With global demand for PV products almost outstripping supply and silicon constraints due to ease, Paula Mints looks at various scenarios that the industry could face and the growth forecast that each leads to. Included in her explanation is what each scenario means for the regions of the world and for PV applications.From 2001 to 2006, the global PV industry grew at a compound annual rate of 41%. In 2006, demand increased by 41% compared with 2005 – astounding growth for any industry. In 2007, demand is expected to increase by 30% under a conservative scenario, and 42% under an accelerated scenario.
At the end of 2006, rumours of inventory held by both manufacturers and the PV selling channel varied from 50 MWp to 800 MWp, with the truth somewhere closer to 200 MWp, split almost evenly between supply and demand. In 2007, installers and distributors in the developing world reported having an easier time buying product, and with the current dip in semiconductor demand, silicon feedstock is slowly becoming more available. Of course, given that many of the long-term contracts for silicon feedstock and wafers have no ‘out’ clauses, manufacturing cost pain may still be felt for a long time to come.
Strong growth in the PV industry continues to be driven by demand for grid-connected products (residential, commercial and utility). Demand for the grid-connected application is driven by incentives (tax, production and capacity incentives, direct subsidies, and feed-in tariffs), and by financing solutions such as the power purchase agreement (PPA) model. The PPA model switches the focus from system price to the price of electricity and system cost (the cost of the individual components such as modules, inverters and other balance-of-system items, and labour). The use of renewable energy certificates (RECs) and ownership of them is important to the success of this model, as is the availability of other incentives. With the PPA model, a system is installed on the roof of a commercial entity (although the same model would work for multi-unit housing developments), and electricity becomes the product sold – instead of the system. The cost of the system’s hardware has a direct effect on the price of the electricity, whereas, typically, system price is disconnected from system cost. However, as the system components are not purchased at cost from the manufacturer, the installation cost remains subject to mark up at the various component levels (tracking, inverter, mounting hardware).
Large-scale rooftop installation powerlight corporation
Currently, the PV industry is experiencing accelerated growth. Growth of this sort is not uncommon for start-up industries. In recent years, a significant amount of investment (in both supply and demand) has entered the industry, which is also not uncommon for industries in strong growth mode. This investment has stimulated increased capacity on the supply side, acquisitions of demand side participants and a great deal of technology start-up activity. Figure 1 offers three forecast scenarios: conservative, accelerated and decreased incentives (DI). The conservative scenario is based on the following assumptions: continuing, though less severe, supply constraints through 2007, less thin film availability than announced and slowing demand due to higher system prices (evidence of this is held inventory at both supply and demand points of the chain). The conservative scenario assumes that current incentive levels will remain and that substitutes (other energy technologies, whether conventional or renewable) will take share. The PPA model is assumed to be a driver for the commercial market. The compound annual growth rate (CAGR) for the conservative scenario from 2006 to 2016 is 29%. The accelerated scenario uses the following assumptions: easing of supply constraints as more silicon becomes available, strong thin film capacity increases along with robust thin film performance and reliability, leading to stronger market acceptance; slightly slower demand in Germany replaced by strong demand in Portugal, Spain, Italy and Greece; increased demand in India and China and the proliferation of incentive programmes across the United States. The accelerated scenario takes slower semiconductor growth into consideration (stronger availability of raw material for PV). This scenario assumes that the US federal tax credit will be renewed and that global incentive programmes will continue to increase. An assumption is made for this scenario that substitutes will take less share from PV. The PPA, like similar financial models, is assumed to drive strong growth in the grid-commercial and multi-unit residential markets. The compound annual growth rate for the accelerated scenario from 2006 to 2016 is 37%. The third scenario assumes a decrease in incentive programmes in Europe and the US along with an increased use of substitutes. Under this scenario, deceleration of the market begins in 2009. Currently, the German parliament is discussing a 7% decrease in its feed-in tariff, instead of a 5% annual decrease. The CAGR from 2006 to 2016 for the DI scenario is 9%.
Figure 1. Conservative, accelerated and decreased incentive growth forecasts for 2001 to 2016
Table 1 provides data for all three forecast scenarios from 2006 to 2011. As previously noted, the DI scenario would not begin to have an affect on the market until 2009. In 2009, the megawatt difference between the DI scenario and the conservative scenario is 1259.2 MWp, and the difference between the accelerated and DI scenarios is 2611.6 MWp. In 2011, the difference between the DI scenario and the conservative scenario is 3256.2 MWp, and the difference between the DI and accelerated scenarios is 6870 MWp.
