London, UK — The PV sector has seen its share of market turbulence over the past years with the impacts of the global downturn, the over-supplied silicon market and the impact of revisions to feed-in tariffs all taking their toll. However, despite this, the sector appears to have emerged relatively unscathed. David Appleyard reports.
According to the latest market analysis, the global solar photovoltaic (PV) electricity market saw about 7.2 GW of new capacity installed in 2009, bringing the total global installed capacity to more than 22 GW worldwide.
Crucially, the industry itself, through the European Photovoltaic Industry Association (EPIA), identifies this growth as ‘the most important annual capacity increase ever’ which it says is particularly impressive in light of the difficult financial circumstances seen over the past year.
Furthermore, in 2010, global cumulative installed PV capacity is expected to grow by at least 40%, while the annual growth is expected to increase by more than 15%. Much of this growth is anticipated to be seen in Europe, which remains the leading market for PV technology.
Indeed, during 2009, Germany remained the largest market globally – with Italy ranking second – and will most likely remain the largest market in 2010, EPIA believes, with a cumulative installed capacity of almost 10 GW, including around 3.8 GW installed in 2009, according to the numbers given by the German Bundesnetzagentur. This represents almost a doubling of the 2002 MW installed in 2008 and is attributable, in part, to the improved project economics resulting from the decline in module prices. However, this growth has caused the German government to pursue an additional mid-year cut in incentives in 2010 above and beyond what was already scheduled and these recently announced feed-in tariff cuts are expected to significantly affect the development of Germany’s national industry in the longer term. The country is nonetheless expected to remain the single largest market for PV in 2010.
Meanwhile, in the medium term, Italy appears as one of the most promising markets with an additional capacity of some 730 MW installed in 2009, more than doubling from 2008’s 338 MW. The country’s strong incentives and good solar resources should help the market stay strong in 2010, US trade group the Solar Energy Industry Association (SEIA) says, referring to both the high levels of solar irradiation, and the new Conto Energia law, which is due to be announced as REW goes to press, and which is expected to support strong momentum in the Italian market.
Elsewhere in Europe, the Czech Republic shows significant growth in 2009, with 411 MW installed. Though the country ranked fifth in installations, it installed more new PV per capita (roughly 40 watts per person) than any country except Germany in 2009. The massive growth, from just over 50 MW in 2008, was due to the country’s generous US$0.63/kWh solar incentives. However, this rapid ramp-up in solar capacity has, like Germany, prompted a reduction in its feed-in tariff payments – which are seen as overly generous – and the market is expected to shrink significantly in 2011 after another year of strong growth in 2010.
‘This underlines the imperative need for support mechanisms to be designed in a way to ensure a long term, predictable and sustainable development of the market and avoid instability and discontinuity in market evolution,’ explained Adel El Gammal, secretary general of EPIA.
Belgium also made its entry into the top 10 markets in 2009, with 292 MW of new PV capacity installed over the year. Due to a revision of the financial support scheme early 2010, the market is, however, expected to slow down slightly in 2010. France follows with 185 MW installed in 2009, with an additional 100 MW installed but not connected to the grid yet. In spite of a huge potential, this clearly demonstrates the importance for France to solve grid connection issues in order to allow the market to develop, EPIA believes.
In Spain, after rocketing past Germany to become the largest PV market in 2008, a drastic reduction in incentives pushed installations down to 180 MW in new PV and CSP capacity for 2009, compared to 2710 MW in 2008. Even so, PV accounted for about 3% of the electricity production in the country in 2009.
Finally, Greece, Portugal and the UK are showing interesting potential for growth in 2010 and beyond, EPIA says.
Asia Could Become a Major Demand Centre
Outside Europe, Japan has succeeded in positioning itself as the third largest market with 484 MW installed in 2009. While edging out the US for third place in annual capacity additions, the Japanese market also shows an important growth potential thanks to favourable political support, the industry believes. Certainly, after two stagnant years, Japan has recovered to have its best year ever with the resurgence driven in part by falling equipment costs and in part by new incentives (roughly US$0.80 per watt) that went into effect in January 2009.
