Global PV Supply: Realizing a Vision

This conclusion emerges from two new analyses from the agency: the Solar Photovoltaic (PV) and Concentrating Solar Power (CSP) Roadmaps, which are designed to enable governments, industry and financial partners to implement measures to accelerate required technology development and uptake.

Highlighting the fact that the technologies will deploy in different yet complementary ways – PV mostly for on-grid distributed generation and helping to provide energy off-grid in rural areas and CSP largely providing despatchable electricity at utility-scale from regions with the brightest sun and clearest skies – collectively, PV and CSP could generate some 9000 TWh in 2050, the IEA believes.

According to the analysis, with effective policies in place, PV on residential and commercial buildings will achieve grid parity by 2020 in many regions. PV will become competitive at utility-scale in the sunniest regions by 2030 and provide 5% of global electricity by then. As PV matures into a mainstream technology, grid integration and management and energy storage are set to become key issues, the IEA says, adding that the PV industry, grid operators and utilities will need to develop new technologies and strategies to integrate large amounts of PV into flexible, efficient and smart grids. Nonetheless, by 2050, PV could provide more than 11% of global electricity, the Roadmap concludes, despite delivering just 0.1% of total global electricity generation currently.

Achieving this level of PV electricity supply – and the associated, environmental, economic and societal benefits – will require more concerted policy support, the agency says. Sustained, effective and adaptive incentive schemes are needed to help bridge the gap to PV competitiveness, along with a long-term focus on technology development that advances all types of PV technologies, including both commercially available and emerging and novel technologies.

Electricity Generation and Cumulative Capacity

PV will need to play a significant role in the world’s energy mix in 2050 to help achieve global climate change goals at the lowest cost, the IEA says. According to the Agency’s Energy Technology Perspectives 2008 (ETP) publication, by 2050, solar power is expected to provide 11% of annual global electricity production, with roughly half generated from PV (6%) and the remainder coming from concentrating solar power. The new Roadmap, however, forecasts a far more rapid PV deployment, with PV alone projected to reach 11% by 2050, almost the double the level previously estimated.

The IEA believes an accelerated outlook is justified by the recent PV market growth and associated cost reductions – the global PV market more than doubled in one year from 2007 to 2008, and system prices fell 40% between 2008 and 2009.

This acceleration in the deployment of PV has been triggered by the adoption of PV incentive schemes in an increasing number of countries. Assuming the continuation of an evolving, favourable and balanced policy framework, if such policies are successfully implemented, the IEA says, by 2050 there will be 3000 GW of installed PV capacity worldwide, generating 4500 TWh per year, 11% of expected global electricity supply. This is expected to save 2.3 Gt of CO₂ emissions annually, corresponding to some 5% of the total projected avoided CO₂ emissions, they add.

Below: achieving grid parity will be facilitated in part by  
policy incentives that decrease overall costs of PV.

The Roadmap assumes an average annual market growth rate of 17% in the next decade, leading to a global cumulative installed PV power capacity of 200 GW by 2020. This level of PV market growth is justified by the achievement of grid parity, which is predicted to occur in an increasing number of countries during this time frame.

Achieving grid parity will be facilitated in part by policy incentives that support the deployment and decrease overall costs of PV and by measures increasing the cost of other technologies. Accelerated deployment and market growth will in turn bring about further cost reductions from economies of scale, significantly improving the relative competitiveness of PV by 2020 and spurring additional market growth.

From 2020 to 2030, an average annual market growth rate of 11% is assumed, bringing global cumulative installed PV capacity to about 900 GW by 2030, the IEA says. By this time, the volume of new installed capacity would be more than 100 GW per year. The analysis forecasts total cumulative installed PV capacity, which is predicted to reach 2000 GW by 2040 and 3000 GW by 2050, taking into account the replacement of old PV systems.

The relative share of the four market segments (residential, commercial, utility-scale and off-grid) is also expected to change significantly over time. In particular, the cumulative installed capacity of residential PV systems is expected to decrease from almost 60% today to less than 40% by 2050, although the relative shares of PV deployment among the different sectors will vary by country and according to each nation’s particular market framework.

The Roadmap also assumes that cost reductions for future PV systems continue along the historic PV curve. PV module costs have decreased in the past at a rate of 15%–22%, and have seen a corresponding reduction in total system costs for every doubling of cumulative installed capacity. Turnkey system prices are expected to drop by 70% from the current level of $4000–$6000/kW down to $1200–$1800/kW by 2030, with a major price reduction (more than 50%) achieved by 2020. Large-scale utility system prices are expected to drop to $1800/kW by 2020 and $800/kW by 2050, and in the best case will lead to long-term levelised generation costs of lower than $50/MWh.

