In short, global economic turmoil of the moment, unless fixed, might become a problem if subsidies are affected or funding gets tougher to secure.
Module prices have fallen tremendously in the last few months from USD$1.80/W levels in the first quarter of 2011, to lows in the USD$1.20/W levels by the end of the second quarter – a significant price decrease in a very short time.
It is this steep drop in pricing that is anticipated to be the catalyst for accelerated demand in the second half of the year.
There are also several other possibilities that could fuel demand in the last two quarters. For instance, Germany announced that there will not be any additional feed-in tariff (FIT) cuts and China recently announced a solar FIT: an unexpected, yet positive boost for the industry.
Also of note is the emergence of new markets such as China, India, the U.K., Slovakia, and many other European countries, which will possibly help supplement anticipated slowing in the German and Italian markets.
Mercom Capital Group is forecasting a nominal growth of about ~15 percent over 2010, with the hope that there will be a demand rush in the second half of the year due to the price drops making internal rates of return (IRRs) in most markets very attractive.
Germany installed 7.4 gigawatts (GW) of photovoltaics in 2010 and was, thus, the largest solar market. Demand has since slowed, however, with under one GW installed through the end of May 2011.
This slowdown has meant that no further cuts to FITs were announced in July which, along with falling prices and attractive IRRs, are likely to drive increased demand in the second half of 2011.
Another important development in Germany has been the decision to shut down all 17 nuclear power plants in phases by 2022. This translates to 20 GW of base load power to be replaced. The market is speculating that this development may help solar, though it is not clear how at this point, as solar is not a substitute for baseload power.
Under current market conditions, the consensus forecast in Germany points to about six GW to be installed in 2011.
There is finally some policy clarity in Italy with the approval of new legislation, which will help push installations in the second half of 2011. The new FIT plan will decline on a monthly basis through the end of 2011 and then will decline using a six month schedule through 2016.
According to the new legislation, small systems under one megawatt (MW) installed on rooftops are uncapped. Small systems include: roof top projects under one MW; ground-mounted projects under 200 kilowatts (kW) under net metering; and plants on land owned by the public administration. This uncapped small systems segment is expected to be driven by demand.
The wild card in Italy is the current debt crisis, with the government trying to put an austerity program in place. It remains to be seen if Italys deficit reduction plan will impose any further cuts to renewable energy incentives, especially solar.
France introduced an annual 500 MW hard cap on new installations and 20 percent FIT cuts for projects under 100 kW. France is also one of the first countries in Europe to shift from a FIT system to a bidding system for above 100 kW, large-scale projects.
The only thing supporting the French market in 2011 is the exemption of about 3.5 GW of grandfathered systems. About two GW of these are expected to be installed in 2011 and 2012.
The United States has been the rising star in solar with about one GW installed in 2010 and with expectations of doubling that number in 2011. The U.S. still does not have a central, cohesive solar incentive policy. Instead, the market is driven by state renewable portfolio standards, state and municipal rebate programs, and 30 percent federal investment tax credit (ITC) and loan guarantee programs.
The U.S. solar market is also driven by utility scale projects, unlike European markets, which are dominated by small systems.
The popular 30 percent treasury cash grant program will expire at the end of 2011 unless renewed and may fuel a rush to install by year end. Under the current political conditions in Washington, it will take a miracle for the treasury grant to be extended.
The Chinese National Development and Reform Commission (NDRC) just announced a solar FIT without a cap, but the projects are subject to NDRC approval.
According to the new policy, projects approved before July 1, 2011 and completed by December 31, 2011 will receive an FIT of USD$0.18/kWh. Projects approved after July 1, 2011, or completed after December 31, 2011 will receive an FIT of USD$0.156/kWh. This tariff does not apply to other photovoltaic programs such as the Golden Sun program, which are receiving government subsidies.
The policy is still in its early stages, with a lot to be clarified. But the fact China has a FIT and is working towards a goal of 10 GW by 2015, and 40 to 50 GW by 2020 is a huge positive for the industry. If the country’s solar indutsry follows the trajectory of its wind industry, all bets are off.
Overall, it looks like the photovoltaic market is entering a much more active second half of the year. If demand picks up as per indications, we could see nominal growth in 2011 solar installations over 2010.
Watch out for the September edition of pv magazine, which includes an extended version of Mercom’s exclusive article.
Raj Prabhu is a managing partner at Mercom Capital Group
?Mercom Capital Group is a clean energy communications and consulting firm with offices in the U.S. and India. Mercom consults its clients on market entry, strategy, policy, due-diligence and joint-ventures. For more information, visit: http://www.mercomcapital.com. To get a copy of Mercoms market intelligence reports, visit: http://mercomcapital.com/market_intelligence.php
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