Utah, USA — For decades, solar has been like the Rodney Dangerfield of renewable energy. Rarely has it received the respect it has deserved. But by all accounts, 2013 was a watershed year in that respect. In Q3 alone, 930 megawatts of PV were installed in the United States — and in the last two and a half years, total global PV capacity grew from 50 gigawatts to over 100. Sure, 2013 saw its share of failures and disappointments. But according to some of the best and brightest minds in the solar industry, the coming year may play itself out as the dividing line between past and future.
2014’s Dark Horse: The U.S. Solar Market
According to clean energy expert Jigar Shah, one of the most heavily underestimated solar markets in the world today is the United States. “I think you’re going to see extraordinary growth in the U.S. next year, through 2016,” Shah confidently stated. “Many are projecting somewhere in the neighborhood of 7,000 to 8,000 megawatts in 2016. But that number could easily be doubled to 14 gigawatts in 2016 alone.”
Looking beyond 2014, Shah sees even further robust industry growth — one aided, not hindered, by the looming expiration of the federal investment tax credit (ITC). “Everybody expects the 30 percent tax credit to expire and to move to a 10 percent federal tax credit in 2016,” Shah said, adding that the majority of solar industry players are actually looking forward to that expiration.
“Most people in the solar industry recognize that the financial innovations we’ve had in 2013 are actually helped by the tax credit sun-setting in 2016,” Shah said. He explained that presently, approximately 40 percent of investment capital is required to come from tax equity. The remaining 60 percent can come from debt or sponsor equity. Shah said once the 30 percent tax credit drops to 10 percent, the depreciation can be used by the sponsor equity to shelter their own gains. “You could actually do without tax equity altogether and just be 100 percent sponsor equity,” Shah said. “It’s much easier to raise that kind of money than it is to raise tax equity.”
Edwin Feo, COO for Coronal Management LLC, agreed. “Ultimately, the industry has to deal with the demise of the ITC,” he said. He added that what is needed is “improvement on balance of system costs and financing costs to effectively replace the credit with cheaper sources of capital. That amount of leverage can negate the loss of the full ITC.”
Paula Mints, founder and chief analyst for SPV Market Research, expects the impending expiration of the ITC to drive robust growth in U.S. solar demand through 2014 and into 2015. “We’re going to see a mad rush to take advantage of the ITC,” Mints said, “but that will probably come to an abrupt halt at some point.”
The Middle East Outlook: Jordan and Dubai Outpace the Pack
Last year, Saudi Arabia’s plans to launch a massive renewable energy program was the big news coming out of the Middle East – but internal wranglings have resulted in uncertainty about the future of the project. Looking elsewhere in the region, it appears that Jordan may wind up upstaging its neighbors by pursuing steps to reduce its dependence on imported energy, which currently stands at 97 percent. The plan, which involves the initial procurement of 200 megawatts (MW) of solar energy and 200 MW of wind power, is intended to increase the kingdom’s share of renewable energy contributions from one percent to 10 percent by 2020. Marc Norman, director of marketing and communications for the Middle East Solar Industry Association (MESIA) and project finance lawyer at Chadbourne & Parke, sees this as a landmark project. “If you look at the region as a whole,” Norman said, “Jordan definitely emerges as a leader for now. My view is that they’re setting a template and emerging as a model for the wider region.” Round one is primarily being deployed in the southern region of Ma’an. Later stages may prove riskier, as Jordan plans to switch focus to the northern and eastern parts of the country, close to the border with Syria.
Jordan’s efforts notwithstanding, Norman sees Dubai as a key market to watch in 2014. “There are plans to tender the second phase of the Dubai Solar Park in 2014,” he said, “which will be a 100 MW PV independent power project. That’s arguably the most important solar project for next year in the Middle East.”
The Outlook for Solar Storage
One of the biggest question marks facing the future of the solar industry is the ability to provide cost effective storage. Solar energy’s intermittent nature is a fact that many say could prevent more widespread adoption of the technology as a viable replacement for traditional energy generation. Ben Peters, director of solar finance and policy at REC Solar, predicts improved technologies – bolstered by involvement from large-name corporations – will pave the way for more affordable solar storage. “I see more and more of the large tech conglomerates getting into solar plus energy storage,” Peters said. “You have a large number of big names like Bosch, GE and Panasonic that recognize the economic value of solar storage to customers. We’re really starting to see it take off from an actual innovation standpoint.”
China – A Year of Recovery in 2014
2013 was a year of transition for the Chinese sector, with lots of consolidation as smaller players left the sector entirely or were merged with larger ones. According to analyst Doug Young, a Shanghai-based blogger and former Reuters reporter, 2014 will be a year of recovery for China. “Many weaker companies will either leave the market or will get acquired by bigger, stronger players,” Young said. “We should also see the sector assisted by a big building boom within China, following Beijing’s latest plan to have 35 gigawatts of power-generating capacity installed by the year 2015.” Young said China’s 2014 goal is to install 12 gigawatts of capacity by the year’s end.
