Monday 25 March 2013
Maybe The Mayans Were Right Or Was it REM?
by Danny Kennedy
Last year was the end of the world as we know it. The end of the world predominately powered by fossil fuels. And to mark the shift in human experience, as led by America since it generalized electricity over a century ago, the month of January 2013 was the first one ever where no fossil fuels were added to our grid. That’s right:
In January 2013, no new fossil fuels nor nuclear power plants were added to the electric grid of the United States, according to the Energy Information Administration. There were close to 1200 MW of power additions to the grid – no small number – or about the equivalent of a big coal power station added that month. It was all renewable.
That is, all of the new power capacity added to the grid in January 2013 was either wind, solar or biomass power. Sorry to be repetitive but I hope you get the significance of this – it’s a pretty big moment. I do not believe there has been another month in US history when electric generating capacity was added and all of it was clean energy.
And I feel fine.
That’s the thing. We worry, when interests vested in the fossil-fueled status quo tell us electricity is going to be unstable. Or that this clean energy stuff won’t work well enough. Or whatever – but we can actually do this. And we are doing it when it comes to energy all around the world. I think you already know that solar electrical generation grew 138.9% in 2012 in the USA, while oil, coal and nuclear power all declined.
And yet you also know that many other countries are way ahead of us. These days Germany is getting so much wind and solar power that it often sells for negative prices. The world is going solar at an astounding rate. In Australia 10% of houses have solar power systems now, which constitutes about 2% of power capacity, and the rate of doubling is in less than a year. Do the math.
In 6 years it could all be solar downunder. America is catching up – with solar expected to be the second biggest addition to the grid in 2013. Last year the industry put 3,313 megawatts of solar PV projects on-line around the U.S. But China is doing more solar than us. And Japan is going to do more solar than China in 2013: they’re projected to install more than 5 GW of new solar photovoltaic capacity in 2013, marking an increase of 120% compared to the previous year. You can be sure they’re not going to do 5GW of nuclear power!
So mark my words and the Mayans’ – 2012 was the end of an era. I know we’re still sometimes stuck in the past – like we’re rehashing the verse, “Offer me solutions, offer me alternatives and I decline”. But the numbers tell a different story. We’re accepting solar solutions en masse, worldwide. Shine on!
Tuesday 03 July 2012
by Edwin Koot
'FiT for Free' has nothing to do with feed-in tariffs or solar energy, but is a fitness brand in the Netherlands. Still, solar PV companies in Holland expect to remain in better shape when 'freed from FiT'.
Fed up with the government
Dutch solar entrepreneurs are completely fed up with the inconsistent, unsustainable, discontinuous incentives their government called 'an optimized FiT'. Unanimously, they begged the government and politicians this year NOT to continue this incentive, nor to introduce any new subsidy. The current net metering regulation is sufficient to make the Netherlands, blessed with high energy prices, one of the world's first grid parity markets. This year has already seen numerous projects and new business models started and implemented. And guess what happened... the market started growing – without either incentives or a FiT. And so did the number of new companies. It felt like the market had been freed. No government ruling or control. Just entrepreneurs and customers.
Tired of FiT
Not only in NL is the solar industry tired of FiTs and the continuous changes enforced by governments and politicians running after the rapidly changing dynamics of the global PV industry. It is hard fully understand what is happening. Once they think they have figured out a nice FiT regime, prices collapse further and we are even seeing local companies break down. Instead of making them happy, these decreasing module prices scare them off. Budgets are running out of control due to the tsunamis of PV applications. The paradox is that the more the governments decrease a FiT, the faster people invest in a solar system. It is customer psychology. In the end, you do not want to be the loser who missed all the good tariffs in the past, being left with the 'leftovers' or even no FiT.
Pain in the roof
For all other stakeholders in the market, such as investors, banks, installers and EPCs, these ever-changing regulations are a 'pain in the roof'. Working with unforeseeable peaks in demand is indeed a business challenge in terms of personnel, cash flow management and purchasing capacity. The frustration could be felt at the latest Global Demand Conference in Munich. All major EU markets – Italy, Germany, France, Belgium and the UK – are now being confronted with new (unexpected) FiT cutbacks. It is the same everywhere, with governments prepared to expect the unexpected. You could almost feel the fatigue among the speakers and participants in Munich. “We are done with this. We need a sustainable model where at least you know what will happen six months from now. Otherwise no business or project planning will be feasible…”
Always expect the unexpected
It feels like the Dutch weather forecast: promised a sunny season and suddenly it starts raining. This feels like a cold shower. For immediately in your family the discussion starts to steer towards a really secure, sunny place, even at extra cost... For the solar entrepreneurs, the situation is almost the same: escape from the uncertain weather. Let's move to where the sun shines permanently. And that is exactly what more companies will be doing – exploring business opportunities in sunny countries such as India, China, Chile, Mexico, South Africa and Brazil. Markets where at least one thing is sure: plenty of sunshine!
