There have been many challenges swirling round the solar PV industry over the past few years. Global recession for one, not to mention a reliance on relatively few incentive-driven markets that have either collapsed (Spain), or whose bright future is far from guaranteed (Germany – post feed-in tariff changes).
This led last year to a situation of solar PV module oversupply and price falls, which has put the squeeze on module manufacturers, particularly the ones outside of China; Chinese companies are being fabulously well supported by a Government that wants to create a ‘Silicon Valley for solar’ within China. In this regard, the battle of the major Chinese players like Suntech and Trina Solar continues apace, with Q1 2010 supply seeing five of the top 7 suppliers coming from China (First Solar – USA - topped the charts with 8.4% of shipments according to IMS Research).
But despite the challenging landscape facing some however, recent figures from the EPIA's Global Market Outlook for Photovoltaics until 2014, appear to show an industry that has been bruised but has remained unbowed and defiant, and some companies would even argue they are now leaner and meaner and prepared for the difficulties ahead.
The solar PV industry itself has been robust in its optimism, especially the EPIA itself, which has called the 2009 results the “most important annual capacity increase ever [considering the] economical circumstances during the past year”.
In 2010, the Brussels-based organisation expects global cumulative installed solar PV capacity to grow by at least 40%, while the annual growth is expected to increase by more than 15% (see Paula Mints' her take on 2010 movement to date below).
But during 2009, the EPIA said, Germany remained the largest solar PV market, with Italy ranking second and Japan and the US markets to follow. EPIA expects that Germany will remain the “largest market in 2010”, while new markets in particular from Southern Europe, Asia and the US will grow “significantly”.
Major market snapshot
Germany
With a cumulative installed capacity of almost 10 GW, including around 3.8 GW installed in 2009, Germany remains the world's largest solar PV market by far, although the recently-announced feed-in tariff (FiT) cuts are expected to significantly affect the development of the German industry in the longer run.
After January's feed-in tariff decrease, the German parliament voted in a potential additional decrease that was originally planned to come into effect in July. This decrease was to be set at 16% for rooftops, 11% for reconversion areas, 15% for the other installations and the feed-in tariff for solar PV installations on agricultural land was to be removed.
However, as we go to press [June 2010, ed.], debate still rages, with Germany's upper house of parliament voting to scale back the above planned reductions in subsidies, saying the cuts “threaten investment and jobs in the industry”. The proposal approved by the upper chamber in Berlin trims the subsidy cut for rooftop panels and solar parks to a maximum of 10%. Expect further twists before a final level of reductions is reached.
As far as 2009 goes, the combination of a proven feed-in tariff scheme, good financing opportunities, a large availability of skilled solar PV companies, and public buy-in for solar PV technology, largely contributed to healthy growth. The revised figures from the German Bundesnetzagentur showed a market of 1.8 GW in 2008, and 3.8 GW in 2009, following a significant rush in the last month of 2009 to avoid the annual feed-in tariff decrease, reports the EPIA.
With potential changes to the feed-in tariff in mind, the EPIA thinks that the German solar PV market could reach up to between 5 GW and 7 GW in 2010, returning to around 3 GW to 4 GW annually from 2011 onwards. EPIA estimates that the market could stabilise in the 3 GW to 5 GW annual installations level by 2014, if the present support scheme is maintained, with feed-in tariff decreases in line with the price decreases.
Italy
In the medium-term, believes the EPIA, Italy appears to be one of the most promising solar PV markets in the world. With 711 MW installed in 2009, Italy installed the second highest number of MW in Europe (and in the world) and could become the second GW market by 2010. According to the latest market development in the country, EPIA expects the Italian solar PV market to reach between 1.5 GW and 2 GW by the end of this year.
A major driver is the new Conto Energia, which EPIA's report says should “continue to support the strong momentum of the Italian market”. In January 2009, the Italian Government extended net-metering (Scambio sul posto) to PV systems up to 200 kW. On top of the value of the electricity itself, the solar PV system owner also gets a premium feed-in tariff on the total electricity produced by the solar PV system. The higher tariffs for building integrated PV systems (BIPV) also support the development of innovative products and applications for roof mounted systems.
