First the good news. Despite the economic doom and gloom enveloping the world at present – which is bound to have an effect on clean energy – the solar PV industry still has a lot going for it. Aside from the arguments of climate change, energy security, and off grid potential in the developing world, the fact that the USA is increasingly seen as a huge potential market – supported by new President Obama – could help in time take some of the pressure off Spain and Germany (which have pretty much driven the industry in terms of demand in recent years, but in light of recent changes to those countries' feed-in tariffs will cool).
In October 2008, the United States Congress extended both the residential and commercial solar investment tax credits (ITCs) for an unprecedented 8 years. It also lifted the US$2,000 cap on the residential credit, removed the prohibition on utility use of the commercial credit, and eliminated restrictions on the use of both credits in conjunction with the Alternative Minimum Tax. These significant changes, which apply to systems placed in service on or after 1 January 2009, will increase the value of the solar credits for residential system owners in particular, and are likely – in conjunction with state, local, and utility rebate programmes targeting solar – to spur significant growth in residential, commercial, and utility-scale photovoltaic (PV) installations in the USA in the years ahead.
In addition to the US move, Japan's Government plans to restart its residential rooftop programme, and in Europe aside from the more mature markets of Spain (which has introduced a cap), and Germany (which has instituted triggers to control programme growth), many other countries now have introduced feed in tariffs – from Ukraine to Bulgaria. And EU markets such as France and Italy are being touted as the next big movers. The most attractive feed-in tariffs can now be found in Italy. The market is growing rapidly as investors have discovered the opportunities, certainly with currently decreasing module prices. In terms of size, Italy will still be smaller than Spain in 2009, but with many projects under development, Italy could become the second largest market in the world in 2010.
As well as a continued flow of Government-driven incentives in a wider range of markets, PV technology, while having the benefit – and challenge – of being disruptive and state of the art, has also improved in terms of cost and efficiency: thin film has gained wider acceptance and system design continues to improve, for example, in regard to the balance of system components. In addition, new business models are emerging to address the high upfront cost of system ownership by removing the need to own the means of electricity production. While systems are still sold, and system ownership should and will remain an important industry and personal goal, new business models return the energy paradigm to the end users' comfort zone – buying ready kilowatt hours (kWh), rather than their own solar hardware.
As if the preceding strong developments were not enough, the new US Administration of Barack Obama includes forward thinking pragmatists who see the coming green economy as imperative for the economy and the environmental health of the planet. Solar and other renewables are viewed as part of the economic, job creation engine that will help drive the US (and other countries) out of recession. Europe, a leader in the planet's green future, has been on board for years by recognising the need to support and promote renewable technologies – again, for the environment as well as the economy. And Japan's move to restart its successful and popular residential rooftop programme should strengthen that country's PV market, all the more if healthier economic times return.
Thus, the year 2008 would have appeared to end on a note of optimism.
Will the party continue?
Then came the global economic recession, a global banking crisis, the resulting credit crunch and falling house prices in the US and other countries. New building has stalled and foreclosures have risen.
In addition, the changes in the feed-in-programmes in Germany and Spain have essentially erased over a gigawatt of potential demand. These changes will, effectively, lead to dramatic business plan changes.
For example, during the last two years, most of the industry has been sending products into Spain, without a thought to potential repercussions. Now that they have arrived, experts are predicting an end to Spain's solar party.
Representing more than 70% of European demand, Germany and Spain have provided the largest market for PV products in the world for several years. The table on page 63 gives an interesting picture of global demand and the few markets that have driven growth. And for any product, goods or service to rely on one primary market, is not a healthy situation. In 2007, more than 3 gigawatts (GW) of PV modules were sold, and it is difficult to imagine what would happen if 70% of these sales evaporated. Of the approximate 5 GW of sales in 2008, more than 75% were into Europe (primarily Spain and Germany) – again, imagine if 75% of these sales disappeared.
At the annual PV Specialists Conference, autumn 2008 in Valencia, Spain, the unbalanced market situation was discussed at length. Many agreed that reliance to this degree on one primary market was an unhealthy market situation. The point was made several times, that other markets – China, India, South Korea, Australia, along with Japan and the USA – need to ramp up their respective domestic markets to balance demand – so that if one market retracts the result is not disaster.
In the near term it is unlikely that China, India, South Korea and Australia will be able to develop stronger markets. But Japan and the USA could be the saviours, with strong potential for both markets. Especially in the case of the USA, there is significant untapped potential for the use of solar electricity, from now and also in the longer-term. Several energy utilities in the USA have discovered PV as a serious and viable option for power supply. Many large scale PV projects, like the 800 MWp project by PG&E in California, are being prepared and developed. The push for renewable and solar, and an economic recovery, could make the USA one of the major PV markets from 2010 onwards.