And what did the new temporary coalition in the Netherlands do in its wisdom and eagerness to show of its greenness? Introduce a new subsidy, effective 2 July!
It is time to take a holiday and get in shape for the second half of the year...
Tuesday 01 May 2012
by Edwin Koot
Recently, the Dutch module manufacturer Scheuten Solar and the Dutch Solar cell producer Solland Solar both ran into financial troubles. Equipment from the thin-film startup Helianthos was sold in public auction following the breakup of this initiative. On top of this, the government stopped all subsidies and incentives in 2012. One could be forgiven for thinking that solar is now officially dead in this country, which was a leading market with unique projects just one decade ago.
Tiny but independent of incentives
However, much to the surprise of many, today this market is alive and kicking. In fact, there are over 50 initiatives being operated by all kinds of stakeholders: municipalities, corporates, housing associations, environmental groups and enthusiastic civilians. Some of these initiatives are sizable, with a couple of MW. Since the government cut all incentives for solar PV in 2012, the Dutch market has grown rapidly. Numerous new companies have entered the market. Market volume will most likely grow more than 50% in 2012 to more than 45 MW. Admittedly, this is small in comparison to the country's Belgian and German neighbours. But what is exceptional about this case is that this will be a market volume realised entirely without government support. Indeed, it would appear that the government's withdrawal stimulated market growth. How come?
End of crazy stop-and-go policy
First of all, entrepreneurs hate uncertainty – and the ‘stop-and-go’ policy of regularly changing complicated subsidy schemes drove customers and stakeholders crazy. The feeling was, “It is better to have certainty than no subsidies.” The rapid drop in solar module prices and one of the highest electricity prices in Europe are helping to establish a sustainable grid parity market for residential PV applications. Not bad for a country renowned for its cold, windy and rainy climate.
No shocking financial benefit
The interesting situation today is that the government now has little influence. Apart from some general fiscal instruments for commercial applications, the market is mainly based on residential applications driven by net metering.
PV systems can now be purchased on a 10-year payback basis – again without any incentives. However, this is not the sole reason the market has started to grow. The financial benefits of investing 5000 euro for a saving of around 500 euro per year isn’t exactly shockingly convincing – definitely not in a country known for its stinginess. System prices are also still higher than those in Germany. So what is the driving the Dutch?
Green sun-loving Dutch
First of all, a serious part of the population has ‘green sympathies’. Environmental protection has always been a serious topic – perhaps due to the fact that most of the country would not survive melting polar ice, as well as being densely populated. Still, these green tendencies have always been present so do not explain why the market has suddenly started to boom. Furthermore, financial yields were better when the subsidies were in place. No, this does not explain the solar behaviour of the sun-loving Dutch.
No heroic roof conquerors
Why, then, are Dutch people suddenly joining en masse the collective purchase initiatives? Thousands of households have signed up for a 1-3 kWp PV system on their roof within just two months. This is just one of over 50 initiatives running. The attractive system prices offered as part of the massive collective purchase campaign are fine, but not the best available on the Dutch market today, and definitely higher than those Germany.
So why are people suddenly all going solar? My personal opinion is that the market is driven by a few things. One is the relatively low entry cost of just 2,500 euro for a 1 kWp system. An amount that a considerable part of the relatively rich Dutch population can afford to invest for a good cause. Secondly, it is viewed as important that a household is able to make a step towards a form of independence; loosening of the government and the energy utility – the Dutch hunger for independence and freedom. Thirdly, you are no longer alone. Joining a campaign along with thousands of other green enthusiasts helps a lot. We may well have a heroic history at sea, but a lot of fear of the unknown has yet to be conquered with regard to our roofs. An Initiative started by the largest national association of homeowners feels safe and secure. They must have figured out all details in the right way. And if so many are doing the same thing, the system offer must be cheap and of good quality. The massive collective purchasing initiatives offer a form of ‘collective trust’.
Ain’t no stopping us now...
Neither the government nor utility can stop the market now – unless they take unpopular measures such as introducing additional taxes on solar energy. Although politicians have demonstrated their incompetence before, it seems that the market is now free. Creativity rules, new business models and new companies are emerging. It seems that the Dutch have reached the tipping point for grid parity. And more stakeholders will become inspired, based on all the initiatives currently up and running. This will further boost the market.
