Though natural gas remains the dominant fuel source for US power generation (accounting for around 35% of generation in the first quarter of 2025), the overwhelming majority of new capacity additions have been concentrated in renewable energy, including solar, wind, and battery storage.
Natural gas benefits from its US abundance (low cost) and baseload qualities. But coal generation has steadily declined since mid-2021: Wind and solar power appear to be taking over this share of the market, with notable upward progress over the past year.
Natural Gas and Nuclear Poised to Remain Integral in the Long Term as Renewable Penetration Steadies
Renewables (solar, wind, and battery storage) accounted for 99% of new generation capacity in first-quarter 2025. They benefit from their zero-emission profile, cost competitiveness, and current tax incentives. We expect renewables to continue to comprise the bulk of near-term capacity additions, along with natural gas additions and select nuclear restarts to help meet rising electricity demand.
Looking longer-term, we believe wind and solar will steadily rise to over 40% of generation over the next decade, more than double current generation levels. While renewables will account for a rising percentage of generation, we still see meaningful roles for legacy fuels—such as natural gas and nuclear—to help meet rising electricity demand.
Solar Capacity Additions: 2025 Is Set to Be Another Record Year
Solar saw a strong start to 2025: The 7 gigawatts of solar capacity additions represented an 11% increase over the same quarter last year.
That said, we expect the pace of growth to slow in the coming years as bottlenecks associated with permitting and interconnection constrain installations over the medium term.
Solar Capacity Additions Continue to Rise in Line With Our Expectations
Onshore wind installations, for their part, saw a 40% increase over the first quarter of 2024, with 2 gigawatts of capacity additions. For the full year, based on current pipeline data, the market is expected to return to 2023 levels.
As with solar, the pace of onshore wind capacity additions is partially constrained by bottlenecks associated with permitting and interconnection.
2024 Likely Represented Trough Installation Levels, but Activity Remains Modest
Rooftop Solar Installations: Rebound Expected in 2025 Following Weak 2024
Rooftop solar demand remains near trough levels to begin 2025 as high interest rates weigh on economics.
We believe demand has stabilized and should rebound in coming years, absent adverse federal policy changes.
Rooftop Solar Installations Stabilize, but Rebound Remains Elusive
Though California’s Net Energy Metering (NEM) 3.0 policy update from April 2023 drove a decline in rooftop solar installation demand, California remains the largest rooftop solar market. We believe other states, such as Florida and Texas, are critical to market growth over the long term given large populations and low penetration.
Rooftop Solar Demand Continues to Diversify Beyond California
California demand also continues to drive residential battery installations. Nationwide battery attachment rates rose 17% year on year in the fourth quarter of 2024. We see customers primarily adopting home batteries for economic as well as resiliency reasons.
California is also seeing a sharp uptick in battery attachment rates because of the NEM 3.0 policy change. Attachment rates reached 75% in March 2025, and we expect attachment rates in other states to rise as net metering policies are also revised.
Our Picks for Investing in the US Renewable Energy Space
We see First Solar FSLR and Brookfield Renewable Partners BEP as the most attractive valuation in the renewable energy space.
First Solar FSLR
- Morningstar Rating: 3 stars
- Moat Rating: None
- Fair Value Estimate: $168
- Price/Fair Value Estimate (as of June 27, 2025): 0.93
First Solar is the world leader in thin-film solar panel technology. The company’s module sales efforts have become increasingly focused on select end markets. The United States and India represent the vast majority of sales efforts, where policies leave the company in a more favorable competitive position. First Solar’s earnings are heavily reliant on domestic manufacturing credits, but we see its current valuation as already pricing in a downside scenario under which the credits are removed.
Brookfield Renewable Partners
- Morningstar Rating: 3 stars
- Moat Rating: None
- Fair Value Estimate: $27
- Price/Fair Value Estimate (as of June 27, 2025): 0.95
Brookfield Renewable holds a well-diversified global portfolio of clean energy technologies assets. The company targets 12%-15% returns (best-in-class) via a combination of organic growth and mergers and acquisitions. Acquisitions are central to Brookfield’s strategy, in which it invests alongside Brookfield Asset Management’s private equity funds. We think the current market volatility provides opportunities for Brookfield to find attractive deals, as evidenced by its history (Morningstar Capital Allocation Rating of Exemplary).
This article was compiled by Emelia Fredlick.
