of electric production capacity). As a result, the trend shown is not driven by utility-scale projects, but by the abundance of smaller residential and commercial projects, each of which requires a building permit.
Will the Solar Boom End If/When Tax Incentives Expire?
Since 2006, the installation of solar power systems has been supported by the federal Solar Investment Tax Credit. Although ubiquitous state and local incentives support solar as well, the federal incentive is perceived to play a particularly important role, and is currently due to expire at the end of 2016.
Will solar power hit a wall if the federal tax incentive expires? Providing a rigorous answer to this question is beyond the scope of this article, but our guess is that even if it takes a hit, solar will continue to grow.
For at least the past 15 years, the cost of installing solar power has been rapidly declining, primarily as a result of improving technology, and the long-run trend is set to continue. The same does not hold true for the fossil fuels otherwise used to produce electricity, which means that solar is becoming cheaper with respect to the main alternative, as well as in absolute terms. The cheaper solar energy gets relative to the alternative, the less likely it is that the incentive will remain necessary going forward — even if the federal tax incentive was necessary for making solar systems worthwhile in the past. Of course, potential projects that are only marginally worthwhile may get axed if the incentive expires, so the incentive will continue to help the solar industry grow while it lasts and its expiration will deal the industry a blow. But, a sufficient ongoing reduction in the cost of solar will make the mass of solar projects worthwhile even without the federal incentive.
An opposing argument to this is that the declining cost of solar power is a result of the federal incentive. This is probably true to an extent, but given that the decline in solar costs began well before the incentive was introduced in 2006, it seems likely that the it is not purely a result of the incentive, and that the decline will continue even after the incentive expires.
Regional Patterns Are Evolving
Solar power production already takes place everywhere in the U.S., but its market penetration is higher in some places than in others. The table below ranks the 40 largest U.S. metro areas by the estimated number of solar power systems per capita. 
Estimated Solar Systems per Capita in Largest 40 U.S. Metropolitan Areas
The highest ranked metro area is San Diego, which has almost 6.5 times more solar systems per capita than the nation as a whole. However, all of the first 14 metro areas on the list have more solar systems per capita than the US as a whole, including sunny places like Phoenix and Las Vegas, as well as some less obvious places like Baltimore and Boston. Not coincidentally, 6 of the 14 are in California, 5 of which are in the top 10. The remainder of the list from the 15th spot downwards consists of metro areas with fewer solar systems per capita than the US as a whole. This category includes the overcast metros of Seattle and Portland (Oregon), but it also includes places like Atlanta, Houston, and Miami.
Breaking down the data by regions rather than metros helps reveal the broader spatial trends. The chart below illustrates the number of building permits for new solar systems across the different regions of the U.S., and the table that follows provides the detailed figures.
Estimated Building Permits for New Solar Power Systems, by Region
We’ve identified a few key insights:
- California remains the epicenter of solar. The state consistently accounts for about half of new solar power systems each year. California’s number of solar systems per 1,000 residents is 8.89, almost 4 times the national figure of 2.26.
- Hawaii is in a league of its own, but friction is slowing down the growth of solar in the state. Hawaii’s geographic isolation drives up the cost of fuel, making an especially strong case for solar power. As a result, Hawaii was quick to adopt solar, and has achieved the highest number of solar systems per capita in the country, by far. Its number of systems per 1,000 residents is 64.22, more than 7 times that of California, and almost 30 times that of the nation as a whole. However, adapting the grid to accommodate a mass of new solar systems is proving to be challenging, and the state’s utilities are loath to approve new interconnections. This friction shows up in the data, which indicate that Hawaii’s solar growth rate peaked in 2012 and 2013 and then fell by more than 25% in 2014.
- Solar is picking up throughout the country, but it is growing the fastest in the Northeast. California and Hawaii aside, the number of new solar systems each year is growing in every other part of the country as well. The West, net of California and Hawaii, accounts for the largest share of new solar power systems among the four Census regions, and has the highest number of solar power systems per 1,000 residents at 3.29. But it is losing ground in the race because the Northeast is growing faster. The number of new systems introduced in the Northeast increased by a staggering 227% between 2013 and 2014. Even after the growth spurt, though, it still clocks less than 1 system per 1,000 residents, suggesting there is plenty of room in the Northeast for solar to continue to grow. The number of new systems in the South and the Midwest has grown as well, but at a lower pace than in the Northeast (see the table below). In these two regions there are approximately 0.6 systems per 1,000 residents.