My prediction is continued growth of at least 50% in 2013. Holland is growing towards the first 100 MW market without any subsidies. We can now become a frontrunner grid parity laboratory for other markets in which incentives will also disappear in the near future....
Tuesday 10 April 2012
by Bhupesh Trivedi
Here is another game-changer in India. Feed-in-tariffs and the ambitious government-sponsored 20-GW National Solar Mission (NSM) have lost value in India.
Across the country, the existing conventional power cost ranges from Rs 7 to Rs 12 per unit for industrial and commercial users, against the new solar power benchmark price of Rs 7-7.50 per unit at which companies won bid under different government policies in the recent months.
It is obvious that a solar power project developer in India is losing money by selling power to the government at prices of Rs 7-7.50 per unit through a power purchase agreement (PPA) that is mutually obligatory for a period of 25 years.
Instead, it makes a lot more sense for an investor or a project developer to shun 25-year-long (PPAs) with governments and use the ‘Open Access’ system to sell power to industrial and commercial users directly. Such users are paying more than Rs 7.00 per unit for existing erratic power supply and will be keen to pay more for reliable supply. Developers can exercise an option too to raise the cost of power supplied at regular intervals over the supposed lifespan of 25 years of the power project.
That surely raises questions on the significance and value of various state governments’ policies as well as the ambitious National Solar Mission of the central (federal) government of India. If the state governments’ policies and the NSM have to remain significant, the price offered by the government to solar power project developers will have to be become variable over the entire duration of the PPA. If not, it would surely be a losing proposition for a solar power project developer/investor to commit power at such low rates for the next 25 years.
The ‘Open Access’ system enables any power producer to sell power to any user across the country through the national grid, by bearing costs of transmission and distribution losses as well as wheeling and banking charges. These costs may weigh on the profitability of the power project for now. But, committed higher billings over the next few years could provide much higher returns, compared to fixed rates provided under the PPAs with different governments.
The success of the ‘Open Access’ system will also depend on the condition of “minimum committed load” that makes an industrial user to pay a minimum bill amount every month to the local distribution company, irrespective of how much of conventional power was consumed.
But, different regulations in the country have already cleared the way for other precedents where large industrial units set up gas or coal-based captive power plants. A similar arrangement for solar power will ensure that the end consumers and solar power project developers will be able to build mutually-profitable relationships. At the other end, while the state government policies were expected to boost the solar power sector in the country, the captive or end-user segment offers a much larger market of at least 25,000 MW over the next 5-7 years.
Even if the benchmark solar PV power project cost falls from the current Rs 9 crore to Rs 7 crore, it promises to be a market with a value of Rs 175,000 crore (about US$ 35 billion).
The rules of the game in India have surprisingly changed even though the total installed solar power generation capacity in the country has not crossed 1,000 MW, against state and national governments’ targeted capacities exceeding 30,000 MW over the next decade.
If all solar power project developers were to go for the ‘Open Access’ system, one would wonder about the fate of different state governments’ policies and the national government’s National Solar Mission.
Bhupesh Trivedi is the CEO of Mumbai-based boutique solar energy consulting company REECODE Energy Solutions. He has assisted his clients with setting up MW-size solar power plants as well as solar engineering companies to dovetail their products and services for the growing market in India. He has spoken at various national and international events and writes regularly for various media. He can be reached through email@example.com and +91-9324246639
Tuesday 3 April 2012
Photovoltaic solar energy is at a turning point in its young history.
It will be the year in which:
- China will grow into a global leading top 3 PV market.
- The German market will continue to grow and prosper despite strong FiT decreases.
- The Belgian people will discover that it is still very attractive to invest in PV despite the reduction in certificate price and disappearance of the tax advantage.
- The Dutch market will start a strong growth because there are no incentives available and the government has no role to play anymore.
- A sunny climate and growing economy (India, China, Chile, Brazil, Turkey, etc.) will be more important than incentives in terms of market growth.
- ‘Diesel parity’ (solar + storage is cheaper than diesel-generated power) has been reached in major markets such as India.
- Spain will reach grid parity for residential PV systems – and this without any incentives, as the government will increase energy prices.
- Italy reached grid parity for residential applications because energy prices are already high, there is an abundance of sunshine and the business infrastructure is in place.
- Solar energy storage will become a serious topic since solar energy is too cheap to simply supply back to the grid at the time of production.
- In India, more projects will be developed for other reasons than being stimulated by the National Solar Mission.
- Japan is closing down nuclear plants and is ready to invest in renewables and massive solar application.
- Investors discover that, by replacing modules after 25 years, a solar power plant is the best and most secure investment, generating increasing cash flows for more than 50 years.
