Few within the European solar sector would be toasting the region’s slipping further down the global rankings of PV annual installations. The bankruptcy of SolarWorld AG last month, while hardly surprising, is also a sobering reminder that something is rotten with the state of solar in Europe, to misquote The Bard.
But that’s not to say everything is heading south, both literally and metaphorically. European PV demand appears likely to remain steady in 2017, if not registering slight YOY growth.
“If European markets perform exceptionally well and reach more than 8 GW [of annual installations in 2017], it is still less than 10% of the global total,” says James Watson, the CEO of European solar peak body SolarPower Europe. While this is well behind China’s expected 30 GW, the 13 GW forecast for the U.S., and around 10 GW in India, it represents steady demand. Some European markets are demonstrating solid performance as the key pillar of the last three years, the United Kingdom, begins a rapid decline in the second half of this year.
A move to the rooftop is also definitely on, with the residential sector in some countries continuing to grow, and most promisingly in the C&I space, where PV’s increased competitiveness is prompting businesses to switch to solar to provide a significant proportion of their business energy needs.
“The self-consumption [market] segment is an important factor in the recovery of markets,” explains Susanne von Aichberger, a senior analyst with IHS Markit. “Commercial self-consumption for supermarkets, warehouses, cold stores, and some other buildings can be very profitable in many markets.”
Von Aichberger notes that while the growth of various C&I markets in Europe has been driven by solar’s falling costs, and therefore LCOE, in the more natural markets – those with large amounts of sunshine – economic conditions and some regulatory uncertainty are hampering growth. “The relatively flat economy in Europe plays an important role in the [slow market growth in] countries in southern Europe,” she says.
The cost of finance is also influencing deployment in various countries. Somewhat ironically, where the climate is most conducive to solar, the financing environment is not.
SolarPower Europe participated in the PV Financing project, which was launched by the European Commission and led by the German PV industry association BSW. The project investigated many different factors that may potentially reduce the ever crucial cost of capital for solar.
“Honestly, if you could reduce the cost of capital then we’d be talking about big installation numbers from Portugal through to Greece,” remarks Watson. “But the cost of capital is sometimes three times [in southern European countries] what it is in Germany or the U.K. That makes Germany very attractive despite the weather.”
IHS’ von Aichberger agrees. “In Germany, now large roof systems [over 750 kW] have to participate in tenders to get a FIT. So instead of realizing commercial rooftop projects of below 750 kW under the FIT scheme, some developers are now considering building larger roof systems outside of the EEG [the German renewables law] and using 100% of the PV electricity [generated on-site]. They don’t even need a FIT.”
SolarPower Europe’s Watson reports that the PV Financing project found that the cost of capital in southern Europe can come in at between 7 and 12%, while it remains more like 3 – 4% in Germany and the U.K.
“When you get to around 8% as a weighted average cost of capital, that makes up 50% of the cost of a solar project,” says Watson. But, ever the optimist, the SolarPower Europe head says all is not lost in these promising markets.
“Getting business models moving is a way to break through those financial barriers,” Watson says. “The cost of capital may come down for solar when banks realize what a no-brainer and a safe investment solar is.”
The PV Financing project has reported to the European Commission, and SolarPower Europe believes it will help Brussels draft post-2020 legislation that will alleviate some financing barriers and facilitate continued PV rollout.
In the U.K., the European market leader over the last three years, the C&I space remains constrained because of tax changes: business rates will now include a PV array in the value of the property, therefore increasing taxes due. Not only will that hamper what was promoted for some time as being the most promising opportunity for solar in the U.K. as generous FITs and large-scale renewable energy programs recede, but it has also hit unlikely targets.
In March, The Guardian reported that 821 schools in England and Wales will now face tax increases because of the rooftop solar that they installed to help decrease energy costs and educate students about clean technology and climate change.
“It’s utterly absurd to penalize schools for investing in solar panels,” Jennifer Helen Jones, a Green member of the House of Lords said. “Schools obviously face bigger financial challenges than this, but the business rate charges will stop any plans for more solar panels.”
The good news is that not insignificant YoY growth in some markets including the Netherlands, Turkey, and Poland, as well as larger markets like France and Germany, will offset the expected losses in the U.K. – which will very likely remain depressed for some time after its previous boom.
On the glass-half-empty side, politics across Europe remains unsteady at best in its support of PV.
“European market development is frustrating,” says Watson. “Everyone talks a good game in Europe, but nobody really wants to say goodbye to coal.”