Estimated Building Permits for New Solar Power Systems, by Region
The Factors Driving Regional Patterns
What is causing the observed regional patterns? Though we won’t delve into a rigorous analysis of this here, the two most important factors are sunlight and local incentives. To state the obvious, solar power systems produce more electricity when sunlight is abundant. The climate in some parts of the country lets through more sunlight than elsewhere, particularly in the Southwest, but note that cold weather does not necessarily imply less sunlight (e.g. Boston gets more sunlight each year than Nashville). Cursory analysis indicates that differences in annual measures of sunlight across metro areas account for about one third of the variation in solar systems per capita.
Financial incentives and regulatory policies that promote solar power come in many forms, and their number and variety differs substantially from place to place. Relevant programs and policies exist at the state level as well as the municipal level, and some are offered by utilities. In general, we find that metro areas in states with a greater number of programs and policies promoting solar energy have more solar systems per capita, however we caution that this correlation alone does not imply a causal effect from the policies to solar take-up. An abundance of programs and policies, for example, can reflect a policy response to emerging solar power rather than its cause.
In addition to sunlight and local incentives, differences in the growth of solar across the country may also be affected by the local cost of fuel, though nowhere in the continental U.S. are fuel costs nearly as important a factor as they are in Hawaii. Finally, solar take-up may be influenced by the pervasiveness of the local environmentalist mindset, but this factor is likely to be negligible outside of a handful of environmentalist hotbeds, such as California’s Marin County.
Solar Contractors Fall into Two Distinct Categories
Consumers today are only likely to recognize a handful of solar brand names, most of which do not focus on installing solar power systems. Rather, solar brand name companies obtain the agreement of consumers and businesses to use their rooftops for solar power production, and then proceed to orchestrate the financing and installation of the solar systems by others – usually, investors and contractors. Partnering contractors are the ones actually installing the solar power systems and pulling the permits.
The overwhelming majority of solar contractors are small local firms that fall into the category just described. In 2014, this category accounted for the installation of more than half of all new solar power systems in the United States. The remaining systems were installed by solar brand name companies directly – almost entirely by two of them: SolarCity and Vivint Solar. Unlike their competitors, who rely mostly on partnering contractors, SolarCity and Vivint have integrated the installation process and exclusively use their own in-house crews to perform the installations.
As a result, SolarCity and Vivint Solar constitute a second category of solar contractors, which is inherently different than the first. While the small solar contractors comprising the first category spar with each other over work from brand name partners in the local installation market, SolarCity and Vivint do not directly compete with them. Rather, SolarCity and Vivint Solar compete with other solar brand name companies over residential and commercial rooftop space and proceed to perform their own installation work. The market in which solar brand name companies compete is the market for solar power system leases and power purchasing agreements (PPAs), and it is the competition in this market – not the installation market – which determines the extent of installation work done by SolarCity and VivintSolar.
The following chart shows the number of building permits associated with the small solar contractors operating in the installation market, and with the in-house work of SolarCity and Vivint Solar. The area labeled “Category 1” includes building permits pulled by contractors installing solar systems on behalf of brand name partners, as well as the relatively small share of installation work performed in-house by brand name companies other than SolarCity and Vivint Solar.
Although “Category 1” accounts for the majority of solar power systems and corresponds to a large and growing amount of installation work, it is the growth of SolarCity’s operation which is truly staggering. SolarCity, which was founded in 2006 and whose chairman is Elon Musk, has grown particularly quickly since 2011, when it received a hefty injection of capital from Google. The emergence of Vivint Solar in the same year is also noteworthy. Blackstone, the world’s largest alternative investment firm, which specializes in real estate and bought up a vast portfolio of homes during the recent crisis, owns Vivint Solar.
Estimated Building Permits for New Solar Power Systems, by Contractor
Below is a list of the top 20 solar contractors in the US in 2014, by estimated building permit count. In 2014, SolarCity and Vivint Solar accounted for 31.9% and 12.4% of solar building permits, respectively, and 44.2% jointly.