EPIA expects Japan to become a GW market in 2010 under a policy-driven scenario and by 2012 even in the moderate scenario, with ambitious objectives to reach 28 GW of installed PV power by 2020 and 53 GW by 2030.
Both China and India also made headlines in 2009 when they independently announced plans to expand their solar power capacities to 20 GW each by 2020.
A major PV manufacturer, China was until recently almost totally absent from the world PV market, but with more than 12 GW of large projects in the pipeline, it could rapidly become a major market. With high irradiation levels and a surge in the electricity demand, the potential for PV in China is huge and depends mainly on government’s decisions. According to the national energy plan of 2009, cumulative installed PV power is forecast to reach 20 GW at least in 2020.
Meanwhile, with India’s increasing electricity demand and high irradiation levels, the country has definitively a huge potential for PV. Starting from a low 30 MW installed in 2009, it could grow to 1.5 GW in 2014 under a policy-driven scenario, EPIA believes, and probably well beyond afterwards. The market size in 2010 will clearly depend on the political choices to possibly reach between 50 MW and 300 MW.
If these plans move forward, Asia will become a major demand centre for solar energy equipment after several years of expanding manufacturing capacity and both markets are expected to boom in the next five years.
Canada and Australia also showed significant market development in 2009 and are expected to open the way to the development of new markets. Brazil, Mexico, Morocco and South Africa are also seen as promising countries, the trade groups suggest.
The US Sector Takes Off and Looks Set to Grow
In the US, the market has finally taken off, with around 475 MW installed in 2009, and appears as a potentially leading market for the coming years. Both new installations and employment figures rose, with the total US capacity from both PV and CSP technologies climbing past 2 GW during 2009. Solar industry revenues also surged despite the economy, says the SEIA, climbing 36% in 2009 with a doubling in size of the residential PV market.
In another sign of continued optimism identified by the SEIA, venture capitalists invested more in solar technologies than any other clean technology in 2009. In total, $1.4 billion in venture capital flowed to solar companies in 2009. For an industry that had a total US volume of roughly $4 billion, this signals huge optimism about near-term growth, the trade group says.
This investment is supported by the solar provisions in the American Recovery and Reinvestment Act of 2009 (ARRA), which got off to a slow start but continues to ease the pressures of the credit crisis. As of early February 2010, more than 46 MW of solar capacity has been deployed with the help of Treasury grants totaling $81 million in lieu of the investment tax credit (ITC). Representing more than $271 million in solar energy investment, the 13 solar thermal and 169 solar electric projects receiving the grant are spread over 30 states.
Solar equipment manufacturers have also been awarded $600 million in manufacturing tax credits under ARRA, representing investments in new and upgraded factories of more than $2 billion. The grant created by ARRA reduces the need for tax equity partners and significantly lowers the transaction costs for a solar project.
The PV industry managed to maintain growth in 2009 despite difficulties in the housing and construction sectors and cumulative grid-tied capacity sailed past the 1 GW mark by installing 429 MW. An estimated 40 MW of off-grid capacity was also added. However, year-over-year growth in annual grid-tied capacity additions of 38% fell short of the 84% growth seen in 2008, SEIA says. Notable growth came in the utility sector which nearly tripled from 22 MW in 2008 to 66 MW in 2009. Residential installations were also buoyed by the removal of the $2000 cap on the ITC, more than doubling volume from 78 MW in 2008 to 156 MW in 2009.
However, 2009 marked a second year of major price declines for PV modules, with US prices falling to $1.85–$2.25 per watt from $3.50–$4.00 per watt in mid-2008, a drop of over 40%, the SEIA observes. With module prices accounting for up to half of the installed cost of a PV system, these prices are beginning to put downward pressure on system prices. Indeed, average installed cost fell roughly 10% from 2008 to 2009, despite the large shift to the more labour-intensive residential installations.
In the US, residential and commercial rooftop installations are expected to remain strong and utility-scale PV is expected to grow significantly, with more than 6000 MW in announced projects in the pipeline. And, although solar energy continues to account for less than 1% of US energy supply, its contribution is expected to rise dramatically in the coming years as costs continue to decline making it more competitive in more states. National requirements will effectively mandate some 9 GW of solar capacity by 2025, the SEIA reports. Furthermore, when compared to the high cost of generation in places like Hawaii, where most electricity is generated with oil, solar energy is looking increasingly attractive.