Achieving the ambitious deployment goals which have been set and overcoming existing barriers will require targeted action all along the PV value chain, and throughout the lifecycle of product development from basic research to demonstration and deployment, the IEA says. It will also require measures designed to foster those technologies which enable large-scale deployment of PV, such as energy storage and grid integration technologies, the IEA states. The Roadmap recommends beginning in 2010 by setting long-term targets, supported by a transparent and predictable regulatory framework to build the confidence required for PV investments. The regulatory framework should specifically include financial incentive schemes to bridge the transition phase until PV has reached full competitiveness, and ensure priority access to grids over the longer term, the analysis concludes. Phase-out of suport depends on when PV becomes fully competitive in a specific country, but by 2020 at the latest, by which time a regulatory framework to facilitate large-scale PV grid integration, including targeted smart grid-based demonstrations for areas of high PV implementation, should be designed and implemented. Other recommendations set out in the analysis are as follows:

Set Predictable Incentives and Frameworks

The high capital requirements for PV installations and manufacturing plants are clear – long-term, effective and predictable financial incentives and framework conditions (e.g. access to grids) are required for the next decade at least to provide sufficient investor confidence. Governments should establish long-term PV targets that can be implemented by such financial incentive schemes for market introduction and deployment. These schemes must be designed with long-term energy policy objectives in mind and should be steadily reduced over time to foster innovation and the development of the most cost-efficient technologies. As PV reaches grid parity, economic incentive schemes should evolve towards a market-enabling framework based on net metering and priority access to the grid.

Providing economic support alone, however, is not enough. Non-economic barriers can significantly hamper the effectiveness of support policies. Administrative hurdles such as planning delays and restrictions, lack of co-ordination between different authorities, long lead times in obtaining authorisations and connection to the grid are key barriers for PV deployment. Governments should address administrative barriers by ensuring coherence and co-ordination between different authorities and implementing time-effective and streamlined administrative authorisation procedures for PV systems.

To date, most PV incentive schemes concentrate on grid-connected systems. Stand-alone and rural PV systems are rarely supported, despite the fact that they may offer the most cost-efficient solution, for example by replacing diesel generation. Dedicated and sustainable strategies to support off-grid PV applications and services, in particular for rural electrification, need to be established. Schemes should take into account non-economic barriers as well as the need for new financing and business models, particularly in developing countries.

Establish Regulatory Frameworks

Given its variable, non-despatchable nature in distributed applications, PV presents new challenges for grid integration. With an increasing number of PV systems in place, interconnection and load management will become important issues. Grid accessibility and integration challenges may prevent PV from achieving this Roadmap’s vision if not properly addressed in the short term. In order to accommodate an increasing share of variable PV, a higher degree of system flexibility is required. Flexibility can be increased both through market and transmission optimisation measures. Market measures include expanding markets to smooth overall variability and implementing demand response measures. Addressing the issue of grid integration will require governments to act in the near-term, given the long lead times between planning and investing in new grid infrastructure and technologies. Regulators should initiate long-term planning aimed at increasing system flexibility and grid management. In areas with a planned high use of PV generation, government should foster and co-finance smart grid demonstration systems, which would enable faster large-scale deployment of PV.

Establish Standards and Codes

Standards, codes and certificates help create confidence and better handling of PV products. It is not only a question of safety and quality assurance but of improving the competitiveness of the industry by avoiding administrative hurdles and reducing unit costs. Standards, codes and certificates are needed for performance, energy rating and safety standards for PV modules and building elements; for grid interconnection; for quality assurance guidelines all along the value chain; and for the reuse and recycling of PV components. The development of an internationally agreed upon set of codes and standards will permit the increased deployment of a variety of PV technologies.

Foster New Financing and Business Models

PV systems need considerable up-front investments, but once installed are low cost to operate. High initial investment costs are an important barrier for residential and small commercial customers and for off-grid applications. Investment barriers require innovative and uncomplicated financing approaches, including the development of PV market and business models aimed at end-user service and efficiency.