- Middle East countries find out that it makes more sense to use solar PV for domestic electricity production and sell the expensive oil.
- Europe will build more new solar power capacity than any other electricity generation technology. - South Africa will set the trend as the gateway for solar application on the African continent.
- The development of the world’s first 1000 MW single PV project will kick off.
- The market will change for residential customers from ‘Solar is interesting from an investment perspective benefiting from incentives’ to ‘Solar is interesting as it saves money on your energy bill.’
- Not only will modules become cheaper once again, but inverters as well due to industry developments and competition from China.
Furthermore, the industry will discover that future market development is not dependent on new technology developments, but on the transition towards new and smart business models. Indeed, the "winner" in terms of the Internet was not the inventor of the technical Internet technology, but the smart guys from Google who used that technology to offer new services based on it. In 2012, don’t look for the new solar module types and technology improvements – but rather watch the companies that offer you free solar modules on your roof and energy at a price below current grid prices.
Monday 12 March 2012
Driving in India is a challenge. A taxi driver once answered a question about the traffic regulations with, "You need a good horn, good brakes and good luck!"
As for the development of the PV market in India and Rajasthan, the opposite seems to be the case. Without making too much noise about it, the market in India is booming. Numerous new players have entered the market. Brakes are not required since India is in need of new power and at the same time needs to rapidly support its economic growth. And further development is not a matter of luck. Rather, it seems to be an inevitable natural fact. Even today, PV in India is already a competitor to diesel-fuelled power generators. Up until now, the focus has been on the large PV power plant projects under the National Solar Mission Government Programme. Diesel replacement will definitely become a major market segment. Think just in terms of the thousands of new telecom towers that will be necessary to support the tremendous growth of cell phone usage in India. The hotel manager in Jaipur, where we hosted the Solar Future Conference, stated, “We don’t know much about solar and maybe should attend your conference, as we did not know that solar PV is cheaper than our diesel generator.”
The PV market in the super-sunny State of Rajasthan alone is expected to grow to at least to 1 GW by 2013 and to 3 GW by 2017. But, as often before, this estimate by government officials may very well be too pessimistic and only based on the large power plant projects. Rajasthan offers 320 days of sunshine a year, growing needs for power and a government trying to get PV project development and industrial development of the ground. So, what is missing in order to fire-up this market? The answer: Cheap and easy financing. It is kind of the "chicken and egg" problem: the banks still view solar more as a risk rather than an opportunity. They claim that there is a lack of reliable data on PV power plants currently in operation. But this data will not become available if new PV projects are not financed - unless new projects are built with much cheaper financing from Chinese developers, supplying modules or even turnkey projects.
The government is trying to support local industrial PV development, with local content requirements for the NSM projects. But for a state PV program, for example in Rajasthan, this is not required - and the same goes for private PPA PV projects developed for private companies, or PV plants replacing diesel power. Once good returns are being made on PV-powered telecom towers, foreign money will find its way.
The price of diesel will continue to rise in India, simply because the government will reduce related subsidies. At the same time, PV will become cheaper due to economies of scale in the manufacturing industry. Furthermore, solar PV power with storage will be available at a lower price fixed for 20 years. It is not hard to imagine a very profitable business model for this situation...
Soon, foreign and Indian entrepreneurs will discover these opportunities. If they are unable to obtain financing from local banks, but can obtain much cheaper financing from Chinese PV module and system suppliers, guess what will happen...
In a country where both chicken and eggs are eaten frequently, this "chicken and egg" financing problem should be easy to resolve. Indian bankers should drive off-road more often; PV financing is not about tooting horns and warning about the risks involved. The bankers should take their feet off the brakes. There is no luck involved. Financing PV systems is not so much a risk, but rather a very secure asset providing fixed returns. Solar energy in India is the safe (high)way to travel!
Wednesday 7 March 2012
South Africa: Any bad memories over a lost final at the Football World Championships were swiftly forgotten due to the friendly people in this country. If you can keep on smiling and see a sunny future after a shadowed history, you should be fine.
South Africa has one of the best irradiation levels in the world, a fine infrastructure, phenomenal landscapes, superb ostrich meat and wine – but above all, friendly people. "Welcome to my office" said the cleaner of the men's room. And why not? Isn't the office a place of sit-down meetings were shitty ideas are born and good stuff flushed away...?
The SA Government is serious. Energy utility ESKOM needs more power and is open for PPAs. The country's growing economy needs fuel for growth, and electricity prices are expected to increase 25% during the coming two years. In addition to the 1450 MW the government will support in the three tender rounds, it has set a target of 8400 MW for 2030. The latter seems way too pessimistic when we look at the potential. With PV becoming competitive very soon, SA looks ready for a growth of at least 30% per year. It was no coincidence that two international experts are predicting an annual market of more than 5 GW by 2015 already. And, let's not forget, in the past such forecasts have turned out to have been on the pessimistic side.