Further evidence of China’s recovery has already begun, with Canadian Solar – which has a great bulk of its manufacturing facilities located within China – returning to profitability in the third quarter of 2013. “I expect we’ll see most of the other big players return to profitability as well by the middle of 2014,” Young said.
“China had a really hard time in 2012 and 2013,” Shah added. “They thought they could bet the entire farm on utility-scale solar projects, but that made no financial sense because it required them to build even more transmission capacity, which was expensive.” Shah said that China’s efforts to make a complete switch-over to distributed generation were mired by the need to establish policies and work in collaboration with utilities, all of which prevented the country’s solar industry from achieving its full potential. “I think you’ll see China get much closer to the 10,000 MW per year target in 2014,” Shah said.
Latin America: A Slow but Steady Rise
If slow and steady wins the race, then Latin America could very well someday soon blossom into a world leader in solar energy. By most accounts, industry growth in 2013 was not explosive – but the region did experience significant added growth that Michael Barker, senior analyst for Solarbuzz, said will continue to pick up steam as 2014 unfolds.
“There are quite a few countries in South America that have projects and developments in various stages,” Barker said. “Chile is obviously very important. There’s a lot of preliminary project activity going on down there, but also some major projects that plan to be installed during the coming year.” Coming in a close second behind Chile as one of the countries most likely to make significant inroads in solar in 2014 is Mexico, which Barker said has several large scale projects underway. “The third major Latin American market to watch is Brazil,” Barker added. “That growth is being driven in large part by localities within Brazil, cities and states that are trying to incentivize solar rather than having it take place at the federal level.”
Mints expects growth to continue in Latin America, but doesn’t predict 2014 will bring any massive gains. “It’s a tender bidding market, and it’s hard to make a buck there,” Mints said. “Right now, we’re seeing a rush to install many projects throughout Latin America. Do I think it’s going to be a multi-gigawatt market? No. Do I see it growing more? Absolutely.”
Other Countries to Watch: India and South Africa
Two other countries to watch in 2014 are India and South Africa. “India had a really tough time in 2013 with internal politics,” Shah said, “but they expect those to largely be solved next year.” Looking to South Africa, which had a particularly exciting 2013 in solar gains, Shah said he expects that market to double in size in the coming year.
“Maintain” Phase to Sweep European Market
Having experienced states of turmoil and decline since early 2012, the European solar market can look forward to continued stabilization, as evidenced by the final quarter of 2013. Shah sees a definite end to Europe’s decline phase and predicts a “maintain phase” throughout 2014. “They’re really looking at going sideways,” Shah said, “which is a good thing. Germany doesn’t need another 7000 MW a year of solar going into their market and disrupting their electricity market. If Germany is able to maintain 4000 MW a year, that’s quite a healthy solar market. The same thing is true for Italy.” Shah also points to acceleration in markets in countries such as the Netherlands, the UK, France and Spain. “I do think that you’ll see an overall flat market in Europe next year,” Shah said, “but that’s really good because they’ve significantly declined in terms of the subsidies that they’re paying out. That’s great for consumers and it shows that the solar market can make the transition from a subsidy-led marketplace to a demand-led marketplace.”
The Global Job Outlook
Shah said 2014 will bring added jobs to the U.S. solar industry as players look to train and prepare employees to meet the demand of increased volume. “I think you’re going to see a significant ramping up in the number of people who get hired into the solar industry next year in the United States,” he said. Mints also sees increased employment throughout Europe, China and Japan. “We are in an era where jobs are unfolding,” Mints said, pointing also to the creation of indirect ancillary jobs that are frequently overlooked – such as growth in service industry jobs in locations that are directly impacted by the development of new solar projects. “Those are solar jobs too, in an indirect way,” Mints said.
A Year of Consolidation
Most are of the shared opinion that 2014 will be a year of consolidation. “I think the solar business is still relatively immature,” Feo said, “so it has a number of cycles yet to go through. That doesn’t necessarily mean that all of the small businesses in the space are in trouble – I just think it means that those in solar have to determine what it is they do especially well and stay focused on that.”
Shah believes 2014 will draw a “deep line of demarcation between the haves and the have-nots” in that downstream installers who are unable to provide low cost systems will find themselves out of business. “I think the days of subsidizing high-cost installers will come to an abrupt end next year,” he said, tempering this prediction by adding that few employees will experience long term unemployment as a result: “They’ll be hired into other companies. That’s good news for employees and it’s good news for all of us – including governments that are paying subsidies. It’s also good for the solar industry at large, because you’re going to have much more professional business people running the companies. Ultimately that’s also great news for consumers.”
Lead image: Blue sky reflected in solar panels via Shutterstock