With module prices now in the USD$1.00 to $1.10 range – amounting to an almost 40 percent drop in prices compared to the $1.80 levels in the first quarter – one might expect a huge spike in demand, but it did not happen.
A difficult financing environment currently exists in Europe. Demand elasticity has been slow to show up in most markets, having taken a while to respond to the low module prices, due mainly to the weak and unpredictable economic conditions present there and with the future of Eurozone itself in question, depending on the day of the week. Meanwhile, the economy in the United States is recovering very slowly and, politically, the support for renewable energy subsidies is just not there.
There are, however, some signs of hope. News has been more positive in the last few weeks as Germany finally reported a pick-up in demand. With low module prices, high internal rates of return (IRRs), and a looming 15 percent cut in the feed-in-tariff (FIT) in January 2012, hope is that there will be a big rush in the last few months. The cash grant in the United States is set to expire at the end of this year and with the current political conditions in Washington, chances for an extension are almost zero, which could also create a mini rush in the country.
It is forecast that the 2011 solar market will experience growth of 20 percent over 2010s, with the hope that the year-end rush in Germany and the U.S. will give the market a much needed final push.
However 2012, at this point, looks flat compared to 2011, with economic uncertainty and FIT cuts in Germany, the cash grant expiry in the U.S., and tariff cuts in Australia and Taiwan. There are also potential risks involving subsidy decisions in Italy, Greece, Slovakia and others.
The German solar market is finally showing signs of life. After a lackluster first half, Germany installed about 2.2 gigawatts (GW) between the months of June and September 2011. In the 2012 FIT reference period, between October 2010 and September 2011, it has installed around 5.2 GW, resulting in a 15 percent cut, as it crossed the growth threshold of over 4,500 MW starting January 1, 2012.
In addition, the new German renewable energy law, EEG, introduced mid-year tariff cuts from 2012 onwards. The cut, effective on July 1, 2012, is based on annualized installations from October 1, 2011, to April 30, 2012, which could result in a further nine percent cut in 2012.
There has been an upward swing in demand in the last few months and signs are that October was a strong month. With a 15 percent cut in FIT starting January 1, 2012, the market is expecting a "big rush" to install before the tariff cuts; therefore installations worth about six GW are expected in 2011.
The market in 2012 looks softer in Germany, with the upcoming FIT cuts (15 to 24 percent), recent slowdown in economic activity, financing difficulties and uncertainty in the Eurozone in general, all pointing to slower growth.
After the ongoing confusion about installations in Italy, the Italian Gestore dei Servizi Energetici (GSE) now states that 3.5 GW was grid connected in calendar year (CY) 2010. In the year-to-date, 6.5 GW has been installed, according to GSE, and it anticipates installations of about 8.5 GW by year end. This would make Italy the top solar market in 2011.
The new law, Quarto Conto Energia went into effect on June 1, 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.
It will be impossible for Italy to sustain these levels of installations going forward, as volume caps shrink and FIT cuts continue in 2012. Even more of a risk factor is the ongoing Italian debt crisis and the Berlusconi government itself hanging by a thread.
France is also right in the middle of the Eurozone crisis, with huge economic and political uncertainties in the near future.
It is one of the first countries in Europe to shift from a FIT to a bidding system for large-scale projects above 100 kilowatts (kW). It introduced a 500 MW hard cap on annual new installations and 20 percent FIT cuts for projects under 100 kW.
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 installed almost 900 MW of photovoltaics in 2010, and predictions are that this number will double in 2011. Even with rapidly declining module prices in the first half of the year, the market was not exactly spectacular. The wild card is the 30 percent treasury cash grant program, which will expire at the end of 2011 and may fuel a year end rush, unless renewed.
Under the current political conditions in Washington and the recent bankruptcies of Department of Energy backed Evergreen Solar, Solyndra, Spectrawatt and Beacon Power, the cash grant extension looks dead with the chances of renewal close to zero. The administration has also recently ordered a review of the Energy Departments loan program.
China has so far been a solar exporter rather than an end-market. The Chinese National Development and Reform Commission (NDRC) 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 a FIT of US $0.18/kWh. The FIT does not apply to projects approved after July 1, 2011, or to photovoltaic programs, such as the Golden Sun program, that are receiving government subsidies.
The policy is still in its early stages with a lot to be clarified, but the fact that China has a FIT and is working toward a goal of 10 GW by 2015 and between 40 and 50 GW by 2020 is a huge positive for the industry.
There is a lot of focus on China right now after some American manufacturers filed a trade complaint against China disputing the subsidies offered by the Chinese government to Chinese manufacturers. With a difficult year coming up, 2012 will be a great time for China to announce some strong policies to spur domestic demand, which may help the solar industry globally. The module prices are low enough for China to turn its attention from exporting panels to start consuming them.
Japan may end up shutting down all of its 54 nuclear power plants by year end, according to Japanese Trade Ministry officials. How this will affect renewable energy sectors, specifically solar, is still unclear. Again, nuclear power is base load and solar is not. Japan at the moment is struggling with regular power shortages since the Fukushima disaster and has set a goal of achieving 28 GW of cumulative photovoltaics by 2020.
Japan announced a new clean-energy law coming into effect on July 1, 2012, but the FIT levels are still unclear. The countrys parliament passed a bill on August 26, 2011, that guarantees FIT rates for wind, solar and geothermal energy. The bill is one of the first steps by Japan to promote the renewable energy industry in view of the recent Fukushima disaster. Under the law, the trade and industry ministry will set rates and periods each year.
Currently, the tariff for residential solar power is ~$0.54 per kilowatt-hour, while the tariff for commercial installations is ~$0.52 per kilowatt-hour. Even though there is no clarity yet on what the tariffs might look like next year, it is generally a positive for the solar industry.
Raj Prabhu is managing partner at Mercom Capital Group, 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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