As in any market, there are still a few hurdles to overcome. But we have seen these kinds of struggles in most successful markets. It takes three years to develop a market. South Africa is heading for an energetic and sunny future. I will be back!
Thursday 2 February 2012
For all the football addicts out there: Don't worry about the PV industry stealing your treasured pitches. We are talking here about solar PV installed on mainly roofs and ground which would be useless as a soccer field anyway. This figure of 132 million square meters of solar panels is what Germany has installed by the end of 2011, raising its already impressive cumulative amount to more than 24 GW installed PV power.
110 GigaWatts of PV in 2022
This could grow to 290 million square meters by 2022 according to the Federal Network Agency BNA. Personally, I believe this 54 GW of cumulative installed solar power will be reached much earlier. Assuming that the German market only grows a modest 5% every year in the coming decade, more than 110 GW of cumulative PV power by 2022 seems more likely.
Your neighbours start worrying
2011 saw more than 1000 PV systems installed every single working day. You may well start asking yourself whether the German solar installers will soon become unemployed as there will be no more roofs left to cover. But this is not the case. There is potential for tens of years at this rate. There are still countries where one single PV system is breaking news - but in Germany it is more a case of your neighbours starting to worry about you because your roof is still empty...
Grid parity in practice
Won’t the German market shrink this year and the years ahead? From a macro level, it seems logic that when the government reduces the Feed-in Tariff even faster in 2012, market growth will slow down or even shrink. But, from a microeconomic level, things might look different. Why would a successful German installer force himself to decrease his flourishing PV business? Don’t we trust in the German innovative and creative spirit? Won’t these installers be clever enough to develop new business models to keep the PV business going? After all, the German FiT for residential customers will arrive below the price of grid electricity. Grid parity in practice.
Hitting the breaks won’t help
The FiT decrease has been tried during the last years as a break on market growth. It did not work that well, judging by the surprising results of growing sales and a further 7,5 GW of new PV power in 2011. The more the government tries to put on the breaks, the more PV systems are being sold. Psychologically, another FiT decrease will again spur people to visit their installer to get a PV system before another decrease occurs - fired-up and encouraged by all their neighbours who have been a little faster and smarter. After all, you don’t want to end up as the last one in your neighbourhood to earn the least FiT...
Ain’t no stopping us now
So why would thousands of solar entrepreneurs in Germany decrease their solar business because the FiT is decreased again? They have seen that story before. And, not one big module manufacturer will skip the world’s number 1 market because module prices are forced to go down. They will do everything within their power to help their existing and powerful successful sales channel.
New wall paper
110 GW of solar PV in Germany by 2022 represents over 620 million square meters of PV panels. This would mean that more than 12% of the electricity consumption in Germany is covered by solar PV. Or it would save the energy output of at least 15 large coal power plants. In this conservative scenario, Germany will have accomplished a solar revolution from 0% to 12% in only 20 years. Green energy at a stable fixed cost. And there is more good news: After 25 years, the modules can be replaced with newer, more efficient and much cheaper models. The rest of the infrastructure can remain in place - much like replacing the wallpaper and windows in a 25-year-old house. This renewed power solar power plant will produce even more, and much cheaper, green solar energy for another 25 to 30 years.
Price of a beer
All German electricity consumers share the additional cost for these GWs of green solar power through a little surcharge on their energy bill. Around the price of a German beer per month. The government has not paid a single penny from their budgets for this extra green power. And this may well be important reason for success: No government budgets are involved - particularly important during these times when governments continue to lend money from future generations without any sustainable investments being made. The German population does not complain too much about paying this other ‘yellow energy boost'. The price of one more beer is no big deal. The interesting thought experiment is whether Germans would have been as willing to pay for this extra beer if the government had requested the surcharge for additional coal or nuclear plants...
Germans love soccer, beer and solar energy. There is no reason to be pessimistic about the solar future in Germany.
Friday 6 January 2012
This saying comes from the British philosopher Bertrand Russell who championed free trade. In the current market situation, the fear of unfair competition is one of the reasons behind for the call for import tax measures. But tax measures work counterproductively. Like in sports, implementing new rules doesn’t bring victory – you simply have to work harder and show better results.
The whole world using Japanese modules
In the year 2000 I organized a Dutch PV business mission to Japan. At that time, Japan was the world’s leading PV market and industry. After the trip to some impressive factories and projects, the participating Dutch Government executive concluded that it would not make sense to stimulate the development of the domestic PV industry in The Netherlands, since "The whole world will be using Japanese PV modules soon." Sharp was the world’s number one manufacturer.