Top 20 Solar Contractors by Estimated Building Permit Count in 2014, Nationally
Sunpower Corporation, seventh on this list, is unique: although its share of solar building permits in 2014 was small, just 0.7%, the share hides the true magnitude of its operations, which are better reflected by its 4.19 billion dollar market capitalization. Whereas most contractors focus on residential and commercial rooftop systems, SunPower primarily manufactures and installs utility-scale solar power sites. Such projects also show up in the building permit data.
The solar power industry has experienced meteoric growth. In the space of just 10 years, the number of solar power systems entering the pipeline each year has increased more than twenty fold.
About half of new rooftop solar systems added in the U.S. each year are in California, but solar is expanding throughout the country, and has recently taken particularly large strides in the Northeast. The Midwest and the South are lagging in comparison.
Owing to its unique circumstances, Hawaii has by far the highest number of solar systems per capita in the nation, but growth has recently stopped in Hawaii because of the challenges of accommodating more solar power on the grid.
Building permit data are useful in tracking the projects associated with solar contractors. Small, local contractors install most solar systems, primarily in partnership with solar brand name companies. SolarCity and Vivint Solar stand out as solar brand names whose installation work is conducted exclusively in-house, and building permit data is useful in tracking the growing scale of their operations.
For more information on BuildZoom’s building permit data and what can be done with it, contact us directly.
-  An estimate is necessary because the building permit data do not yet cover the U.S. in its entirety. The annual number of building permits for new solar power systems exceeds the number of new systems installed or interconnected to the grid for two reasons: (i) some building permits enter the pipeline, but are never approved or are never acted upon; (ii) the number of permits entering the pipeline corresponds to the number of systems installed or interconnected approximately four months later. The Solar Energy Industries Association (SEIA) reports that “nearly 200,000 [residential and commercial] installations were completed in 2014” (see GreenTech Media Research and SEIA report entitled “U.S. Solar Market Insight: 2014 Year in Review”). Our estimates indicate that 199,234 building permits entered the pipeline between September 1, 2013 and August 31, 2014. A similar result holds with respect to the number of installations from previous years. For information regarding our method of estimation, please contact us directly.
-  See the Lawrence Berkeley National Laboratory report by Galen Barbose, Samantha Weaver and Naim Darghouth entitled “Tracking the Sun VII: An Historical Summary of the Installed Price of Photovoltaics in the United States from 1998-2013” (September 2014).
-  See, e.g., the U.K. Department of Energy & Climate Change report entitled “DECC Fossil Fuel Price Projections” (September 2014).
-  The cumulative number of solar power projects per capita serves as a rough proxy for penetration. The penetration of solar power systems is the ratio of realized installations and the total number of potential sites for such installations. Even if one ignores the prospect of ground installations, estimating solar penetration is challenging because obtaining a roof count is not as simple as obtaining a population or housing unit count. Moreover, not all rooftops are in fact viable potential sites for solar power systems. Shading by trees or by other buildings matters, as does the orientation and pitch of roofs. In California, it has been estimated that only 60-65% of the commercial roof area and 22%-27% of the residential roof area is potentially available for solar power system installation, and these figures are likely to vary substantially across states (See California Energy Commission study CEC-500-2007-048).
-  The regions are the four US Census regions – Northeast, Midwest, South and West – with California and Hawaii extracted from the west. For visual clarity the graph has been smoothed with a centered, 12-month moving average.
-  The numbers of solar power systems per 1,000 residents given here are simply the sum of estimated building permits during the years 2005-2014, divided by the 2014 population. Systems installed prior to 2005 are ignored, suggesting that the actual numbers are slightly higher, especially for California, Hawaii and the South.
-  Some brand name companies, such as SunRun and Sungevity, do perform own-installation but only to a limited extent, while relying primarily on partnering contractors for installation work.
-  We caution the reader against treating the share of building permits as market shares. With the exception of SolarCity and VivintSolar, the share of building permits does not reflect the market share of solar brand name companies in the lease and PPA market, because most permits are associated with a partnering contractor rather than the brand name companies that actually compete in this market. For example, SunRun’s share of the lease and PPA market almost surely exceeds the 2.23% of building permits shown above – this number only reflects permits pulled by SunRun directly, for its own installation work – and brand name company Sungevity did not even make the list. Interpreting building permit shares as market shares in the installation market requires caution as well, because the in-house installations of SolarCity, Vivint Solar and other solar brand name companies are not allocated through this market. Whether or not it is meaningful to treat building permit shares as installation market shares depends on the context.
- Market capitalization as of May 20, 2015.