Addressing this gap will require a shift in business models. One option that shows promise is the development of energy service companies (ESCOs) that own the system and provide an energy service to the end-user for a periodic fee. The user is not responsible for the maintenance of the system and never becomes the owner. Governments should explore providing financial incentives to PV ESCOs for on-grid and off-grid applications.

The high cost of capital and limited access to funds exacerbates the investment cost challenge in the developing world. To overcome the barrier of high capital costs and encourage the widespread use of PV in rural and remote communities, new implementation models for financing and operating PV systems are needed. Several financing mechanisms are available:

• Direct (cash) sales: The end-user immediately becomes owner of the system.
• Credit sales: The end-user obtains a credit from the PV dealer or from a third-party institution (possibly through micro-credit initiatives). Depending on arrangements, the end-user ultimately becomes the owner and the PV system can be used as collateral against the loan.
• Hire (lease) purchase and a fee-for-service model: The PV supplier/dealer or a financial intermediary leases the PV system to the end user. At the end of the lease period, ownership may or may not be transferred to the end-user. Alternatively, a fee-for-service model based on an ESCO can also be applied.

Governments can also address the investment cost challenge by creating a market framework and/or mechanisms that foster investments in innovative grid and storage technologies. Time dependent electricity tariffs, capacity value markets and ancillary PV markets have all shown promise and merit further exploration and adoption as appropriate.

Create a Skilled PV Workforce

Efforts are needed to increase the number of qualified workers for a growing solar industry along the value chain and the lifecycle of PV product development, from research to system installation and maintenance. A well-trained workforce is necessary to ensure technology development, quality installations, cost reductions, and consumer confidence in the reliability of solar installations.

These activities should focus on building the capacity of educational institutions to respond to the increased demand for high-quality training for solar installers and code officials.

Technology Development and RD&D

PV comprises a set of technologies at differing levels of maturity. All of them have significant potential for improvement. Increased and sustained RD&D efforts are needed over the long term in order to accelerate cost reductions and transfer to industry of the current mainstream technologies; develop and improve mid-term cell and system technologies; and design and bring novel concepts to industrialisation. Significant RD&D is also needed at system level, specifically in terms of improving the product requirements for building integration and minimising the environmental impacts related to a very large-scale deployment of PV systems.

Recent IEA analysis suggests that RD&D expenditures in solar energy should increase by a factor of two to four in order to achieve the goal of reducing CO₂ emissions by 50% at global level. In the short term it is crucial to increase public RD&D funding to accelerate the PV deployment process.

Below: The IEA believes PV on residential and commercial
buildings could achieve grid parity by 2020

Develop and Implement Smart Grids and Storage

An advanced ‘smart’ grid will be needed to support low-carbon technologies. The smart grid can provide a range of benefits to both end users and generators, including the ability to monitor and manage the bi-directional transport of electricity in a way that accommodates the non-despatchable nature of PV generation thus enabling increased PV deployment.

After 2030, when PV is expected to reach a share of 5% of global electricity generation, the development and application of enhanced storage technologies will become increasingly important as a strategy to meet the needs for flexibility and to minimise the impacts of the variable PV power integration into electricity grids.

A Roadmap for the Decade Ahead

Announcing the new PV and CSP roadmaps in Spain, Nobuo Tanaka, the IEA’s executive director, commented: ‘This decade is crucial for effective policies to enable the development of solar electricity. Long-term orientated, predictable solar-specific incentives are needed to sustain early deployment and bring both technologies to competitiveness in the most suitable locations and times.’ He concluded: ‘These incentives will need to evolve over time to foster innovation and technology improvements. To support cost reductions and longer-term breakthroughs, governments also need to ensure long-term funding for additional research, development and demonstration efforts.’

If such a goal can be achieved then PV will certainly be coming to a town near you in the very near future.

Sidebar: Regulatory Framework and Support Incentives

Deploying PV according to the schedule set out in the Roadmap requires strong, consistent and balanced policy support. The four main areas of policy intervention include:

• Creating a policy framework for market deployment today and the next decade, including tailored incentive schemes to accelerate market competitiveness
• Improving products and components, financing models and training and education to foster market facilitation and transformation
• Supporting continuing technology development and sustained R&D efforts to advance the cost and efficiency improvements
• Improving international collaboration to allow for accelerated learning and knowledge transfer to emerging and developing countries

Emerging Economies: Rapidly Growing PV Markets

The IEA PV Roadmap envisions a rapid growth of PV power throughout the world, both in OECD countries as well as in Asia, and at a later stage in Latin America and Africa. Major economies like China and India have become global solar forces in the past decade, and will remain important market influencers in the decades to come, the Roadmap argues, adding that the potential of PV for distributed generation is very substantial in Latin America and Africa.

