Solar companies must consider new factors for long-term growth

Lux Research points out that Germany currently represents around half the total global market for solar components, due to the impressive growth fueled over the past decade through its attractive solar subsidies. However, it says that continuous tariff cuts have meant that solar companies will now start looking to other markets, which offer a more attractive return on investment.

The research company’s report, titled ‘Global Subsidy Roundup: Solar Beyond Germany’, goes on to indicate that no single country will match Germany’s huge photovoltaics installation growth over the past few years. Consequently, the company has laid out its predictions for which markets will become the new solar hotspots most capable of fueling future demand.

"Component manufacturers looking to maintain margins in the face of rapidly falling prices will find short-term relief from markets offering attractive subsidies in 2011," comments Jason Eckstein, a Lux Research analyst and the report’s lead author. "However, to be able to plan for long-term solar growth, companies also need to consider other factors, such as the size of a country’s electricity market, what other generation sources it can tap, and the quality of its electrical distribution infrastructure."

The report constructs a quantitative model for all 15 markets, based on the value of subsidies, market size, solar generation’s proximity to grid parity, in addition to "numerous" other factors. It ranks each country on two axes – measuring short-term demand drivers and long-term market potential. Based on their positioning in either axis, markets fall into one of four market classes: fast burners, top targets, slow movers, and weak prospects.

According to the report, Cyprus, Israel and Malaysia are fast burners. It says that although these markets offer some of the most valuable subsidies, they all face "fundamental limits" on the extent to which solar can grow. "Cyprus in particular cannot support more than a few hundred megawatts of solar installations, while Israel and Malaysia are capped close to three gigawatts (GW)," said the company in a statement.

Meanwhile, Lux has found that India stands out as a top target, but South Africa and the UK could also be game-changers. India, it explains, combines a heavily-funded subsidy scheme with a grid in great need of distributed generation and huge projected electricity consumption. It adds that South Africa has a significantly more attractive subsidy scheme, but is limited to utility-scale applications and faces regulatory uncertainty.

The UK has a comparatively weak solar resource, according to Lux, but faces tight natural gas supply, has a broad set of feed-in tariff (FIT) incentives, and boasts a potential market size over 20 GW.

Finally, the company states that Russia, Brazil, and Mexico are all slow movers. All offer huge electricity markets with over 10 GW of solar development potential, says Lux, but lack incentive schemes. Brazil cancelled an FIT policy early last decade, yet the company believes it is one of the markets closest to grid parity and offers massive potential demand. Mexico, on the other hand, has reportedly enforced a national net metering policy, making it a likely future champion of solar as a distributed resource. The company concludes by saying that Russia offers few demand drivers in 2011, but the largest potential addressable solar market at over 80 GW.