The report paints a picture of steady growth as a range of market forces swirl around the global solar PV industry. This is one of the key insights delivered by market analyst Paula Mints, who published her annual Global Analysis for the Markets for Solar Products and Five-Year Forecast last month. She spoke to pv magazine about some of her top-level findings.
pv magazine: Only a few weeks ago, you published the 2014/2015 version of your Global Analysis report. In it, you forecast slowing growth rates for solar to 2017. While there are numerous drivers for this set out in your report, what are some of the headline conditions that cause you to produce a relatively bearish global market outlook?
Paula Mints: Headline conditions informing my forecast, other than gathering data that form its base are the same as we see every day in the newspapers: slowing economies, particularly in China, but also other countries, such as Brazil, high debt in countries such as Greece and changes in FIT rates, as well as new rules that have been put in place specifically to stop speculation and to slow the market to a manageable growth rate. Changes to Japans FIT are an excellent example of these things. In this case, I am using market rule manipulation so as to take advantage of an incentive as the definition of speculation.
Decreases and other changes to incentives in markets such as Europe (UK specifically), the US (ITC) and Japan (FIT); deployment delays in markets, such as Thailand and South Africa; and economic concerns globally favor a conservative trend through 2017. A forecast has been prepared that considers the best fit for each country and region. In some cases, a countrys market performance will be accelerated and in some cases market performance will be low. China, having never performed above 11 GWp, is unlikely to, and is expected to continue performing between 9 GWp and 11 GWp. A significant decrease in activity in China would push the overall forecast to low.
Deployment shares by market, 2004, 2009, 2014 & 2015
Your projections of industry growth through 2024 are more optimistic than those to 2017. What role does falling PV system prices play in this?
I think I will quibble with the word optimistic. Downward price pressure is not something to be optimistic about! The forecast in the Global Analysis report takes into account the temporary nature of incentives, the maturing of the industry, competitors, technology development, the time required to develop business and financial models to address a low incentive environment, and industry participant appetite for low margins. Finally, on a global basis, growth has been slowing in recent years and this is to be expected as the industry begins maturing and loses the support of incentives.
Basically, this means that growth over time will become more moderate in the face of competing renewable technologies and even conventional energy, such as natural gas. New business models are crucial to continued growth over time, but flaws in these models must be corrected rapidly to avoid a potential end user backlash. As a distributed generation (DG) energy source, PV is the best and it will have a chance to fully realize its potential with solid business models, low interest financing and end user education.
As to system prices, my concern is for a stabilizing of margins a business must make a profit and have enough profit so that it can invest in innovating across all business processes, including quality control, research and development.
As an old fashioned market researcher working in a highly volatile industry, I know that price forecasts out to 2024 are highly unreliable. The industry is truthfully too young for a spot market to make any sense for it. All you can really do is watch behavior over time (trend lines) and observe the market carefully through a research lens.
Here is an example: The prolonged period of aggressive pricing discussed earlier came out of subsidized manufacturing it did not have a focus on sustainable margins. The wholesale acceptance of too low prices by people who knew better and the touting of this as progress has done damage to the PV industrys pricing function.
On the system size, No Money Down [business model] is in danger of doing the same thing by setting unrealistic expectations in the minds of residential and commercial end users. Too low tender and PPA bidding on progress does the same thing they set an expectation that can only be met by further constrain on margins.
While it has driven component demand and growth in the grid-connected residential rooftop market, it seems you are not overly taken by the solar lease model. What is the basis for your reservations?
There is no disputing the fact the U.S. the residential solar lease model is driving growth. The reason behind this growth is simple: No Money Down, No Responsibility for Maintenance. No Money Down erased almost overnight aesthetic concerns about the unattractiveness of solar panels. To clarify, I am all solar all of the time and to me the gleam of a mono or multi-crystalline solar panel in the morning sun is a beautiful thing to behold. I am not, however, necessarily representative of the population as a whole.
Back to the point, the offer of free solar, saving money on utility bills while continuing the electricity renting paradigm has invited more homeowners into the market and residential solar in the U.S. is booming and the model is and will spread globally.
This model has expanded in recent years to include deployment into the small to mid-market commercial sector. Under the lease model, the lease operator funds the installation and collects a monthly lease payment. The lease payment includes an annual escalation charge. Older installations fund ongoing construction. Residential solar leases or residential PPA providers charge a monthly fee along with assuming the rights to the incentives, including tax incentives such as the ITC, and RECs (renewable energy credits, which are tradable instruments).
Customers of the residential PPA may not understand that they are responsible for all the electricity generated from the system on their roof and not simply the electricity that they use. At the end of a period of time, typically annually, the utility calculates the difference between the electricity the system produced and the electricity the homeowner uses and either sends a bill or a refund. This process is referred to as the "true up." The amount refunded to the homeowner is typically at a lower rate per kilowatt hour than the homeowner paid the lease/PPA provider, though additional electricity is billed at the retail rate, which is typically higher than the amount charged by the lease/PPA provider.
Participants in the residential/small-to-medium commercial application have adapted, essentially, by joining as subcontractors, requiring a decrease of margins on the part of the leasing firm and the installer.
The residential/small-to-medium commercial solar lease and PPA business model is highly unprofitable in the early years as the upfront cost of deployment is borne by the lease company. Ongoing deployment is funded by the early installations and, as the installations turn profitable, margins for this model can be quite high.
Problems with this model include the sales process that is sales staff incentivized by signing up customers for leases, without educating the customer or properly qualifying the customer, and this may result in unqualified sales.
As this model is highly unprofitable in the early years, rolling a truck for maintenance is a cost and the solar lease provider may not be motivated to provide this maintenance. The leasee is expecting the solar lease provider to respond in the same way that the utility does when the lights go out and this may not happen.
The escalation charge is problematic as overtime the leasee will pay far more for the system on their roof than they would if they financed and bought the system. In many cases, leasees pay off the lease immediately using it as a way to, presumably, arrive at a better deal for the PV system. The thing is it may look like a better deal than the one offered by the local installer, but as the solar lease company is taking all the incentives upfront and then wrapping them into the offer, this is an illusion.
Also, it is not clear that a leased system on a home or business is an asset in a sale and finally, should a lease company fail and companies do fail I believe significant problems will follow.
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