Lack of confidence
Unfortunately, before we all breathe a sigh of relief, the global economic crisis renders a sudden boom in demand in the US and Japan highly unlikely. In the US in particular, consumer confidence continues to hit new lows while unemployment continues to rise.
And in California, the largest US market, unemployment recently topped 8%. Considering unemployment fears, tight credit, a stalled housing market and the loss of personal wealth represented by the continuing fall in house prices, it is highly unlikely that the US residential market will continue to show strong growth (despite the recent lifting of the US$2,000 on the residential credit cap) and the commercial market will also experience problems.
Also in the USA, the power purchase agreement model (PPA) will be confronted with difficulties during the current credit and economic crisis, and companies with pure PPA business models will have to try to hang on through some painful times. With changes in the Spanish and German programmes (and no other markets in Europe currently capable of taking excess module product), along with the economic problems in the US and Japan already discussed, a slowdown in demand for at least two years seems inevitable (figure 1 provides a conservative and accelerated demand forecast through 2012).
So where does all this lead us in the next year or two? According to experts, to a sharp drop in prices of new modules, and a slowdown in new capacity as excess supply can no longer all be absorbed by Germany and Spain – where changes to incentives will slow the markets.
Some major manufacturers of PV products, including Q-Cells, Suntech Power Holdings and SunPower have spoken of this in recent weeks. Reuters recently reported on an interview with Frank Asbeck, CEO of SolarWorld, who predicted that in 2009 and 2010 the price of solar modules will decline by more than 10% due to overcapacity (nonetheless, it is worth noting that he still saw sales growing 25%–30% in 2009 from this year).
And Q-Cells, one of the industry's flagship companies, recently reported that it was to cut sales and production outlook for 2008 and 2009: “the uncertainty and the weakening market demand arising from the financial crisis have resulted in a number of Q-Cells' customers postponing agreed deliveries until next year. These volumes could not be placed elsewhere at short notice,” a source explained.
Add to this currency issues eating into margins (a weak Euro against a strong dollar), and the predicted fall in prices of polysilicon next year which could lead to even stronger supply, and it is easier to see why caution abounds for investors, and why all but the larger manufacturers (who can build cheaper and undercut competitors to shift volume) may struggle to compete.
According to Peter Thiele, executive vice president of Sharp Energy Solution Europe (SESE), while the European market situation was previously characterised by high demand for solar modules and limited supply, 2009 brings fundamental changes to the conditions in the solar industry: “new subsidisation regulations now apply in the world's most dynamic solar power markets Germany and Spain, impairing the sales markets. In addition, the worldwide expansion of production in causing the intensity of competition to increase [means that] – for the first time, the supply of solar power products will exceed the demand. Photovoltaics has come of age and is presenting new challenges, especially to us producers,” he concludes: “We shall see who can follow the market shift. A high quality brand, state-of-the-art production as well as efficient sales strategies will be key criteria for the future markets. Particularly in these economically tense times, consumers are paying more attention than ever before to the brand, and thus to an optimal relationship between quality and price.”
Light at the end of the tunnel?
That said, although the outlook for solar is slower growth for the near term, all industries currently share this prospect, in particular the US car industry, now standing ready for a handout, or failure or both. But the PV industry has been through difficult times before, and survived to succeed and profit. Of course, the manufacturing side of the industry was unprofitable until 2004 – the first year that companies broke even or showed a glimmer of profit.
Technology development is a long, committed and expensive road from research to pilot line to commercial production. The process of developing markets is also a non-trivial task requiring incentives, justification of the need for incentives, and significant capital investment. The PV industry is filled with entrepreneurs and survivors, scientists, engineers, analysts and business people – optimistic pragmatists to the very last. Despite numerous roadblocks over 30 years of technology and market development, the industry persists, and will persist – long past this downturn and through all the upturns and downturns to come.
So slowdown from time to time shouldn't be feared, especially in a sector with such strong fundamental drivers, excellent potential markets in the USA and Japan, and which has shown such good growth rates over the past few years.
Yes, falling prices in 2009 will impact major players; and we will see technologies that only a few years ago were labelled as novel (such as low-cost thin-film technologies for example) achieve cost advantages over traditional multicrystalline producers that may leave them especially well-positioned to survive any shakeout.
|About the author:
Paula Mints is the principal analyst for Navigant's PV Service Market Research Program, executive editor of the Solar Outlook Newsletter, and associate director of the Energy Division.
The PV Services Department at Navigant Consulting was founded in 1974 at Strategies Unlimited, and Ms Mints moved it to Navigant in 2005. The practice is based on classic market research principles, that is, all data are primary, not secondary, and the analysis is independent and not based on the work of others.