A few years later, the government found out that the market was over-subsidized. Germany was then to take over when it introduced its Feed-in Tariff program. Everybody knows what happened next: from 2004, Germany is the world leader in PV market and industry development. Domestic manufacturing in former Eastern Germany was stimulated through attractive incentives. The FiT program did the rest. Germany started an impressive market and industry growth path. Many leading German and international PV companies such as Q-Cells, SolarWorld, Solon and First Solar benefited from attractive investment subsidies for new factories that helped them to produce cheaper solar cells and modules. It also led to the development of an innovative equipment manufacturer industry. All over the world, not least in China, German equipment contributed towards producing low-cost PV modules – and still is.
Without the unification of Eastern and Western Germany, incentives might never have been become available and who knows what the impact could have been on the development of the German PV industry. Of course, back in 2000, when the Japanese dominated the PV industry and market, no one could foresee a German unification. The future remains hard to predict...
Today, the Chinese have developed a huge PV industry, starting from scratch only 6 years ago. Who could have foreseen that? And remember that in 2008, the Spanish and German markets were hesitant and reluctant to accept cheaper Chinese modules. Quality was supposed to be less. While at the same time, German companies had rebranded modules produced in China. Nowadays, Chinese top brands are market leaders and fully accepted. After all, parts of these cells and modules are produced in fully automated processes using US and German manufacturing equipment.
Grow your market to grow your industry
So, what does this teach us? The best way to support domestic industry development is to create a domestic market – like Japan did in the early 2000s, Germany seven years ago and China is doing right now. China will sustain their industrial development and stimulate innovation, leading to further reduction of production costs. Cheap solar cells and modules will create new business and industrial opportunities in existing and new markets. Stimulating domestic market development could be a better way to create a flourishing domestic industry.
In a flourishing market, (foreign) manufacturers will likely start local production, because in the end it makes sense to reduce all costs, including shipment, transportation, financing, risk assurance and other costs related to producing goods far away from the market. In addition, most jobs in solar PV are created downstream in the supply chain and not in fully automated upstream production processes. The importation of cheap solar modules should be embraced as a stimulus for market and industry development.
Today China – tomorrow Korea?
No one can predict the future. One bursting real estate bubble in China could shake up the entire financial situation and PV business landscape. What the Chinese PV industry does today could be done tomorrow by India or Korea. Huge Korean industrial conglomerates have already made their first steps in the PV industry. LG, Samsung and Hyundai have serious ambitions and deep pockets. Their diverse activities and huge balance sheets could give them an interesting financial position which will enable them to survive the current consolidation phase in the solar industry. Although some competitors believe that Chinese PV manufacturers are being supported in an unfair manner, their loans from Chinese banks are at high interest rates, up to as much as 8%. Is that more unfair than a capital investment subsidy for production in some US State? Why are some US manufacturers producing in Asia or Germany?
The future: train harder and be innovative
Like in athletics, today’s winner could be tomorrow's number two. It does not make sense to cry over one lost game. Some time ago, Eastern German athletes won many gold medals at the Olympics. They were injected with steroids. It proved not to be a sustainable success model.
Don’t blame your competitors of unfair training practices. Instead, build the best facilities and invite the best competition into your country. Don’t fear them – rather get inspired. It is the best stimulus for new participants. And don’t blame the referee for unfair rules. Instead, improve your skills, exercise, train harder and be innovative. And be aware of your next competitors – they will very likely not be the ones you are competing with today!
Tuesday 29 November 2011
“Did you hear the news today?”
“What news? You mean the neighbours' dog's pregnant?”
“No, darling, the news said grid parity's been reached.”
“Grid what? You mean they finally fixed the grid and got everybody connected? It's about time. I don't even know who lives at the end of our street. But on the other hand, having seen some of them, I don't even want to be connected.”
“No, darling. Maybe it's time you got connected to some of the new developments going on in the world instead of just watching football. For instance, I have my own followers now.”
“You mean that Scarface from across the street is chasing you again? Let's send our crazy cat to his garden!”
“No, honey, followers on Twitter. But that's something else. I'd better not even try to explain to you about people sending me messages... What I mean is new developments in the area of renewable energy. Particularly solar energy.”
“Solar energy in our country? You must be kidding! Every time I go to the football stadium I'm in my raincoat. And on top of getting soaking wet, most of the games are terrible anyway. And they invested all these sunny oil dollars in our team.”
“Honey, what I mean with grid parity is that the cost of solar energy is the same as we pay for our electricity right now.”