A Bright Future for PV?
Given the economic turmoil of the previous year or so, it is perhaps surprising to see analysis firms such as iSuppli Corp, dramatically upgrade forecasts for installations of PV systems in 2010.
A surge of sales in Germany combined with plunging prices are set to boost solar demand in 2010, iSuppli predicts, arguing that solar installations will rise to 13.6 GW in 2010, up 93.6% from 7 GW in 2009. The company’s previous forecast, released in February, outlined its expectations for 8.3 GW worth of installations in 2010, up 64% from 2009. The strong rise in PV installations in 2010 will be driven by robust market conditions in the second and fourth quarters, which will more than compensate for slower performances in the first and third quarters, iSuppli predicts.
‘This will be an up and down year for PV installations’, said Henning Wicht, director and principal analyst for PV at iSuppli. ‘The first quarter of 2010 was negatively affected by winter conditions, likely causing a decline in installations compared to the fourth quarter of 2009. However, the second quarter is expected to be a blockbuster for the global PV industry’, Wicht added, explaining: ‘Reduced feed-in tariffs in Germany are coming in July and consumers in that country will rush to install PV systems before that incentive becomes less compelling. A market correction will happen in the third quarter, leading to a huge fourth quarter due to the approach of other countries’ FIT deadlines in January 2011.’
In addition to the FIT deadlines, growth in the second half of the year will be driven by reductions in the cost of solar installations. ‘Plummeting prices for solar panels during 2009 now are being reflected in system prices’, Wicht observed, noting: ‘These price declines will compensate for the FIT reductions, resulting in a favourable return on investment (ROI) for homeowners and project developers. In some cases, the ROI will remain higher than 10%.’
‘Needless to say, these quarterly ups and downs in 2010 will result in a difficult year for the PV supply chain and production planners as they struggle to figure out how much is needed, where it is needed and when is it needed,’ Wicht concluded, saying: ‘Because of this, there could be material supply constraints during the year. Spot shortages of inverters, and perhaps panels, could curtail growth to some degree.’
According to EPIA, the global PV market could reach between 8.2 GW and 12.7 GW of new installations assuming a moderate scenario and a policy driven scenario, respectively, and would represent a growth of 40% and 60% of the overall cumulative installed capacity compared to 2009 for the two scenarios. In a policy-driven scenario, the global annual PV market could reach up to 30 GW in 2014 – based on favourable conditions established by policy makers, regulators and the energy sector at large, the group contends. Announced worldwide PV production capacity would also be sufficient to cover the expected evolution of the market in the coming five years, EPIA says.
As evidenced in the EPIA SET For 2020 study, PV could provide up to 12% of the EU’s electricity demand by 2020, provided specific boundary conditions are met, and could be competitive with other electricity sources in as much as 76% of the EU electricity market by 2020, even in the absence of any form of external price support or subsidy.
In the current pre-competitive phase, PV market deployment is, to a large extent, dependent on the political framework of any given country. Support mechanisms are defined in national laws. The introduction, modification or fading out of such support schemes have profound consequences on PV markets and industries.
‘In addition to the ramp-up of many markets in Europe, the development and opening of new markets in Asia, the Americas and Africa is paving the way to a strong and sustainable momentum of PV powered supply solutions all around the world’, concluded Ingmar Wilhelm, the newly appointed president of EPIA.
However, looking ahead to 2011, there could be more supply constraints, according to iSuppli’s analysis of capacity announcements. The company believes that unless additional expansions take place, crystalline-Silicon (c-Si) modules could encounter constraints in 2011 with utilization rates for c-Si module production facilities anticipated to climb to more than 90% in 2010. Nonetheless, iSuppli also believes that despite the short-term supply challenges, the outlook for global PV installations remains bright. By 2011, global PV installations will rise to 20.3 GW, nearly triple the 7 GW in 2009.