14 renewable energy focus July/August 2010

Feature article

EPIA: market installed 7.2 GW of PV in 2009THE GLOBAL SOLAR PHOTOVOLTAIC ELECTRICITY PV MARKET COUNTED AN ADDITIONAL

INCREASE IN INSTALLED CAPACITY OF 7.2 GW IN 2009, REACHING A TOTAL CAPACITY OF

OVER 22 GW WORLDWIDE, ACCORDING TO THE LATEST FIGURES FROM THE EUROPEAN

PHOTOVOLTAIC INDUSTRY ASSOCIATION EPIA. WE LOOK AT WHICH COUNTRIES LED THE

WAY, AND THEN ON PAGE 16 PAULA MINTS REVIEWS WHAT HAS SHIPPED SO FAR IN 2010.

There have been many challenges swirling round the PV industry over

the past few years. Global recession for one, not to mention a reliance on

relatively few incentive-driven markets that have either collapsed (Spain),

or whose bright future is far from guaranteed (Germany – post feed-in

tariff changes).

This led last year to a situation of module oversupply and price falls, which

has put the squeeze on module manufacturers, particularly the ones

outside of China; Chinese companies are being fabulously well supported

by a Government that wants to create a ‘Silicon Valley for solar’ within

China. In this regard, the battle of the major Chinese players like Suntech

and Trina Solar continues apace, with Q1 2010 supply seeing five of the

top 7 suppliers coming from China (First Solar - USA - topped the charts

with 8.4% of shipments according to IMS Research).

But despite the challenging landscape facing some however, recent

figures from the EPIA’s Global Market Outlook for Photovoltaics until 2014,

appear to show an industry that has been bruised but has remained

unbowed and defiant, and some companies would even argue they are

now leaner and meaner and prepared for the difficulties ahead.

The industry itself has been robust in its optimism, especially the EPIA

itself, which has called the 2009 results the “most important annual

capacity increase ever [considering the] economical circumstances during

the past year”.

In 2010, the Brussels-based organisation expects global cumulative

installed PV capacity to grow by at least 40%, while the annual growth

is expected to increase by more than 15% (see page 16 where Paula Mints

gives us her take on 2010 movement to date).

But during 2009, the EPIA said, Germany remained the largest market, with

Italy ranking second and Japan and the US markets to follow. EPIA expects

that Germany will remain the “largest market in 2010”, while new markets

in particular from Southern Europe, Asia and the US will grow “significantly”.

Major market snapshot

Germany

With a cumulative installed capacity of almost 10 GW, including around

3.8 GW installed in 2009, Germany remains the world’s largest PV

market by far, although the recently-announced feed-in tariff (FiT) cuts

are expected to significantly affect the development of the German

industry in the longer run.

After January’s FiT decrease, the German parliament voted in a poten-

tial additional decrease that was originally planned to come into effect

in July. This decrease was to be set at 16% for rooftops, 11% for recon-

version areas, 15% for the other installations and the feed-in tariff for

PV installations on agricultural land was to be removed.

However, as we go to press, debate still rages, with Germany’s upper

house of parliament voting to scale back the above planned reduc-

tions in subsidies, saying the cuts “threaten investment and jobs in the

industry”. The proposal approved by the upper chamber in Berlin trims

the subsidy cut for rooftop panels and solar parks to a maximum of

10%. Expect further twists before a final level of reductions is reached.

As far as 2009 goes, the combination of a proven FiT scheme, good

financing opportunities, a large availability of skilled PV companies, and

public buy-in for PV technology, largely contributed to healthy growth.

The revised figures from the German Bundesnetzagentur showed a

market of 1.8 GW in 2008, and 3.8 GW in 2009, following a significant

rush in the last month of 2009 to avoid the annual FiT decrease, reports

the EPIA.

With potential changes to the FiT in mind, the EPIA thinks that the

German PV market could reach up to between 5 GW and 7 GW in

2010, returning to around 3 GW to 4 GW annually from 2011 onwards.

EPIA estimates that the market could stabilise in the 3 GW to 5 GW

renewable energy focus July/August 2010 15

PV/Markets

annual installations level by 2014, if the present support scheme is

maintained, with FiT decreases in line with the price decreases.

Italy

In the medium-term, believes the EPIA, Italy appears to be one of the

most promising markets in the world. With 711 MW installed in 2009,

Italy installed the second highest number of MW in Europe (and in the

world) and could become the second GW market by 2010. According

to the latest market development in the country, EPIA expects the

market to reach between 1.5 GW and 2 GW by the end of this year.