“Invest in solar? You must be kidding. I'd rather start with an investment for a bigger fridge, so we can cool more beers if my friends come over.”
“Darling, I think it's a great idea to produce green electricity from our own roof and still not pay more than the neighbours.”
“Yes, sure - fun! And every cloud will cut off the electricity so I miss the replay of the best goals - although lately those are the opponents' anyway, with all those well-overpaid foreign defenders from sunny countries...”
“Darling, really, you should follow the news some more. A grid-connected system means you won’t even notice where the electricity is coming from - the roof or the grid.”
“Great, so we invest and don’t even notice the difference?”
“Yes, but it will be green electricity. I think we should contribute to making the world a little greener.”
“Greener? I already agreed to eat a green salad with you every week. My lads say my hair's looking more green than grey. And you want to invest our little savings in this solar energy thing?”
“Yes, for only €5000 we can produce almost all our energy from the sun. And if you started by watching less football matches on TV - the ones you've already seen in the stadium anyway - we might even manage to produce our entire electricity consumption from our own roof.”
“And then save what?”
“Well, nothing at the beginning. But with electricity prices going up, we'll be saving money in a few years.”
“Who says electricity prices will go up? Politicians? Huh, they promise too much anyway... So, to show you I'm not as negative as you think I am, let me try to understand you... You are intending to mount some ugly green energy panels on our precious nice grey roof to produce solar electricity, and in the next 15 years we might be able to save €30 per year if this solar stuff is €0,01 cheaper per kilowatt-something than what we currently pay to these utility thieves? And for this great news we only have to pay €5000...? We'd be better off growing green salad on our roof to save money! I should have known this green salad would affect your brain...”
“Darling, now you're exaggerating a little. We can contribute to a better world and save some money in the next 15 years. Don’t you think that's a nice thought?”
“Let’s keep it as a thought. I think we'd better wait till we can actually make some real money with these green hobbies of yours...”
Thursday 03 November 2011
Solar module prices have dropped an astonishing 40% in 2011 alone. This is the result of an exploded solar industry where oversupply is now leading to a consolidation phase, including strong competition. This enormous growth of mainly the Chinese PV industry is a result of generous feed-in tariffs for market development in mainly European countries.
On the other side, grants and other incentives for industrial development in China, the USA and Europe contributed to this as well. Both are now leading to what seems to be a solar industry bubble. Bad news never comes alone... In addition to an oversupply, the leading markets are currently facing financial headwinds as well. This means less money available for incentives and project financing. Where and how to sell your products? It all leads to rapidly declining module and system prices.
That sounds like great news, because the sooner we reach grid parity and get rid of subsidies, the sooner we can start exploring the infinite market potential of competitive solar energy. Next year, the solar energy produced by households will be cheaper than electricity from the grid in the world’s biggest markets, Germany and Italy. With solar energy expected to get cheaper, and dirty grid electricity more expensive, the future for solar energy indeed looks bright.
Nevertheless, not everybody seems happy with the current situation. Claiming unfair competition, some industries and politicians are urging for barriers to be imposed on imports of cheap (Chinese) modules, and extra incentives for domestic products. But, shouldn’t we be happy that Chinese manufacturers are producing such cheap modules? After all, isn’t this what we want? Wasn’t this the original plan and goal: to make solar PV competitive, so that financial (government) support for market development would no longer be needed?
Indeed, Europe has heavily sponsored market development, which has enabled foreign manufacturers to emerge and grow. And, yes, (Chinese) companies have benefited from tax holidays, free land and free infrastructure development, investment subsidies, cheap loans and cheap energy. As such, they have been able to produce at lower cost. Seems unfair? Europe and the USA have seen local industry development stimulated, too. Not surprisingly, most German manufacturing is taking place within the former Eastern German territory. Grants and capital incentives have been made available to build industries and create jobs.
If the Chinese local and central government had not financially supported solar industry development, today's solar modules would have been more expensive. Subsequently, yearly market demand would have been much smaller and grid parity further away. Thus, incentives would have been needed for a longer period.
But this is not the case, because the world is flat – as Thomas Friedman wrote in his book. You can’t stop industrial development in Asia. Because we want everything to be cheap – not only solar modules. From socks, to kitchen equipment, from chemicals, to cars. All US Walmart and European stores are fully packed with products manufactured in China. I bet even a lot of politicians shouting about local solar industry protection are using an iPhone produced in China and watching an Asian flat-screen television at home – and might even be wearing European-labelled underwear produced in China.... Why should solar modules be the exception?
