Solar Growth Shifts from Europe

Despite cuts to solar subsidies over the past few years, a new report from Lux Research finds that solar installations have continued to rise – driven primarily by increased demand from a single market: Germany.

However, as manufacturers approach near-term limits on cost reductions, German demand will begin to decline, the report says. As the German market shrinks and debt-ridden European governments limit subsidies, the industry desperately needs to locate new markets to forestall a shakeout.

As a result, demand will shift to Asia and North America and the solar market will grow in terms of MW installed, but revenues will stay flat as price declines outpace volume growth, the analysis concludes.

The report, Market Size Update 2011: Putting the Rest of World on the Map of Global Solar Demand — from Lux Solar Systems Intelligence and Lux Solar Components Intelligence — predicts that solar demand will shift to a broader range of markets over the next five years, with Japan, China and India emerging. Meanwhile, the US will become a key player given government support of tax equity through 2016 and a number of state-level programmes, Lux says.

“The global solar market for grid-connected systems will grow from 15.8 GW in 2010 to 37.5 GW in 2016, a compound annual growth rate of 15.5 percent,” said analyst Matt Feinstein. “However, price declines will outpace volume increases, at least at first — the industry will actually shrink on a revenue basis from US$64.4 billion in 2010 to $56.9 billion in 2012 before recovering to $65.4 billion in 2016.”

Leading internal rate of return (IRR) markets such as New Jersey, Australia and Greece are attracting attention in 2011. With subsidies, a surprising number of markets have IRRs worthy of investment. According to the analysis, the most attractive markets for commercial solar installations are New Jersey (42 percent), Portugal (37 percent) and Hawaii (34 percent).

In terms of utility-scale ground-mounted installations, it is Portugal (with an IRR of 81 percent) which tops the analyst’s list, followed rather distantly by New Jersey (58 percent) and Cyprus (44 percent). However, by 2016, viable investment targets will increase dramatically to encompass 45 residential markets, a whopping 88 commercial markets, and 85 utility markets.

Subsidies and grid parity aren’t necessary to generate positive demand, Lux finds in this analysis, arguing that an anticipated future increase in the cost of retail and wholesale power is all that’s necessary to generate this demand — even in countries without subsidies and similar policies in place.

Brazil, for example, is projected to reach a 12 percent unlevered, unsubsidised IRR for commercial multi-crystalline-silicon systems at the end of 2016 — even though solar will not yet have reached grid parity. Indeed, of 55 geographies demonstrating unsubsidised IRRs above 10 percent at the end of 2016, only 10 will have reached grid parity, Lux believes.

Commercial rooftop PV is expected to become directly competitive with conventional electricity soonest, with 10 geographies at that point by 2016.

The number of commercial rooftop markets reaching parity will grow from one in 2010 to 10 in 2016, including the Dominican Republic and Nicaragua. Hawaii will be the first to accomplish residential grid parity in 2011, but by 2016 it will be joined by Italy, Denmark and Ukraine, forecasts the report. For utility-scale ground-mount installations, the number remains small.

Crystalline silicon solar cells will maintain their overall dominance, says Lux, but other forms of PV will grow at a faster rate.

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