Recent reports about both the domestic and global solar market have all pointed towards another year of remarkable growth. In fact, Bloomberg Finance identified Apple’s growth following the release of the iPad last year as the best analogy for the projected growth of the solar industry. Just a few days ago, the CEO of the Solar Energy Industries Association announced that the “solar is the fastest growing industry in America”.

With this incredible growth, it is useful to examine the key drivers behind the acceleration of the solar market. One key driver is the continuous reduction in PV cost, as prices for solar panels have declined by around 75% in the past 10 years. Solar panel prices in the U.S. specifically are set to drop by U.S. $0.20 per watt in 2011, bringing the average panel price to U.S, $1.40 per watt.

The second key driver is government policy and incentives. German and Japanese governments have been two of the leaders in the solar industry because they have legislated high incentives for solar deployment at the federal level. In the United States, however, state policies and utilities have played a larger role in growth, which has been impressive. In fact, the U.S. solar industry experienced a year-over-year growth of 67 percent. Furthermore, this growth is no longer simply due to California; over 16 states installed more than 10 MW in 2010. Solar Energy Industries Association (SEIA) CEO, Rhone Resch said, “the Mid-Atlantic region is beating California as the largest market in the U.S. for PV installations”.

Solar growth in the Mid-Atlantic and Northeastern region is due primarily to policies at the state level, which include both incentive programs and Renewable Portfolio Standards (RPS). These state programs award money to owners of solar systems to help offset the initial cost of the system. Renewable Portfolio Standards that include specific requirements for solar (i.e. solar carve-outs) mandate energy suppliers and utilities to generate or procure a certain percentage of electricity from solar or risk paying a steep Alternative Compliance Penalty (ACP).

Both measures have been effective, but solar carve-outs in the RPS represent a sustainable, market-based approach to solar financing. These solar carve-outs make Solar Renewable Energy Credits, or SRECs valuable, allowing solar system owners to realize the financial benefits associated with clean energy production. The percentage of solar electricity that energy suppliers must obtain increases each year until 2025 for most states with an RPS, guaranteeing that there will be a market for SRECs. Furthermore, an RPS is budget-neutral, and thus state governments do not have to worry about running out of funds prematurely, which has happened to several state solar rebate programs.

The Mid-Atlantic and Northeastern U.S. will have need for more than 3 gigawatts (GW) of new photovoltaic capacity by 2015, which is due in large part to these state solar carve-outs. The new capacity will be a mix of residential and business systems as well as utility-scale projects. Furthermore, with continued reductions in PV cost, there may actually be more solar deployment than is needed to satisfy the RPS. This makes the value of SRECs hard to predict in the short and long term; however, it does not change the fact that SRECs will remain an important piece of the solar financing puzzle for the next decade.

Looking forward, consistent and stable policies coupled with technical improvements will allow the solar industry to continue its remarkable growth.