In addition to the Conto Energia, the future growth of the Italian solar PV market will also depend on the streamlining and harmonisation of administrative procedures, combined with an adapted decrease of the feed-in tariff in the third Conto Energia to cope with the expected price decrease. EPIA also expects, due to high electricity prices, that residential grid parity during peak load hours could be feasible by 2011 or 2012, at least in the south of the country.
Japan
With 484 MW installed in 2009, the relaunch of the Japanese residential solar PV programme, the launch of net metering, as well as support for local authorities and the private sector have been successful in kick starting the Japanese solar PV market again, reports the EPIA.
EPIA expects Japan to become a GW market in 2010. Japan has set ambitious targets to reach 28 GW of installed solar PV power by 2020 and 53 GW by 2030. Secondly, solar PV technology is well-established and widely integrated in the building environment. And large plants should start to complement the existing and well-developed residential market.
Assuming a coherent political framework to support the targets, the Japanese solar PV market could reach between 1.2 GW and 2.4 GW by 2014, predicts the EPIA.
USA
With many large ground-mounted projects in the pipeline, EPIA sees the USA as having the potential to become one of the top solar PV markets. The organisation predicts that with 477 MW installed in 2009 – 40 MW of which comes from off-grid installations – 2010 could see the market achieve from between 600 MW to a possible 1 GW of new installations.
By 2014, the market could reach 3 GW (installed that year) in the EPIA's moderate scenario, while in the policy-driven scenario up to 6 GW of solar PV could be installed. The difference between both scenarios originates from the market response to incentives in different states, combined with the level of those support frameworks.
With the State of California continuing to lead the pace in 2009, the potential of the US territory and the commitment of President Obama (ostensibly) to renewable energy, the USA could represent a GW market by the end of this year, according to the EPIA.
The best of the rest
EPIA's figures also show that the Czech Republic showed growth in 2009 with 411 MW of solar PV installed but, due to overly generous support schemes, the market is expected to shrink in 2011 after another year of strong growth in 2010. “This underlines the imperative need for support mechanisms to be designed in a way to ensure a long term, predictable and sustainable development of the market and avoid instability and discontinuity in market evolution,” explains Adel El Gammal, Secretary General of EPIA.
Thanks to strong political will, Belgium made its entry into the top 10 solar PV markets with 292 MW installed in 2009. Due to a revision of the financial support scheme in early 2010, the market is expected to slow down slightly in 2010. France follows with 185 MW installed in 2009, with an additional 100 MW installed but not connected to the grid yet. In spite of huge potential, this clearly demonstrates the need for France to solve grid connection issues in order to allow the solar PV market to develop further.
In Spain, the set-up of a market cap in 2008, combined with the effects of the financial crisis, constrained the solar PV market to only about 60 MW installed in 2009, says the EPIA. However, solar PV accounted for about 3% of the electricity production in the country in 2009, and clearly appears as a privileged source of electricity in the fight against climate change. Finally, Greece (2009, 36 MW), Portugal (32 MW) and the UK (10 MW) are showing interesting potential for growth in 2010 and beyond.
Outside of these top markets, China (2009, 160 MW) and India (30 MW) are also expected to boom in the next five years with an impressive array of solar PV projects in the pipeline. Canada (70 MW) and Australia (66 MW) showed significant market development in 2009 and are expected to open the way to the development of new markets. Brazil, Mexico, Morocco and South Africa are also seen as promising countries.
2010 snapshot: 6 months down
– By Paula Mints, Navigant Consulting
Technology manufacturers will ship more and make more this year than they did in 2009, primarily due to strong demand in Germany, Italy and the Czech Republic. The solar PV industry is on track for another year of accelerated growth, with shipments to the first point of sale reaching 13 GWp – about 65% higher than the 7.9 GWp shipped in 2010.
It is likely that over two thirds of the technology shipped in 2010 will go to Europe, leaving about 5% for the USA, 9% for Japan and the remaining 10% for the rest of the world. In 2009, solar PV shipments grew by 44% from the previous year but technology revenues were 16% less due to aggressive pricing from manufacturers in China and Taiwan.
In 2010, despite continued low pricing (on average only slightly higher than 2009) the solar PV industry will get to enjoy around a 40% increase in technology revenues for the year. The figure above provides a revenue forecast to 2014, with the industry on track for the accelerated forecast in 2010.
