PV: Europe holds the upside wildcard, but trade war impact should not be underestimated

21. March 2013 By:  Michael Barker, NPD Solarbuzz

Europe’s leading PV role is rapidly being fulfilled by Asia, writes NPD Solarbuzz senior analyst, Michael Barker. Despite this, there are opportunities for Europe to rebound strongly, if positive policy is developed. However, he cautions that the impact of the trade wars cannot be underestimated.

Europe vs. Asia end-market demand share graph

Europe vs. Asia end-market demand share

Although Europe remained the largest region in terms of end-market PV demand in 2012, its role is quickly diminishing in terms of being the world’s foremost PV demand driver. Europe’s place is being rapidly overtaken by the Asian market which, as a region, is being driven by the major Asia-Pacific markets of China, Japan, India, and Australia.

This shift is primarily due to policy factors, as European policy-makers have been rapidly and aggressively cutting PV incentive programs across the continent in response to dramatic decreases in PV component and installed system pricing declines (and within the context of regional fiscal austerity measures).

These policy reductions are having the desired effect of curbing the market. For example, in 2012, the European region saw end-market demand decline by more than 10% from record-levels achieved in 2011. If these policy-reductions continue, the European market is anticipated to contract by another 26% in 2013, according to the NPD Solarbuzz Most Likely scenario.

However, in Asia, strong government support has led to the rapid uptake of PV systems across a variety of countries and customer segments. This support, along with strong environmental and economic factors, such as high insolation and electricity tariffs, led to Y/Y growth of approximately 50% in 2012 and growth of over 50% is anticipated in 2013 (again according to the Most Likely outcome for 2013).

Policy decisions

But this is far from the whole story. Given the strong impact that policy decisions continue to have on the PV industry, forecasts for end-market demand can quickly change as policy adjustments have immediate and dramatic impacts, both in terms of creating and destroying end-markets.

The Low/Downside forecast for 2013 shares similarity with the Most Likely projection in that Asia grows Y/Y while Europe declines, albeit even more dramatically. The net effect is the same as the Most Likely forecast; Asia becomes the largest global market.

But, given the European market’s maturity, it would be easy for the region to rapidly process any positive policy movement into a strong uptick in demand. Therefore, in the High/Upside scenario, European demand rebounds strongly, growing 12% Y/Y and maintaining top status, despite the Asian markets growing by 85% and narrowing the gap considerably.

This High/Upside is certainly one that industry participants, particularly upstream manufacturers, wish to see. Growth in the European market would help push 2013 end-market volumes past the 40 GW mark, thus getting closer to the 45 GW supply levels currently in play across the PV value-chain.

However, without significant changes to current policy direction in several European markets, a European rebound is difficult to imagine. With continued budget pressure and macro-economic instability, it is much more likely that Asian markets will come to lead the PV industry.

This trend would not be possible without the incredible development seen within the Chinese market. In the Most Likely 2013 scenario, demand from China is projected to account for more than 50% of total Asian end-market volumes. Combined with its dominant supply-side position, China is the major force in the PV industry regardless of the outcome of any upstream shakeout this year.

However, given the ongoing trade disputes, many of which directly target Chinese-produced components, the China/Europe balance can be examined another way. The investigations underway in Europe concern not only Chinese-produced c-Si cells (like the US trade case concluded in late-2012), but also c-Si wafers, modules, and now solar glass.

Although Europe is set to fall below Asia in terms of global demand share, European countries will continue to represent a considerable amount of demand for solar components and remain an important market in terms of both shipment and revenue mix for solar module manufacturers.

Therefore, if no Chinese produced modules can enter the European market, how does this impact the solar supply/demand situation? Under current Most Likely forecasts set out in the Marketbuzz report, European demand is set to exceed 12 GW in 2013.

Global non-Chinese PV module capacity – both c-Si and thin-film – is approximately twice that level. In fact, current non-Chinese capacity levels are high enough that if China were to disappear there would still be almost enough module capacity to fulfill global demand if held steady at Most Likely demand projections.

While this may give some hope that the industry could achieve rationalization and increase prices if it weren’t for China, the current pricing levels are a major factor in driving new demand. Over the past decade, incentive policies in European markets have been the primary drivers of PV demand.

However, over the past few years, policy-makers have watched demand boom, even as PV component and installed system prices fell rapidly. This has led to policy adjustments with incentive rates declining to the point where only continued downward movement in PV pricing has maintained demand.

Irrespective of who supplies the PV modules, incentive policies are not going to be reinstated to previous levels and the PV industry has reached a point where future growth is dependent on current or lower pricing levels.

Many of the incentive policies that first drove the end-market are now either gone or being rapidly phased out. Therefore, even if supply/demand rationalization was achieved in the near term, the market would need to maintain current pricing levels in order to maintain demand, otherwise demand could fall (and thereby continue the oversupply environment regardless of China inputs).

Regardless of the scenario that finally unfolds during 2013 (and beyond) the impact of the trade wars cannot be underestimated. With Europe effectively being the ‘swing state’ in 2013 PV demand, the timing of the EU trade investigation could not have come at a more critical junction for the PV industry as a whole.

Disclaimer: The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.

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