These developing world regions may become very important markets in the mid- to long-term, the IEA analysis finds, with, for example, Brazil already a leading country in the use of PV for rural electrification and able to play a major role in technology collaboration with developing countries. Key observations from the Roadmap include:

Brazil

The main applications of PV technology in Brazil are telecommunications for use in microwave repeater stations, rural electrification, water pumping and public lighting in low-income rural communities.

Grid-connected PV systems are still at an experimental stage in the country, with a combined capacity of 22 kWp installed. In 1995, the Brazilian government launched a programme to promote rural electrification with PV systems, known as PRODEEM (Programme of Energy Development of States and Municipalities). Approximately 9000 PV systems were installed in the period 1996–2001, with a total of 6 MWp of installed capacity. In 2003, the federal government launched the programme known as Luz para Todos (Light for All), which aims to supply full electrification in the country by 2010. The programme has an estimated total budget of about $2.6 billion funded by the federal government, concessionaires and state governments. A programme for labelling PV equipment and systems was launched in 2003 by INMETRO (Brazilian Institute for Metrology, Standardisation and Industrial Quality) to guarantee the quality of equipment acquired and installed within the Light for All programme. This labelling scheme is currently in force and applies to PV modules, charge controllers, inverters and batteries and is done on a voluntary basis. The Brazilian PV market is currently dominated by multinationals, and there are no national manufacturers. However, with the support of the government, the Brazilian Centre for Development of Solar PV Energy (CB-Solar), created in 2004, has developed a pilot plant to manufacture cost effective PV modules and silicon solar cells at scale.

China

China’s solar PV industry has been growing rapidly and the country now ranks first in the world in terms of exports of PV cells. Domestic output of PV cells expanded from less than 100 MW in 2005 to 2 GW in 2008, experiencing a 20-fold increase in just four years. This is the result of a strong demand from the international PV market, especially from Germany and Japan. However, the PV market demand in China remains small, with more than 95% of the country’s PV cell products exported. In 2008, China’s cumulative PV installed capacity was 150 MW, according to figures from the National Energy Administration. Some 40% of this demand is met by independent PV power systems that supply electricity to remote districts not covered by the national grid. Market shares of solar PV for communications, industrial, and commercial uses have also increased. BIPV systems, as well as large-scale PV installations in desert areas, are being encouraged by the Chinese government, which began providing a subsidy of RMB20 ($2.93) per watt for BIPV projects in early 2009. It is likely that the 2010 and 2020 national targets for solar PV (400 MW and 1800 MW, respectively) announced in 2007 will be significantly increased. Experts predict that Chinese installed capacity could reach 1 GW in 2010 and 20 GW in 2020.

India

India has a large and diversified PV industry consisting of 10 fully vertically integrated manufacturers making solar cells, solar panels and complete PV systems, and around 50 assemblers of various kinds. Together, these companies supply around 200 MW per year of 30 different types of PV systems in three categories – rural, remote area and industrial. However, despite this strong industrial base, PV constitutes a small part of India’s installed power generation capacity, with 2.7 MW of grid-connected systems and 1.9 MW of stand-alone systems in 2008. There are a number of high-level government initiatives that have provided new momentum for PV, including:

• The 2008 Action Plan on Climate Change included a ‘National Solar Mission’ that establishes a target of generating 20 GW of electricity from solar energy by 2020; the programme aims to boost annual PV power generation to 1000 MW by 2017.
• In 2008, the Ministry of New and Renewable Energy (MNRE) established a target of 50 MW of capacity by 2012 to be achieved through its Generation Based Incentives (GBI) programme. The GBI includes production incentives for large solar power plants of INR12 ($0.25) per kWh for PV up to 50 MW of capacity, subject to a maximum 10 MW in any one state.
• The Eleventh Five-Year Plan (2007–2012) proposed solar RD&D funding of INR4 billion ($86.4 million). The Working Group on R&D for the Energy Sector proposed an additional INR53 billion ($1.15 billion) in RD&D for the Plan period, with the two largest topics being: research on silicon production for PV manufacturing with a total investment of INR12 billion ($259 million), including the establishment of a silicon production facility; and, research on LEDs with INR10 billion ($216 million) of investment, also including the establishment of a manufacturing facility.