May 1—The sun is rising again at Albuquerque-based Affordable Solar — New Mexico's largest solar construction and installation company — following a stormy year of market ups and downs in 2022.

Last spring, the prospect of new U.S. tariffs on solar panel imports from some Asian countries thrust the local and national solar industry into crisis, causing large-scale project cancellations and layoffs in New Mexico and elsewhere.

At the same time, federal incentives to boost the industry remained in doubt as President Joe Biden struggled to gain congressional approval for hundreds of billions in spending on clean energy programs. And, alongside those policy-related challenges, pandemic-induced supply-chain bottlenecks and record inflation battered the industry.

By mid-2022, Affordable Solar had laid off most employees who worked on utility-scale projects — which account for about 70% of company's revenue — retaining only administrative staff and employees connected to small-scale residential solar installations.

But last summer, many of the storm clouds receded. Biden declared a two-year moratorium on new tariffs, allowing planning and development of large-scale solar projects to begin again. And, in August, Congress passed the Inflation Reduction Act, providing an unprecedented $370 billion in new federal incentives and investment in clean-energy technologies.

Many market challenges remain, including lingering supply-chain issues and rising interest rates that have yet to significantly cut inflation.

But it's a new dawn at Affordable Solar, which is now ramping back up its utility-scale workforce to well beyond previous levels as large projects begin rolling in again. That includes a 50 megawatt facility the company is now building in Rio Rancho, and a 200 MW solar farm it will start constructing in western New Mexico this summer.

The company, which is divided into two divisions — GridWorks for utility-scale projects and Affordable Solar for the residential market — now has 183 full-time employees, up from 148 in March 2022, before last year's layoffs began.

And this March, the company moved into a new, 30,000-square-foot facility in the mid-town Jefferson Street industrial zone, where it invested $7.5 million to purchase, renovate and refurbish an existing building at 3900 Singer Boulevard NE.

Many new projects are now under development, said GridWorks CEO Bob Bellemare.

"The solar and battery-storage markets are growing rapidly again," Bellemare told the Journal. "There are still many market challenges and uncertainties, but we've got a lot of positive momentum going forward."

Tax incentives

The new federal incentives are providing a huge boost for the industry as a whole, foreshadowing a prolonged boom in solar development across the nation. In large part, that's because, for the first time, a federal 30% tax credit on solar systems — which faced short-term sunsets for years, and even declined to 26% in January 2021 — has now been extended for a full decade through 2032 at the full 30% rate under the Inflation Reduction Act, or IRA.

The Act also authorized an entirely new 30% credit for battery storage systems, plus a 30% manufacturing tax credit applicable for either investments in facilities and equipment or for mass production of solar components.

In addition, the Act offers a new 10% tax-credit "bonus" for solar companies that either source their materials from domestic suppliers, locate solar installations in places adversely impacted by the transition from fossil fuels to renewables, or build solar for low-income communities.

All those incentives will help lift the industry to new heights, immensely accelerating development over the next decade, according to the national Solar Energy Industries Association.

Overall, the industry did add another 20 gigawatts of residential, commercial and utility-scale installations nationwide last year. But given the market ups and downs, the pace of growth actually declined by 16% compared with 2021, according to SEIA's latest annual report, released in March.

"It was one of the most tumultuous years in the industry's history," the report said.

Now, however, SEIA projects accelerated growth, beginning with a 41% expansion in 2023. And over the next ten years, it expects total domestic solar generation to grow by five-fold, from 141 gigawatts of installed capacity at year-end 2022 to more than 700 GW by 2033.

Apart from the federal incentives themselves, the ten-year extension of existing tax credits on solar systems is especially helpful, because it eliminates chronic instability that previously plagued the industry through short-term extensions that threatened to quickly sunset, Bellemare said.

"In years past, industry and consumers would rush to meet tax timelines, with demand fluctuating up and down based on the volatility of federal incentives," Bellemare said. "The industry called it the 'solar coaster.' But now we have a much more stable and positive incentive environment."

Like Affordable Solar, the incentives are generating substantial momentum for solar companies in New Mexico and beyond.

"I'm really bullish about all the opportunities opening up," Albuquerque-based OE Solar CEO Adam Harper told the Journal. "I think the renewable industry in New Mexico is poised to become a big player in moving the state economy forward as we diversify away from dependency on oil and gas."

Commercial demand rebounding

Incentive stability is important for both commercial and residential markets, but particularly so for commercial solar development on businesses, government buildings and other facilities. Those are large, expensive systems that make certainty about tax incentives critical for customers to pursue projects.

Supply-chain issues have also hit the commercial sector harder than the residential market, leading to a sharp decline last year in commercial-scale solar contracts.

Still, while delivery problems continue today, the supply chain has markedly improved.

"It's gotten better, with delivery times dropping from about 52 weeks when supply chains were particularly constrained to about eight to 16 weeks now," Harper said. "Larger pieces of equipment have longer lead times, but for 90% of the projects we do, it's become a much more reasonable timeline."

