The Solar PV Transition: What Comes Next?

It was rather ironic timing. I had just finished a roundtable discussion at Solar Power International on what will happen to the solar industry beyond 2011 as the German feed-in tariff program ramps down, when ACORE President Mike Eckhart came up to me with a stunned look on his face.

He had just learned that Hermann Scheer, the grandfather of the modern solar industry, had died. Scheer was only 66 years old.

“He was my mentor,” Eckhart said solemnly.

As most folks who follow the solar industry know, Scheer was a driving force behind the Renewable Energy Sources Act (EEG), a law that created dynamic feed-in tariffs (FITs) for renewables and broke the solar PV market wide open. He was also Chairman of the World Council on Renewable Energy and one of the founders of the (somewhat struggling) International Renewable Energy Agency, an organization designed to both partner with and counter the International Energy Agency.

The policy work done by Herman Scheer, Hans-Josef Fell (who wrote the draft EEG legislation) and other European leaders formed the foundation of the modern policy environment. The long-term FITs, which Scheer described as a vehicle for “investment autonomy,” provided stability for investors and allowed owners of smaller systems the same access to the grid as large power companies.

Eckhart called the late 90’s and early 2000’s in Europe “like being in Philadelphia in 1776,” when the American Declaration of Independence was being drafted.

Since 2000 when the FIT program was created, the global solar market has climbed from 170 MW of installations per year to 17,000 MW installed in 2010. Around 70% of total global installations have been in Germany.

Over 60 countries, provinces or municipalities have followed the German FIT model for renewables. And in markets like the U.S., which has opted for rebates, quota systems and tradable credits, the industry is pushing for the same goals: Strong interconnection rights and a stable investment framework.

Some analysts criticize the German FIT program for providing such high incentives in a country with weak solar resources. Many of those criticisms are valid. But Germany’s strong support for solar fueled incredible growth in the solar industry over the last decade, giving companies a large market in which to send product and allowing them to ramp up manufacturing facilities. It’s largely because of Germany’s leadership that we’ve reached the scale we’re at today. That scale has caused dramatic cost and price reductions, allowing other markets to pick up the pace.

The news coming out around SPI last week proved just how far the industry has come in the decade since Germany’s FIT was enacted. Here are just a few:

  • Industry-leader First Solar said it was going to build two new manufacturing facilities for its cadmium-telluride thin film modules, bringing its capacity from 1.4 GW in 2010 to 2.7 GW in 2012. With more than 5 GW of module supply contracts and projects in its development pipeline globally, First Solar says it expects more than enough demand to meet that increase in capacity. What got First Solar started? It was the German support scheme, which encouraged the company to set up four manufacturing lines in the country.
  • In Ontario, a province that borrowed heavily from the German FIT model, Enbridge and First Solar completed an extension of a project in Sarnia, bringing the power plant up to 80 MW and making it the largest PV facility in the world. Shortly after, Sempra Generation announced that it would build a 150-MW PV plant in Arizona. That’s almost equal the entire global demand in 2000. And what’s more, Solargen Energy moved a small step toward building a 399-MW PV project in California. Across the world, not a day goes by without a company completing or planning a project in the 1-10 MW range.
  • Utilities are increasingly part of this large-scale development. The Solar Electric Power Association released a report at SPI showing that in 2009 and 2010 U.S. utilities were involved in over 800 MW of solar projects (both CSP and PV) worth $2.5 billion dollars. Of course, state-level policies are what directly influence those utilities. But German leadership, which so successfully encouraged the deployment of distributed systems, has indirectly fueled the growth in utility-scale investments as well. Without the German program in the early days to encourage expansion of manufacturing and cost reductions, those projects wouldn’t be as attractive.

It would be wrong to give Germany all the credit. The collective action of national, state and provincial governments has been the reason for the recent gains in the solar market. But ACORE’s Mike Eckhart said that Hermann Scheer deserves his due recognition for having built a platform for industry growth.

“All these people are here [at Solar Power International] because of what he did. I can say that categorically. He’ll be best known for getting the solar energy revolution going.”

Times are changing, however. Scheer’s death comes at a time when the solar industry is looking beyond the German FIT program. The changing economics of solar PV are making high feed-in tariffs unnecessary, causing Germany to sharply reduce its incentives. Other countries are doing the same. Many analysts believe that the U.S., which has paled in comparison to the Europeans, will actually grow to be a more steady, sustainable market. At SPI, Rhone Resch of the Solar Energy Industries Association said that it’s realistic to project that the U.S. will install 10 GW of solar PV and CSP per year by 2015.  

Post-2010, the European market – particularly Germany, Italy and the Czech Republic – will cool down (or in the case of the Czech Republic, collapse entirely), leaving a multi-GW gap. The key question is: Who’s going to fill it? And will the reduction in European demand cause a “shake-out” in the global solar market?

This is what we were discussing at SPI right before learning of Scheer’s death.

In this week’s podcast, we’ll have a remembrance of Dr. Hermann Scheer followed by the full roundtable from Solar Power International on the future of the solar market. You can listen by launching the audio player above, or you can watch the video of the conversation with Shyam Mehta of Greentech Media Research and Greg Sheppard of iSuppli below.

Hermann Scheer might be gone. But his legacy is all around us as we transition into this new, highly-competitive phase of growth in the global solar PV market.