A major driver is the new Conto Energia, which EPIA’s report says

should “continue to support the strong momentum of the Italian

market”. In January 2009, the Italian Government extended net-

metering (Scambio sul posto) to PV systems up to 200 kW. On top

of the value of the electricity itself, the PV system owner also gets a

premium FiT on the total electricity produced by the PV system. The

higher tariffs for building integrated PV systems (BIPV) also support

the development of innovative products and applications for roof

mounted systems.

In addition to the Conto Energia, the future growth of the market will

also depend on the streamlining and harmonisation of administra-

tive procedures, combined with an adapted decrease of the FiT in the

third Conto Energia to cope with the expected price decrease. EPIA

also expects, due to high electricity prices, that residential grid parity

during peak load hours could be feasible by 2011 or 2012, at least in

the south of the country.

Japan

With 484 MW installed in 2009, the relaunch of the Japanese residen-

tial PV programme, the launch of net metering, as well as support for

local authorities and the private sector have been successful in kick

starting the Japanese market again, reports the EPIA.

EPIA expects Japan to become a GW market in 2010. Japan has set ambi-

tious targets to reach 28 GW of installed PV power by 2020 and 53 GW by

2030. Secondly, PV technology is well-established and widely integrated

in the building environment. And large plants should start to comple-

ment the existing and well-developed residential market.

Assuming a coherent political framework to support the targets, the market

could reach between 1.2 GW and 2.4 GW by 2014, predicts the EPIA.

USA

With many large ground-mounted projects in the pipeline, EPIA sees

the USA as having the potential to become one of the top PV markets.

The organisation predicts that with 477 MW installed in 2009 – 40 MW

of which comes from off-grid installations – 2010 could see the market

achieve from between 600 MW to a possible 1 GW of new installations.

By 2014, the market could reach 3 GW (installed that year) in the EPIA’s

moderate scenario, while in the policy-driven scenario up to 6 GW could

be installed. The difference between both scenarios originates from the

market response to incentives in different states, combined with the level

of those support frameworks.

With the State of California continuing to lead the pace in 2009, the

potential of the US territory and the commitment of President Obama

(ostensibly) to renewable energy, the USA could represent a GW market

by the end of this year, according to the EPIA.

The best of the rest

EPIA’s figures also show that the Czech Republic showed growth in 2009

with 411 MW installed but, due to overly generous support schemes, the

market is expected to shrink in 2011 after another year of strong growth

in 2010. “This underlines the imperative need for support mechanisms

to be designed in a way to ensure a long term, predictable and sustain-

able development of the market and avoid instability and discontinuity

in market evolution,” explains Adel El Gammal, Secretary General of EPIA.

Thanks to strong political will, Belgium made its entry into the top

10 markets with 292 MW installed in 2009. Due to a revision of the

financial support scheme in early 2010, the market is expected to slow

down slightly in 2010. France follows with 185 MW installed in 2009,

with an additional 100 MW installed but not connected to the grid

World and European PV markets in 2009 in MW. Source: European Photovoltaic Industry Association (EPIA), from the report Global Mark et Outlook for Photovoltaics until 2014

16 renewable energy focus July/August 2010

PV/Markets

yet. In spite of huge potential, this clearly demonstrates the need for

France to solve grid connection issues in order to allow the market to

develop further.

In Spain, the set-up of a market cap in 2008, combined with the effects

of the financial crisis, constrained the market to only about 60 MW

installed in 2009, says the EPIA. However, PV accounted for about 3%

of the electricity production in the country in 2009, and clearly appears

as a privileged source of electricity in the fight against climate change.

Finally, Greece (2009, 36 MW), Portugal (32 MW) and the UK (10 MW)

are showing interesting potential for growth in 2010 and beyond.

Outside of these top markets, China (2009, 160 MW) and India (30 MW)

are also expected to boom in the next five years with an impressive array

of PV projects in the pipeline. Canada (70 MW) and Australia (66 MW)

showed significant market development in 2009 and are expected to

open the way to the development of new markets. Brazil, Mexico,

Morocco and South Africa are also seen as promising countries.

2010 snapshot: 6 months down – By Paula Mints, Navigant Consulting

Technology manufacturers will ship more and make more this year than

they did in 2009, primarily due to strong demand in Germany, Italy and

the Czech Republic. The industry is on track for another year of acceler-

ated growth, with shipments to the first point of sale reaching 13 GWp

– about 65% higher than the 7.9 GWp shipped in 2010.

It is likely that over two thirds of the technology shipped in 2010 will go

to Europe, leaving about 5% for the USA, 9% for Japan and the remaining

10% for the rest of the world. In 2009, shipments grew by 44% from the

previous year but technology revenues were 16% less due to aggressive

pricing from manufacturers in China and Taiwan.

In 2010, despite continued low pricing (on average only slightly higher than

2009) the industry will get to enjoy around a 40% increase in technology

revenues for the year. The figure above provides a revenue forecast to 2014,

with the industry on track for the accelerated forecast in 2010.