With supply chains improving and federal incentives now in place, demand is rapidly rebounding for OE's commercial installations, which account for the majority of that company's business operations.

"Since the IRA took effect, it's really re-invigorated the commercial market, which we specialize in," Harper said. "Demand since last fall is up by between 50% and 75%."

In contrast to OE Solar, Santa Fe-based Positive Solar focuses largely on residential installations. But the commercial market still accounts for up to 40% of its business, and the newfound tax stability is now lifting sales, said CEO Taiyoko Sadewic.

"We have a lot more certainty now with the IRA," Sadewic told the Journal. "It provides long-term tax credits that we never had before."

Given the rapid upswing in commercial demand, the Albuquerque-based New Mexico Solar Group is now also aggressively expanding into that market, said company President and CEO Nick Kadlec.

Currently, residential installations account for about 90% of NM Solar revenue.

"We see a lot of opportunity there," Kadlec told the Journal. "We've already done a number of commercial projects around the state, including small 20 to 30 kilowatt systems and large ones of up to 250 KW or more."

In addition, the IRA is creating novel commercial opportunities in rural areas.

The Act earmarked $2 billion in loans and grants for the U.S. Department of Agriculture's Rural Energy for America Program, or REAP. It also raised the cap on REAP grants for renewable installations from a previous 25% of system cost to 50%, with the maximum award climbing from $500,000 to $1 million.

That allowed NM Solar to win two huge contracts this year at dairy operations in eastern New Mexico that together totalled more than 1 megawatt of power.

"Those were our biggest projects to date," Kadlec said. "We're working now with more customers who hope to win grants for projects with us in the coming months."

Interest rates slow residential market

In contrast to commercial installations, residential demand for rooftop solar remained robust throughout most of 2022, despite market challenges. That's because supply-chain issues had a much smaller impact on residential systems, which derive about 50% of their solar panels from domestic suppliers rather than foreign imports, according to SEIA.

In fact, SEIA reported a 40% increase last year in residential solar, with a record 700,000 homeowners installing systems nationwide.

That significantly boosted sales for NM Solar, given its heavy focus on the residential market. Company revenue grew by 23% last year, from $35 million in 2021 to $43 million, Kadlec said.

Likewise, Positive Solar's revenue grew by more than 20% in 2022.

But since the fall, rising interest rates have changed the market dynamics, slowing local consumer demand and casting a shadow over residential installations this year.

"The market slowdown is impacting our sales," Kadlec said. "The drop is leveling off now, but it could take time for consumers to fully adjust to higher interest rates."

As a result, NM Solar laid off nearly two dozen people early this year, and Kadlec expects 2023 revenue to remain flat.

But with interest-rate hikes slowing and likely to cease as inflation subsides, the residential lull may be short-lived. And with IRA incentives now in place, the long-term outlook remains strong, Kadlec said.

Community solar

Meanwhile, another major boost is coming to the New Mexico solar market through the advent of community solar installations.

The Public Regulation Commission approved rules last year to govern the community solar program, which the Legislature authorized for the first time in 2021, making New Mexico the 21st state to join that emerging market nationwide.

The PRC expects to approve the first 40 projects this week for a total of 200 MW of community solar.

Under the program, residential and commercial consumers who want to participate can sign up as project "subscribers," whereby they pay a monthly fee for a percentage of power generated. The electricity produced by each installation will be sent to the state's electric utilities, which will then credit subscribers for their share of community solar generation on their monthly electric bills.

The program could bring tens of thousands of New Mexico homes and businesses into the solar market for the first time, creating a boom in business opportunities for local solar development companies, many of which entered bids to build installations under the first 200 MW tranche of projects, said Harper of OE Solar.

New Mexico firms will likely build all 40 projects — either in partnership with out-of-state firms that will own the finished installations, or as direct project developers and owners — because the bidding process awards higher scores for bidders that employ local companies, Harper said. And individual competitors can win up to eight different project awards, each one capped at 5 MW for a combined maximum of 40 MW of community solar development.

OE submitted about 20 different bids, hoping to win the eight-project maximum.

"We're gearing up for the community-solar storm that's coming," Harper said. "We bid by ourselves to be the developers and owners of projects."

NM Solar partnered with an out-of-state firm to also submit 13 project proposals.

"We think we have a good chance of winning at least a few," Kadlec said. "Whatever we win, these will be far larger projects than we've ever done before."

Affordable Solar submitted bids as well. But even without the community solar program, as the state's largest construction and installation company, Affordable Solar is gearing up for a substantial boom in utility-scale solar development through its GridWorks division.

Nationwide, the industry built 11.8 GW of new utility-scale solar last year, representing a 32% drop in growth compared with 2021 and the lowest expansion rate since 2019, according to SEIA.

But with supply-chain issues on the mend and the new federal incentives in place, SEIA projects a huge rebound going forward, with an additional 139 GW of utility-scale solar built between 2023 and 2027, and a total of 429 GW over the next decade.

"The positive market forces now are somewhat overwhelming," GirdWorks CEO Bob Bellemare told the Journal. "We had significant headwinds last year, but we're getting real tailwinds now."