Emerging PV Markets: Learning from the German Model

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.

Hairy Issues

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.

Lead image: School concept via Shutterstock

5 Comments

Dennis Heidner
February 20, 2013

Part 3 (last piece)

One last item missing that helps explain the recent push on solar. As noted in the KfW quote above - KfW has a number of programs for energy efficiency in Europe, that is important in that Germany like the other EC member states has agreed to targets to reduce CO2, increase renewable energy production and increase energy efficiency. Some of the more recent German laws allow the home owners to meet the targets for their homes by increase the insulation and energy efficiency or adding solar thermal/PV, or another renewable energy source to the house. There are also rules in place that require efficiency targets to be made if the boiler (furnace/hotwater heater) is replaced.

Promotion of renewables in Germany is a very carefully planned activity the spans many different trades and disciplines. It is supported and accepted by the citizens and the politicians. It has the basic support of their neighboring peer countries.

These very well may be elements that will be missing in developing world markets.

Dennis Heidner
February 20, 2013

Part2,

The Solar PV on residences really did not take off until AFTER 2004 when the FiT was changed again. But by this time KfW was already providing support to Germans AND solar on the roofs were no longer considered risky. The FiT after 2004 was increased such that payback, even with more expensive systems was assured, the risk to the banks was low, (FiT rate at time solar added to home fixed for 20 years. The world had seen wars in the middle east and price for fossil based energy was again climbing. The 1990 Kyoto agreement was history and the public was well educated on the risks of global climate change.

German deployment of solar on roof tops might be slowing - but that is more likely a response to the degressing FiT and a re-prioritizing of other renewables and energy efficiency programs.

Jigar Shah is correct --- if they don't make adjustments -- there will be more solar installed than really makes sense - and it would be installed on some really crazy places (ski lift chairs anyone?).

The German FiT is just one piece of the story as to why Solar PV built out in the 2000's. It isn't the only reason for success.

One of the problems in many developing countries is an infrastructure (power grid) which is old, not stable, corrupt governments, and weak financial capital markets. A German solar program model would not work for those countries. Nor would a US or any other model.

According to the "Renews special - 20 years of Support for Renewable Energies, Issue41 Sept 2010, Renewable Energy Agency, German government) -- the "100,000 Roofs Programme" was modeled after a Japanese model. Yet it it was the German solar program that many look at with amazement. Again it was the combination of events, the green political movement in Germany and the support of KfW that made the difference.

Dennis Heidner
February 20, 2013

Part 1,

Jigar-Shah makes VERY good points. The early German FiT was less than successful. Some history (from German government websites).

In 1991 the StrEG(Electricty Feed-in Act) made it possible and opened up the door for distributed Solar PV across the Germany. The early program to deploy solar was called the "Thousand Roofs" program. Between 1991 and 1994 only about 2,200 installations were made with about 70% of the cost subsidized. (Issue 41, Sept 2010 Renewable Energy Agencies - on the web). After the program ended - the industry collapsed. Various citites including Aachen provided support trying to keep solar pv alive. Through 1999 and 2003 the new EEG (feed in tariff) and the 100,000 solar roofs program was in place. That was an improvement - but probably as important was that promotion of solar was accepted and financing was backed by the government.

From KfW's website where they talk about their loans, sustainability, promotions, etc.

"Home financing is unimaginable without KfW. People who want to build or buy a home will be financing through their regular bank what may be the biggest investment of their lives, as well as subsequent investment in energy-efficient refurbishment or conversions to make their homes senior friendly. KfW joins the commercial bank in the lending process and closes financing gaps to make the financing affordable. KfW provides special support for houses that are particularly energy-efficient and sets standards with the KfW Efficiency House. Funds are provided not only for the construction but also for later refurbishment. Whether for thermal insulation, new heating systems or windows - KfW has a number of programmes to advance energy-efficient refurbishment in Germany."

(http://www.kfw.de/kfw/en/KfW_Group/About_KfW/Mission/Domestic_Promotion/index.jsp#Retailcustomers)

James Tyson
February 19, 2013

Emerging PV markets are often in countries where the grid is not reliable. Therefore, grid-tied, battery-less systems for distributed generation on homes and business, which are common in the US, are not an easy thing to sell in these markets. The big benefit that solar must provide is increased reliabily of energy. Typically, we think this means adding batteries, which increase the cost considerably. Alternatively, a generator can be used to fill-in when both the solar and the grid are off-line. The good news here is that many businesses in developing countries already have a generator, so unlike batteries, usage of a generator is not necessarily an added expense. Generators wear out eventually, and when they do, then an evaluation can be done as to whether they should be replaced with a new generator or with batteries. The issues of noise, fumes and maintenance will tend to weigh in favor of the batteries. In short, the success of distributed solar generation in developing countries will depend in large part on adapting the design to the specific needs of the situation, rather than trying to make an American or European model work. As to countries like Brazil that have fluctuating hydroelectric resources, dam-uprating (in which solar is used during the daytime to minimize the drawdown of water behind the dam) is one of the simplest and most cost effective applications of solar technology, since no additional transmission wires are required.

Jigar Shah
February 16, 2013

A few points people always miss:
1) FiT is not why German succeeded, it is because the KfW was forced to make solar loans easier to get than car loans -- Fannie Mae style. This is good policy but always over looked

2) Germany is basically California in terms of energy demand, etc. California will match Germany deployment by 2022 at 90% less cost to ratepayers -- thank you Germany

3) Germany market will go practically to zero by 2020 because they will be at 100% peak coming from solar PV...they should figure out how to level down to 2,000 MWs per year ASAP or else deployment industry will go to zero in 7 years