Currency risks
Fluctuating exchange rates have made buying technology from firms outside Europe more expensive this year, which may be good news for European manufacturers. In June 2009, €1 bought around US$1.40; 45 New Taiwan Dollars; and 9.57 Yuan; compared to approximately US$1.21; 39 New Taiwan Dollars; and 8.28 Yuan one year on. In 2009, however, 37% of all solar PV technology sold came from China, most of which went to Europe. In essence, the Euro went farther and bought more last year than it is buying now.
Considering shipping costs from China, Taiwan and the USA, the cost of technology has become even more of a burden. As the Euro continues to drop, solar PV manufacturers will be forced to lower prices or make adjustments to shipping agreements. Manufacturers of second and third tier modules in China are already depressing prices back to 2009's US$1.50/Wp levels. As long as debt risk in Europe (particularly in Greece, Spain, Portugal and Italy) continues the Euro is likely to remain vulnerable.
Aside from exchange risk anxiety, demand continues to surge and will likely do so until Germany finally institutes the anticipated one-off decrease to its feed-in tariff (FiT) [This took place in July 2010, Ed.]. Until then, average prices are hovering at about US$2.25/Wp with higher and lower prices depending on buyer power in the market. By the end of the year, however, given changes in the German tariff, solar PV prices will likely be slightly down from 2009.
All eyes on Germany
The big degression is certainly coming – the only question is when. The global solar PV market owes its current gigawatt volumes to Germany and its introduction of the feed-in tariff model of solar incentives. In a very real sense the German incentive structure is the father of future solar incentives, although feed-in tariffs will differ from country to country according to the needs of the local market.
Indeed, the European feed-in tariff model is the reason that multi-megawatt (or utility scale) solar PV installations prospered. The 20-year payout reduced a portion of the risk for investors and led to boom times for the solar industry. Europe became the largest market in the world for solar products and demand in Germany from 2000 through 2009 grew at a compound annual rate of 62%. After the market in Spain collapsed in 2009, Germany once again became the largest market in the world with 53% of total demand.
The feed-in tariff model is good because it drives strong demand. But, as with most incentives, it has three limits: it assumes that prices will decrease at the same more-or-less predictable rate as costs; it assumes that manufacturers and installers will accept slimmer margins; and it assumes that the market will adjust itself on its own to desired installation levels.
Unfortunately, when demand is high participants will typically ask for higher margins (as high as the market will bear) and they will continue to sell products to the market as long as the market will accept them. In fact, as the end of each year nears and the annual degression built into most tariffs approaches, feed-in tariff markets tend to see frantic installation activity.
The result of all this is typically a market that is much larger than anticipated or desired. Spain and South Korea are examples of countries where rapid expansion led to disaster. Germany has responded differently to the ballooning growth of its domestic solar PV market and will institute a one-off steep degression, followed by a return of the 9% degression along with a punishing add-on decrease if the market oversells 3.5 GWp in a calendar year.
In 2011, every gigawatt installed over 3.5 GWp will result in an additional 1% degression per gigawatt, increasing to an additional 3% per gigawatt in 2012. The direct consumption bonus, once touted as a gain for these system owners, is around €0.08. There also is a further vote upcoming on the degression. The only certainty is that something will happen this year and whatever it is it will have an effect on the solar market in Germany and, therefore, on the entire industry.
The next six months
The second half of the year will again focus on the European solar PV market, as the upcoming decrease in module prices after the Germany degression finally kicks in. Changes in European feed-in tariffs (and more will change as markets become overblown) will have a significant effect on multi-megawatt system installations. The solar PV industry is currently learning to deal with its vulnerable success – vulnerable because it is still driven by incentives.
As feed-in tariffs decline – in some cases significantly – the solar PV industry will have less control over its margins, as lower prices will be required in order to attract investors and other customers. In just five years the industry went from megawatts of shipments to gigawatts and this rapid change has destabilised it. The solar PV industry is currently unhinged and needs time to adjust, but the second half of 2010 will bring it back into line.
About the author:
Paula Mints is the principal analyst for Navigant's PV Service Market Research Program, executive editor of the Solar Outlook Newsletter, and Director of the Energy Division.
The PV Services Department at Navigant Consulting was founded in 1974 at Strategies Unlimited, and Ms Mints moved it to Navigant in 2005. The practice is based on classic market research principles; that is, all data are primary, not secondary, and the analysis is independent and not based on the work of others.