Report: UK PV market to see “extreme challenges” for solar companies

The British feed-in tariff (FIT) program introduced this April has served to catapult the UK into the mainstream global PV market, said Solarbuzz. According to the results of its UK PV Market 2010 report, its emergence could not be better timed, when taking into account the "uncertain" prospects for the dominant German market next year.

With FITs as high as 41.3 pence per kWh paid over 25 years, it explained that the foundations are in place for “rampant” PV market growth in 2011. It said that government incentives yield immediate installed PV system Internal Rates of Return of between eight and 11 percent over the next 12 months.

Despite this, it said the UK market is already exposed to “significant” potential policy risks – more so than most other European markets – even though the FIT is only six months old.

It went on to say that six market segments are emerging: five on-grid, and one off-grid. Additionally, it explained that demand has already seen “rapid growth” in residential installations, with the South East and South West regions accounting for 45 percent of the English part of the market in megawatt terms. An emerging pipeline of large scale commercial, agricultural and industrial projects are also currently going through the application and permitting processes, ready to impact 2011 demand, it said.

The Solarbuzz report also found that with several big name national utility and retail brands entering the UK market, they join a fast growing downstream installer network that exceeds 500 companies. The leading wholesalers and installers, constituting a group of eighteen companies, are “well positioned” to serve the burgeoning market. Back in 2009, the top three of these reportedly accounted for 60 percent of shipped wholesale volumes.

"The early entrance of big name brands are helping to lend public confidence to what is generally a poorly understood renewable energy source in the UK," noted Alan Turner, vice president of Solarbuzz Europe. "These companies join a multitude of European and international companies scrambling to establish early positions in this fast-growing embryonic market."

The wide range of end-market segments has led to four main downstream channels to market, continued the research company. These are not “completely exclusive”, it said, and examples of overlap can be found. It added that novel business models are being advanced, still to be tested for practical viability, but with some gaining traction.

The “fragmented” end-market, together with the diversity of the installers and wholesalers, is “further complicated” by the 60 module suppliers that have already gained the accreditation necessary to enter the market. This downstream picture, said Solarbuzz, sets “extreme challenges” for solar companies to operate profitably in the UK.

"Notwithstanding the potential uncertainty over government policy, no major company can afford to ignore this market opportunity," concluded Turner. "The challenge for companies is to construct business models that can deliver profitable growth while volumes are still low, while at the same time phasing their level of downstream investment consistent with the policy risk."