Where is it all going?
Germany continued to be the big market in 2006 and is expected to consume most of the available supply of PV products in 2007, although its share will decrease by five percentage points. In 2006, the top five markets for PV products were Germany (50%), Japan (21%), the US (11%), India (3%) and Spain (3%). In 2007, the top five markets are assumed to be Germany (45%), Japan (18%), the US (12%), Spain (6%) and China (4%). Going forward, Italy is expected to increase its market significantly, and Portugal, until it reaches its cap, is expected to be a strong market. Figure 2 shows regional market shares for 2006 and 2007.
Figure 2. Top five regional markets in 2006 and 2007
Table 2 provides data on the megawatts shipped into each region in 2006 and the conservative and accelerated estimates for 2007. It also shows the conservative and accelerated scenarios.
For the regions of Middle East & North Africa, Central & Southern Africa, and Latin America, slow to moderate growth is forecast for both the conservative and the accelerated scenarios.
Africa is one of the regions in which growth under the conservative and accelerated scenarios is expected to be slow to moderate jyoti painuly
Asia is expected to have moderate growth under both scenarios, primarily due to the slowing market in Japan. Under the conservative scenario, demand in Japan is expected to increase by 9% in 2007 and by 18% under the accelerated scenario. Despite the cessation of the subsidy for residential buyers in Japan, consumers in that country continue to buy PV systems. The reasons for this are lower system costs, the trend to all-electric homes and significantly higher electricity rates. In Japan, the government supports (subsidizes) manufacturing.
Moderate to strong growth is expected for Oceania, primarily because of stronger demand in Australia. Demand in Australia for PV products, primarily remote, consumer power and residential grid-connected, is expected to increase by 29% (conservative) to 40% (accelerated) in 2007.
Strong demand growth is expected under both scenarios for South East Asia, West Asia, North America and Europe. In North America, the US consumes the majority of product. In Europe, Germany continues to control demand share, although this is expected to decrease by 3%-5% each year.What did it go into?
In 2005, 82% of PV module product went into grid-connected applications, with the remaining 18% available for remote and consumer-indoor applications (such as calculators and watches).
PV modules under inspection. In 2006, 86% of PV module product went into grid-connected applications, 14% into remote and consumer-indoor applications evergreen
In 2006, 86% of PV module product went into grid-connected applications, leaving 14% of available product for remote and consumer-indoor applications. Figure 3 shows application market share information for 2005 and 2006.
Figure 3. Application market share in 2005 and 2006
In 2006, grid commercial applications experienced strong growth due to rising demand for the large field systems in Europe (primarily Germany) and the PPA model in the US. Grid-commercial applications rose by 18% in 2006 while grid residential applications fell by 14%. The trend to strong growth in commercial applications is expected to continue.
Table 3 shows conservative and accelerated five-year application forecasts from 2006 to 2011. Under the conservative forecast, the grid connected commercial and residential applications are expected to experience strong compound growth of 30%-plus over the five year period, with grid utility applications growing at a more modest CAGR of 28% over the five-year period.
The accelerated five year forecast assumes moderate compound annual growth of 13% for remote industrial, and 18% for remote habitation applications, and strong CAGR for grid-residential, grid commercial and grid utility applications. Total demand growth for the five-year period is forecast at a CAGR of 43%, with the conservative forecast growing at a CAGR of 33%.Commentary
As previously stated, the PV industry is currently experiencing accelerated growth. In a start-up industry, this should not be termed ‘business as usual’. Typically, accelerated growth in an industry continues for three to five years and then rarely beyond this point (although this depends on the technology and the availability of substitutes in the market). It is ill-advised to assume that accelerated growth will become ‘business as usual’ in any industry. There is also a tendency in industries that are experiencing accelerated growth for participants to begin anticipating that this situation will continue, announcing optimistic plans accordingly and refusing to see the signs of a slow down. A good example of this kind of blindness is the telecoms industry, which crashed in the early 2000s and has yet to recover. As the demand in the telecoms industry receded, analysts and industry participants continued to believe that strong, accelerated growth would return, despite an over-capacity of fibre that was unused, and were therefore caught unawares – despite, as stated, evidence to the contrary.
Paula Mints works at Navigant Consulting
e-mail: [email protected]
This report was originally published by Navigant Consulting and has been reproduced with the permission of the author.