Paula Mints, SPV Market Research/Strategies Unlimited
March 14, 2014 | 4 Comments
The residential PV application is expected to continue exhibiting strong growth in select countries such as those in Europe and the US. Japan, traditionally a strong market for residential solar is seeing strong FiT-driven growth for the commercial application, while the end of the residential subsidy in March 2014 may bring a slowing of the residential application. In Japan investor owned systems on apartment complexes is a way to continue growth in the residential application.
In Europe, a low incentive environment and growing interest in self-consumption are drivers, though, storage technologies are necessary for growth in self-consumption to continue.
In the US continued strong growth in the solar sector continues to be incentive driven. Focusing on the residential application, the announced end of the ITC (30% tax credit) in 2016 will hit the high margin residential solar lease and solar PPA companies directly in the profit margin. Given this reality, expectations for an aggressive push to deploy systems before the end of 2016 should be expected. Unlike the commercial application, particularly multi-megawatt or utility scale, residential deployment is faster.
Along with fragile incentives, another caveat to continued strong growth for the residential application is utility intervention, which is, blocking self-consumption in European countries by instituting fees or increasing utility rates on rate payers who do not own systems. Utilities, globally, will either choose to aggressively participate by offering leases (or some other instrument) to homeowners and selling the electricity from these systems or, they are likely to increase charges or pursue legislation. In the US island state of Hawaii, regulations are blocking many new PV system owners from connecting to the utility grid.
Figure 1 presents the contribution of the grid-connected residential and commercial/utility owned application to the grid-connected market as a whole. Figure 1 does not include the off-grid applications.
Figure 1: Global Residential and Commercial/Utility Owned Contribution to Grid Connected Application, 1996 - 2013
Figure 2 presents growth for the global residential application and the commercial/utility owned application from 1996 through 2006. During this period the residential application grew by a compound annual 59 percent while the commercial/utility owned application grew by a compound annual 74 percent. The time frame depicted in Figure 2 includes the beginning of the residential subsidy in Japan, the 100,000 roof program in Germany and strong incentives in California. The Feed in Tariff era in Europe began ramping up in 2004.
Figure 2: Global Residential and Commercial/Utility Owned Contribution Growth, 1996 - 2006
Figure 3 presents growth for the grid connection application from 2007 through 2013, years of significant growth in the PV industry. During this period the residential application grew by 47 percent while the commercial/utility applications grew by 54 percent.
During the 2007 through 2013 period depicted in Figure 3, the PV industry grew rapidly, driven by (in some cases) highly profitable FiTs in European countries. Currently the PV industry is moving into a low to no incentive environment. Japan’s Fit may be the final incentive of its type as the industry works to develop business models that allow for profitability as well as ensuring healthy growth in an environment where governments no longer favor incentives — at least for renewable technologies.
Figure 3: Global Residential and Commercial/Utility Growth, 2007-2013
Figure 4 offers a forecast for the residential application from 2013 through 2018. It is expected that the residential application will continue to grow at, what for any other industry, would be an enviable rate of 15 percent for the conservative scenario to 27 percent for the accelerated application. Though these growth expectations may seem low, they take into account a myriad of macro and micro economic possibilities that can ripple through home owning populations.
Figure 4: Global Residential Application Forecast, 2013 - 2018
Residential application growth is vulnerable to economic downturns as well as homeowner mobility that is, in bad times homeowners may lose their homes or not be able to afford an expensive addition and in good times homeowners may not want to commit to a 25-year asset and prefer moving to a newer home. There is not enough data currently to assess the success or failure of residential solar leases and PPAs. These models will need to mature rapidly as well as taking into account the value offered to electricity consumers.