After all the ups and downs, the 2011 solar market ended strongly, mainly due to Germanys unexpected three gigawatts (GW) of installations added to the grid at the end of December. With final photovoltaic installation numbers still trickling in, it looks like the year will total around 27 GW, up almost 10 GW from 2010s 17 GW. With rapidly falling photovoltaic module prices a key demand driver in 2011, Germany and Italy installed about 17 GW between them, thus accounting for most of the demand in 2011.
As has been widely reported, severe oversupply was the primary driver behind the huge drop in module prices which, in January 2011, averaged around $1.80, and bottomed at $0.90 to $1.00 by the end of the year for Tier 1 Chinese suppliers. With the dramatic and rapid fall in prices, policies and rate adjustments simply could not keep up in most markets, resulting in a rush of installations as project rates of returns became very attractive.
All indications are that 2012 will be extremely challenging a "correction" year. The oversupply situation will continue and, adding to the woes, the major markets in 2012 Germany and Italy are expected to barely install half of what they did in 2011, particularly if Germany goes along with its proposed feed-in tariff (FIT) plans. Consequently, predictions are that just 25 GW will be added to the global grid this year.
With political pressure in Europe to reduce debt, solar is squarely in the cross hairs of the European economic crisis. Furthermore, there are a number of pivotal events scheduled for 2012, which could have an enormous impact on the solar market, including final policy decisions in Germany, the U.S.- China anti-dumping case, the Chinese push to spur domestic demand, knee-jerk reactions by many countries to cut subsidies, and protectionist policies with local content preferential rules.
The question, therefore, is who will pick up the slack in 2012?
In 2011, there were a record number of installations 7.5GW in Germany, which triggered a series of events that could drive significant policy adjustments around the world. Of the 7.5 GW, Germany installed three GW in December alone, spurred on by record low module prices and the looming January 1, 2012, tariff cuts.
This installment rush took the countrys government by surprise, resulting in a scramble to re-haul existing policies. While the proposed cuts are aggressive, a more important concern for the industry is the suggested installation cap of between 2.5 to 3.5 GW per year for 2012 and 2013, followed by yearly reductions of 400 megawatts (MW) all of which would result in a reduction of installation levels of 900 MW, to 1.9 GW by 2017. For companies, basing business plans on any FIT proposals beyond one year is a risky proposition.
Through its leadership, Germany has helped lay a solid foundation for the global solar industry to build on. However, the time has come for other markets to step up demand as the blistering pace of installations in the country has become unsustainable.
Technically, Italy, at 9.2 GW, added the most photovoltaic capacity to its grid in 2011. According to Gestore dei Servizi Energetici (GSE), the country's energy regulator, total installations for the year included 3.74 GW installed in 2010, but which were operational in 2011.
In response to the high installation levels in 2011, it is likely that the government will review and lower the FIT over the next few months. However, while the government can reduce the tariffs significantly, it is unlikely to eliminate them entirely.
There are a few policy changes that happened under the January 20 Decree. Under Article 65, the government has stopped incentives for ground-mounted PV plants on agricultural lands. However, installations on greenhouses will receive the full tariff for rooftop photovoltaics, instead of the current average between the tariffs for rooftop and ground-mounted facilities. Furthermore, GSE announced that the budget for the second half of 2012 for large photovoltaic plants has already been exhausted due to excessive demand in 2011. As a consequence, there will be no registration procedure for the second half of 2012.
One of the biggest fears for Italy's industry, however, is the fact that the six billion euros set aside for the countrys solar market until 2016, is more than likely to run out this year.
France is another country in the middle of the Eurozone crisis, with huge economic and political uncertainties, primarily due to the upcoming elections. It was one of the first countries in Europe to shift from a FIT to a system based on bidding for large-scale projects (above 100 kilowatts). The only thing supporting the French market in 2011 was the exemption of about 3.5 GW of grandfathered systems, after it introduced a 500 MW hard cap on annual new installations.