Currency risks

Fluctuating exchange rates have made buying technology from firms

outside Europe more expensive this year, which may be good news

for European manufacturers. In June 2009, €1 bought around US$1.40;

45 New Taiwan Dollars; and 9.57 Yuan; compared to approximately

US$1.21; 39 New Taiwan Dollars; and 8.28 Yuan one year on. In 2009,

however, 37% of all technology sold came from China, most of which

went to Europe. In essence, the Euro went farther and bought more last

year than it is buying now.

Considering shipping costs from China, Taiwan and the USA, the cost of

technology has become even more of a burden. As the Euro continues to

drop, manufacturers will be forced to lower prices or make adjustments

to shipping agreements. Manufacturers of second and third tier modules

in China are already depressing prices back to 2009’s US$1.50/Wp levels.

As long as debt risk in Europe (particularly in Greece, Spain, Portugal and

Italy) continues the Euro is likely to remain vulnerable.

Aside from exchange risk anxiety, demand continues to surge and will

likely do so until Germany finally institutes the anticipated one-off

decrease to its feed-in tariff (FiT). Until then, average prices are hovering

at about US$2.25/Wp with higher and lower prices depending on buyer

power in the market. By the end of the year, however, given changes in

the German tariff, prices will likely be slightly down from 2009.

All eyes on Germany

The big degression is certainly coming – the only question is when. The

global solar PV market owes its current gigawatt volumes to Germany

and its introduction of the feed-in tariff model of solar incentives. In a

very real sense the German incentive structure is the father of future solar

incentives, although FiTs will differ from country to country according to

the needs of the local market.

Indeed, the European feed-in tariff model is the reason that multi-megawatt

(or utility scale) installations prospered. The 20-year payout reduced a portion

of the risk for investors and led to boom times for the solar industry. Europe

$50,000

$60,000

$70,000

$40,000

$30,000

$20,000

$10,000

$0

Historical cell/module revenuesConservative cell/module revenues Accelerated cell/module revenues

Lowered incentives

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$0

22004 220004 5 22005 6 220006 7 220007 8 22008 009999 22002022020220022020220 0000 2220020202222002002202022000000000000111010111010 1111 2202002022220200220202201111111 2220020222202020202011112222222111212111212 44433313131313 2220202020002002022020111111

Mill

ions

PV Technology Revenues to 2014 (courtesy of Navigant Consulting).

renewable energy focus July/August 2010 17

PV/Markets

became the largest market in the world for solar products and demand in

Germany from 2000 through 2009 grew at a compound annual rate of 62%.

After the market in Spain collapsed in 2009, Germany once again became the

largest market in the world with 53% of total demand.

The feed-in tariff model is good because it drives strong demand. But,

as with most incentives, it has three limits: it assumes that prices will

decrease at the same more-or-less predictable rate as costs; it assumes that

manufacturers and installers will accept slimmer margins; and it assumes

that the market will adjust itself on its own to desired installation levels.

Unfortunately, when demand is high participants will typically ask for

higher margins (as high as the market will bear) and they will continue to

sell products to the market as long as the market will accept them. In fact,

as the end of each year nears and the annual degression built into most

tariffs approaches, FiT markets tend to see frantic installation activity.

The result of all this is typically a market that is much larger than antici-

pated or desired. Spain and South Korea are examples of countries where

rapid expansion led to disaster. Germany has responded differently to the

ballooning growth of its domestic market and will institute a one-off steep

degression, followed by a return of the 9% degression along with a punishing

add-on decrease if the market oversells 3.5 GWp in a calendar year.

On or around 1 July 2010, the tariff will decrease further. In 2011, every

gigawatt installed over 3.5 GWp will result in an additional 1% degres-

sion per gigawatt, increasing to an additional 3% per gigawatt in 2012.

The direct consumption bonus, once touted as a gain for these system

owners, is around €0.08. There also is a further vote upcoming on the

degression. The only certainty is that something will happen this year and

whatever it is it will have an effect on the solar market in Germany and,

therefore, on the entire industry.

The next six months

The second half of the year will again focus on the European market,

as the upcoming decrease in module prices after the Germany degres-

sion finally kicks in. Changes in European FiTs (and more will change

as markets become overblown) will have a significant effect on multi-

megawatt system installations. The solar PV industry is currently learning

to deal with its vulnerable success – vulnerable because it is still driven

by incentives.

As FiTs decline – in some cases significantly – the industry will have less

control over its margins, as lower prices will be required in order to attract

investors and other customers. In just five years the industry went from

megawatts of shipments to gigawatts and this rapid change has destabi-

lised it. The PV industry is currently unhinged and needs time to adjust,

but the second half of 2010 will bring it back into line.

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 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.