Solar decline rates: causes and solutions?

The average solar asset declines at 2.5% per year. This 14-page note reviews the causes of solar decline rates. We find humid climates moderate Potential Induced Degradation, adding a relative headwind in coastal geographies and floating solar. But an exciting way to mitigate declines is emerging via smaller inverters.

Data into solar decline rates are presented on pages 2-3, describing how we have reached our 2.5% decline rate calculation based on 3,200 assets in the US, and plotting the average capacity factor of assets in Europe.

The impacts of solar degradation are quantified on pages 4-5, detracting from IRRs, adding to levelized costs and investment requirements. But this also creates an opportunity to understand and mitigate the declines.

What causes solar degradation? Our goal on pages 6-8 is to explain solar declines from first principles, underlining the main mechanisms of Potential Induced Degradation.

Cure by location is explored on pages 9-10. We find that humidity is a major moderating variable for solar declines. This helps the case for solar in hot, dry climates.

Cure by inverter strategy is explored on pages 11-13. Our work supports the shift from central inverters towards smaller inverters, possibly micro-inverters at utility scale. Companies covered in the report include Enphase, SolarEdge and Shoals.

Other cures, observations and conclusions into the causes of solar decline rates are laid out on page 14.

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