The Commission de Regulation de lEnergie (CRE) further announced in January that the tariffs for new installations connected in the first quarter of 2012 will decrease by up to 10 percent compared to the fourth quarter of 2011.
The French government also reportedly plans to propose a new FIT for photovoltaic plants, and will offer a higher rate for those produced with domestic material. Under the new tariff, it has been said that plants with more than 60 percent of the components produced in the country will receive a premium of at least 10 percent.
The U.S. installed about 1.7 GW worth of photovoltaics in 2011 almost double that installed in 2010 primarily due to a strong push in the fourth quarter before the 30 percent cash grant expired. The U.S. solar market is expected to continue to do well in 2012 and could double again, making it one of the top solar markets in the world. The big uncertainty factor hanging on the U.S. solar market is the anti-dumping case involving Chinese solar manufacturers.
The country currently has over 25 GW of utility-scale solar projects in various stages of development. Although many of these projects will not be successfully completed, it is still the most robust pipeline of projects compared to any other solar market.
China is estimated to have installed over two GW of photovoltaics in 2011, which is much higher than initially expected. The country claims to be targeting very aggressive installations of four to five GW in 2012. There was a recent announcement by China's National Development and Reform Commission that the 2015 photovoltaic installation target in China's 12th Five-Year Plan has been increased to 15 GW 50 percent higher than the previous target.
This focus on increasing domestic solar demand has largely been due to the number of Chinese manufacturers going out of business or incurring large losses. Extremely aggressive increases in manufacturing capacities among Chinese manufacturers, resulting in large oversupply, started the trend that resulted in huge price declines that affected every country in the world. This has also pushed most countries towards protectionist policies, as their domestic companies continue to fail.
There has been some recent talk from Chinese government officials indicating support to curtail manufacturing capacity expansions. This could indicate a pull back from the government in supporting manufacturers with subsidies and loans going forward.
Japan installed around 1.1 GW in 2011, which is not a significant increase compared to 2010. This is understandable due to supply chain disruptions and confusion after the Fukushima disaster. Solar can play an active role in helping get Japanese energy production back on track in the absence of nuclear power. There has been some delay in announcing new FIT scheme, and the industry is waiting to see how supportive it will be.
Japan may end up shutting down all of its 54 nuclear power reactors, according to Japanese Trade Ministry officials. The renewable energy companies are hoping that they will all benefit. Since nuclear power is base load and solar is not, solar cannot be the only answer, however. The country, which is currently struggling with regular power shortages since the Fukushima disaster, has set a goal of achieving 28 GW of cumulative photovoltaic capacity by 2020.
From almost no solar installations a few years ago, India is poised to become a gigawatt market by the end of 2012. Solar demand in India is mainly supported by the Jawaharlal Nehru National Solar Mission (JNNSM), which is a central government policy to install 20 GW of solar power by 2022. In the early phases of JNNSM, solar projects have been selected based on the lowest bid, which has led to aggressive bidding and the problems that come with it.
Complementing JNNSM are individual state policies, led by the state of Gujarat, which announced FITs for almost one GW of solar power.
The challenge in India is project execution and financing. More than half of JNNSM projects have been late coming online and most of the projects in Gujarat have also been late. Indian solar bids have been one of the lowest in the world from companies that are mostly new to solar and, in many cases, new to the power sector. These low bids for projects are making it difficult to secure external funding, not to mention borrowing costs in India (13 to 15 percent) are almost double borrowing costs in parts of Europe and U.S.
Mercoms forecast is based on current market conditions, policies and estimated pipelines in various countries as they stand today. A close eye should be kept on upcoming policy changes as forecasting will change with it.
About Mercom Capital Group
Raj Prabhu, is managing partner at Mercom Capital Group, a clean energy communications and consulting firm with offices in the United States 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
Edited by Becky Stuart
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