Top five PV markets worldwide —changes ahead

Across all regions of the globe, the solar industry is on the verge of a foundational change.

by Daniel Pohl, EuPD Research, Bonn, Germany

Across all regions of the globe, the solar industry is on the verge of a foundational change. Whereas the recent adjustments to the promotional laws caused uncertainty in top sales markets Germany and Spain, new announcements about an upcoming oversupply are having an effect. On the one hand, promising new markets like the US and Italy are emerging; on the other hand, global PV production in 2009 will exceed demand by far. According to recent surveys based on primary data, the PV industry is heading for a clear oversupply of photovoltaic systems and components.

In 2009 we see a worldwide demand of 4.9GW of PV system capacities. At the same time, the total production capacity that was announced for 2009 adds up to around 9.2GW. We face the problem that photovoltaic systems of more than 4 GW will be seeking a taker. An open question remains as to which of the markets can absorb that much excess. However, the announced capacity figures and the actual production amounts cannot be considered simply the same, as the manufacturers are likely to adjust their production levels to the situation.

The fact is that the first solar manufacturers — especially in China — already are reducing their production, begun in October 2008. Nonetheless, that the market will transform from factory-driven to marketing-driven is not under discussion. It is no longer the shortage of raw materials, for instance the silicon bottleneck, that limits production. The limiting factor is the upcoming disproportion between supply and demand. This development will not only hit the small sales markets hard, it will affect all market areas, especially the top five markets: Spain, Germany, Japan, Italy, and the US.

Europe: mainland of the PV champions

After years of rising installation rates in the European PV markets, the domestic PV industry is seeking new sales markets in anticipation of a cutback in sales at home, and players from overseas also are deliberating their new business strategy for this changing European market. According to our calculations — before the credit crisis began — 21.9 billion Euros were earmarked for investment globally from 2008 to 2010 in the expansion of production capacity along the whole PV value chain, not including R&D. The largest aggregate investments then were announced by Asian companies, but Europe also planned to contribute a significant amount of up to 5.7 billion Euros, representing more than 25% of investments made globally.

Given the situation, the following questions arise: How can market positions be held or secured in these top markets, which are becoming ever more competitive? What will be the right marketing strategy for these significantly varied markets? How does profitability look under the current promotion conditions and are there further important changes that need to be considered?

The top PV markets: outlook

In 2008, Spain adopted new promotion conditions; in early 2009, Germany followed suit. Both present a basis for strategic business decisions up to 2012. The installed capacity in Germany in 2009 is expected to reflect the introduction of considerably higher degression rates of at least 8%. However, it is anticipated that after a transition period of one year, the installed capacities will once more increase due to the promotion conditions remaining attractive, especially now that there is the possibility of receiving the feed-in tariff (FIT) for electricity used for personal consumption, along with price reductions.

Long-awaited new Spanish PV legislation was adopted in September 2008. It fixed lower FITs and promotion caps of 500kWp in 2009, 460kWp in 2010, and 400kWp thereafter, with a differentiation between rooftop and ground-mounted systems. With the facts clear, the incalculability of the last months was overcome. Even if the new promotion conditions have caused strong cutbacks, Spanish promotion conditions are still generally attractive — the important thing is to be among the first to invest before the annual caps are reached.

Whereas Japan often discussed revitalizing the promotion scheme for residential PV systems, the market meanwhile recovers from last year’s fall in demand. From 2006 to 2007, the newly installed capacity dropped by at least 25% due to a decline in the housing sector and the termination of the governmental budgets for the ?Residential PV Systems Dissemination Program.? In 2008, our analysis noted a slight increase in demand once more with an upward tendency for the following years. To encourage use of PV systems, Japan’s Ministry of Economy, Trade, and Industry (METI) plans to resume a support program for residential PV systems in 2009. The impact of such a program remains to be seen.

However, while demand for PV in Spain and Germany will cool off in 2009, new markets are blooming elsewhere. In the US, for example, the Investment Tax Credit (ITC) is an attempt to jump on the bandwagon led by European industry, and possibly to provide an alternative to the badly hit domestic car industry. The support comes from the highest level, President Barack Obama, who made it clear while on the campaign trail that expanding renewable energy was a priority, announcing that he would introduce a collection of measures for the solar industry once in office.

The development in Italy looks similar, with growth rates on the increase. Following half-hearted growth rates in the last few years, the Italian market finally made it into the list of the top five markets worldwide this year and is beginning to play a bigger role internationally. The commercial and large-scale segments particularly improved in terms of growth. The bureaucracy is still a major headache in Italy, however, and the many long-winded processes to be overcome have suppressed growth until now.

Outlook

Falling installation rates will be clearly visible in the European markets in the short term, whereas overseas markets like Japan and the U.S. are gaining importance. While the two key markets of Germany and Spain will gradually decrease in relevance, two promising European markets in France and Italy come to the fore. Given this situation, a highly differentiated approach must be developed for the different markets. Beyond that, newcomers such as the Eastern European countries and overseas regions — US, Asia, Australia — should be examined as potential sales markets.

While PV products have sold almost automatically in the past, the challenges for strategic marketing, communication, and sales channel architecture are continually rising. It’s no longer mere market intelligence that matters. What’s needed are an in-depth interpretation of primary market data and the ability to derive follow-up action.

Daniel Pohl, MA, graduated in North American studies, literature and political science at the University of Bonn and the University Paris-Sorbonne. He has been working as an editor and media consultant in the field of economics and renewable energies and is now heading the corporate communications department at EuPD Research in Bonn, Germany.

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