Solar energy in the US has had a rocky existence. Ever since Ronald Reagan symbolically removed Jimmy Carter’s solar panels from the White House roof in 1986, federal policy has been unpredictable, such that manufacturers and consumers could never depend on reliable incentives to produce and install solar energy systems.

Remarkably, the US solar energy industry is now entering what may be its most prosperous decade ever, thanks to a new wave of federal and state policies and positive economics in the industry, both at home and abroad.

“I think it will actually be bigger than people are projecting,” says Jigar Shah, president and co-founder of Generate Capital, a clean energy investment firm based in San Francisco. “The solar industry is booming right now.”

The US solar industry expects to install 14.5 gigawatts of solar power in 2016, a 94% increase over the record 7.5 gigawatts last year, according to a new market report by GTM Research and the Solar Energy Industries Association. Revenues from solar installations also increased 21% from 2014 to more than $22bn in 2015.

For the first time, more solar systems came online than natural gas power plants – the top source of electricity in the US – in 2015, as measured in megawatts, said Justin Baca, vice president of markets and research at the Solar Energy Industries Association. This year, new solar is expected to surpass installations of all other sources, said the US Energy Information Administration.

Data: SEIA/GTM Research. Illustration: Ucilia Wang/The Guardian

The rise of solar energy use, especially by homes and businesses with panels on their roofs, is gradually transforming the electricity industry. For more than a century, power plant owners and utilities have controlled the energy delivery service, and some of them enjoy a monopoly.

“We were just a tiny little speck 10 years ago, and now we are really up there with the major established generating technologies,” said Baca. “It’s amazing.”

Sunny path

What’s behind all this? A federal tax credit has played a key role: it enables home and business owners to take off 30% of the price of their solar energy systems from their income taxes. Congress renewed the tax credit last December.

Another factor is cost. It is simply a lot cheaper to install solar these days, largely because cost of components have declined considerably. The wholesale price of a solar panel today is about $0.65 per watt, compared with $0.74 per watt a year ago and $4 per watt in 2008.

The steep decline in prices began initially in Germany. In 2000, Germany adopted policies that heavily subsidized solar power by adding a special charge on consumer utility bills. Utilities use the money collected from that special charge to pay higher rates for solar energy as part of a government policy to promote renewable energy. The higher rates created a huge demand for solar panels, driving manufacturers to compete for those dollars and other countries to institute similar policies. Until last year, it was the largest solar energy producing country in the world.

“They created a massive demand for solar, and manufacturers around the world started stepping up to that,” Baca said. “Prior to that, a lot of solar panels were still largely made by hand. But the scale that manufacturers started growing to allowed a little bit more automation.”

Then China, where labor costs were lower, rose to become a mighty manufacturing force. Chinese manufacturers built massive factories to make solar panels, drove down the prices for solar panels and forced more than a hundred of its competitors in Europe, US and even within China to go bankrupt.

The fallout hurt so many businesses that the US government imposed tariffs on Chinese-made solar panels after determining that Chinese manufacturers were pricing their products at below fair-market values.

The tariffs and increasing domestic demand have boosted manufacturing jobs in the US, which is now one of the top five nations for solar panel producers behind China, Singapore, Taiwan and Malaysia.

“Now the market’s so large you can actually sustain the large manufacturing plants and support the product locally,” said Shah.

One example is SolarCity, which is building a giant new solar panel factory in Buffalo, New York. The facility, expected to be in operation later this year, plans to employ 3,500 people. It will produce panels primarily for SolarCity’s own projects around the world.

Declines in other sources of electricity generation has also helped solar’s growing popularity. The coal business suffered historic losses in 2015 as concern about its greenhouse gas emissions took hold. Just 3 megawatts of new coal generation came online in 2015, compared to about 2,600 megawatts for solar, according to the Federal Energy Regulatory Commission.

Richard Cochran (center) and Rico Jackson (right), workers with Grid Alternatives, position a solar panel at a Northeast D.C. residence. Photograph: Eric Kruzewski/The Guardian

Dark clouds ahead?

Although the solar market is booming overall, its reliance on government incentives makes it vulnerable to the whims of policymakers. In Nevada, once considered a role model for solar development and a national leader for solar jobs per capita, the state Public Utilities Commission approved a major rollback of solar subsidies and policies last December.

The commission voted in response to a complaint by the state’s largest utility, NV Energy, which contended that the subsidy – and the billing process required for the program – threatened its profitability.

That change prompted SolarCity, one of America’s largest solar companies, to stop selling and installing new systems in Nevada and take some 550 jobs with it. Another company, Sunrun, did the same. As a result, the industry association expects Nevada to drop from the fifth-largest state for residential solar installations in 2015 to 31st by the end of this year.

Robert Boehm, director of the Center for Energy Research at the University of Nevada-Las Vegas, said the changes could mean trouble ahead for the industry as a whole.

“My opinion is that many of the utilities in the US would like to do this in general,” Boehm said of curtailing state solar incentives and policies. “The whole rooftop solar thing has really gone south (in Nevada). We were amongst one of better states in terms of supporting rooftop solar. Now we are down amongst probably the worst.”

Energy storage presents another obstacle. Solar remains a small contributor to the nation’s energy supply, accounting for less than 1% percent of total electricity production. As it grows and replaces traditional sources of energy, which can produce electricity any time, the need to make solar energy available even when the sun isn’t shining will only grow.

Batteries are emerging to be the solution, but the technology and the manufacturing scale aren’t improving quick enough to make it financially feasible for the masses. One company, Tesla Motors, is attempting to address that problem by building a massive factory in Nevada to build lithium-ion batteries that will go into energy storage packs designed by Tesla for homes and businesses.

Tesla is counting on battery sales to complement its electric car business. Its CEO, Elon Musk, surprised investors last week when he announced Tesla’s plan to buy SolarCity. Musk is the chairman of SolarCity’s board of directors.

Boehm, who has solar panels on the roof of his home, said cheaper batteries will nudge more people to invest in solar equipment.

“I’m kind of an enthusiast, but I wouldn’t do it right now,” Boehm said. “I don’t think the costs are right. We’re seeing the price of batteries come down and they’re improving the performance of them too. The movement’s in the right direction.”

Shah takes a different view. Consumers shouldn’t have to worry about energy storage because they can always count on the utilities if their own solar panels aren’t producing energy, he said. Utilities, on the other hand, should invest in more renewable energy and storage to meet the growing demand and ensure a stable flow of electricity.

“The amount of capital and investment going into to solar is at an all-time high,” Shah said. “I think the economics are clearly very good and we haven’t really even tapped but a very small percentage of our opportunities.”