Thomas C. Sauer, CEO EXXERGY
February 14, 2013 | 5 Comments
Germany is the pioneer market of the PV industry due to a very early ecological movement with its first political representatives ("Die Gruenen") back as early as 1980. Currently, in terms of installed capacity, Germany is second-to-none with approx. 35 GW installed. New installations in 2013 may reach up to five GW, which further establishes Germany's role as the leading market. As a result, many of the so-called pioneering companies in the PV-market are of German origin. However, their survival seems to be questionable as the market struggles with overcapacity in production and system integration. The demand for PV systems is starting to shift from established markets (EU and North America) to emerging countries (India and Brazil) because many European countries are cutting feed-in tariffs to deal with growing financial constraints.
The key question is: What can we learn from the German market that can be useful for new emerging markets? Does the wheel need to be reinvented again? Do we have to make the same mistakes?
This is a tricky question that requires a rather complex answer.
The Individuality of Each Market
Each emerging market has its own resource-based energy mix, and therefore its own reason why, when and how to start with solar energy – climate change, cost of energy, trade (im-)balance, environmental reasons, economic growth. Legal, cultural, taxation and other circumstances are all different from country to country and even within states. For example, Brazil is known for its ample hydropower, which provides approximately 75 percent of its electric power demand. But what if the reservoirs were at a level of 10-15 percent, even at the end of the rainy season? This question is currently triggering a lot of debate in Brazil related to the future security of its electric power supply. While this is a very unique situation that virtually no other emerging industrial country is facing, it serves as a good example of the driving forces and growth potential for solar energy in emerging countries.
Generally, the following favourable conditions will help develop each emerging PV market: High energy prices and millions of households with unstable or no energy supply; the general sunny climate of emerging markets as they group around the tropical and subtropical regions indicates prime conditions for PV-applicability;
the general business environment in each country is favourable – low bureaucracy and corruption, a stable, low-risk business environment, freedom of trade, homogeneous transparency of legal and technical standards and a skilled work force. In particular, grid parity, feed-in priority for renewables and the supporting/mediating role of government bodies is helpful for paving the way to success.
For many emerging markets, building up a local PV-industry is a must. Importing supplies will only work in the short term. A holistic approach that includes energy efficiency, an understanding of the overall energy mix and energy supply is vital for success, as well as positive public awareness and an overall ecological movement. These issues are complex and take time and patience. Local and international anti-renewables lobbies may arise to protect the status quo and continue to earn their established incomes.
The new market must establish a functioning distribution system for products and services and a sound marketing plan. This is difficult because all new products and technologies that require education are not easily accepted and supported. Finally, as shown by Germany, high quality is important from the start. Emerging markets may run the risk of losing momentum by bad press about underperforming PV-systems.
Feed-in Tariffs: Yes or No?
When Germany started its renewable energy industry, it established subsidies such as feed-in tariffs, research funding to build up the technical know-how, and start-up help for companies that took on the production challenge. As grid parity is in near reach or already achieved in most emerging markets, such direct financial state intervention may not be necessary, and even counter-productive. With financial support schemes, the general market discussion tends to shift from the core advantages of PV-systems (low CO2-emission, grid parity, decentralization of energy supply etc.) to excessive financial gains from investment. Intervening in an economically sound market also leads to bubbles that then have to be popped at another premium.
A Sunny Future
Concluding, emerging markets should provide a sound and friendly economic framework for renewables without much financial help except for making funds available at reasonable market rates. The advantages of PV-systems are strong and will surely unfold with a solid marketing plan. For the established PV-system players, entering these emerging markets will be still a challenge that stems from their own (un-)capabilities of dealing with a new market environment. The speediest and most well-adapted companies will be the first to serve and even mold those markets.
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