Isn’t it great that the Chinese central and local governments supported the development of their solar industry? Europe and the USA subsidised the market, China subsidised the industry – and in the end we are both benefiting. China has invested a lot of money to build an enormous solar industry. Western solar equipment manufacturers benefited greatly. And Western investors supported the stock-listed Chinese solar manufacturers in New York. Lots of US and European capital is used to build the Chinese module giants, and dividends are flowing back to Western investors.
Now we are facing a solar industry bubble. And in this consolidation phase, only the strongest companies will survive: manufacturers able to cope with reduced feed-in tariffs and able to emerge in markets without any incentives; the strong ones, highly automated with Western equipment, able to produce at the lowest costs, with thin profit margins. Good news for customers and politicians longing for cheap solar energy and market development without costly incentives....
The low costs upstream, with the Chinese solar products (from silicon to modules), mean that Europe and all other markets will be able to achieve grid parity sooner – giving us a future with an abundance of downstream solar business opportunities in local markets, and room for new business models invented by local financial engineers; new local building products with cheap solar cells integrated, and lots of installation work for local electrical installers. We are almost at the point we want to be: low-cost solar energy and a sustainable infinite market. We all want and need cheap (solar) energy – and the sooner, the better. The world is flat. Solar modules are flat. But we don’t want a flat market.
Friday 21 October 2011
Picture yourself Italy in 10 years' time. Apart from a new prime minister, other things will have changed drastically. Anyone who makes some conservative forecasts for household energy prices in Italy in 10 years' time will see some interesting outcomes. Take a modest 2.5% inflation on the current electricity price for households and you will arrive at around €0,30 per kWh by 2021. This is of course without taking into account any euro or dollar value increase, abolition of CO2 taxes, oil and gas price decreases, (renewable) energy tax decreases and – last but not least – sharply reduced energy consumption due to a wave of environmental consciousness flooding Italy. All of which could possibly happen.
At the same time, imagine a 'crazy' global PV industry growth of 25% per year. Compared to the 50% compound annual growth rate during the last 10 years, this at least can be called a conservative scenario. In line with this, a 5-10% average price reduction per year in PV systems looks feasible. Again based on assumptions that remain to be proved: economies of scale leading to lower production costs for solar modules, technology and cell efficiency that have not reached their limits, the number of markets for PV not coming to a standstill, and – last but not least – the assumption that the currently more than 500 module manufacturers will not collectively decide to compete and lower prices any further. All of which could possibly happen.
Such a 5-10% yearly system price decrease will lead to a cost price per kWh of around €0,12 for solar electricity in 2021 (calculated based on 15-year amortization and 6% interest rate). To summarize, for 2021 we calculated €0,30 per kWh for grid electricity and around €0,12 for solar electricity. Is it possible for these prices to co-exist alongside each other? How likely is it that people will use the grid if they can use solar energy for less than half the cost?
What about supply security and energy storage? Well, you can assume that the price difference of €0,18 should be sufficient to cover cost for energy storage. Also, much development is taking place in this area. Think about micro energy storage solutions in mobile phones, but also about electric cars, scooters and bikes. All of these are expected to show significant growth trajectories. Will energy storage be more expensive in 2021 than solar electricity production (€0,12/kWh)? If not, the total price for solar electricity plus storage could be less than €0,24/kWh. Still lower than the expected grid electricity price....
Will there be any reason for customers to stay with an expensive, old-fashioned bureaucratic energy company? Or will they opt for new dynamic solar energy utilities supplying green solar electricity, including storage and full 24-hour service at a 15-year guaranteed lower price?
Italy will arrive at grid parity in 2012. It will become the world’s biggest grid parity market and an example for the rest of the world. Within 10 years, the Italian energy landscape could face major changes. Will today's energy moguls remain passive and then be surprised to see new solar energy service providers take over their businesses overnight, like WhatsApp did with SMS...?
Monday 26 September 2011
If you had predicted 10 years ago that you would be able to send messages to hundreds of friends at the same time and free of charge, people would have called you a nice futurologist. Who would pay for the infrastructure? What kind of business model could work with that? Nevertheless, Twitter was invented in 2006 and is now a globally established tool for such short message services.
In the same category of crystal bowl forecasts, it would have seemed impossible to send text messages for free with your mobile phone. Yet, today WhatsApp is conquering the world and forcing existing telecom service providers to come up with new business models. Payment per kilobyte of data just does not cut it any longer. And what about the high-tech cell phones these companies provided for free with 2-year membership? How do they make money?
The most surprising element of these inventions is not the exciting technology but the business model. How in the world is it possible to make money providing free services? What is the business model behind these successes?
The interesting parallel is that the PV industry needs new business models such as these, too. We need to get rid of unpredictable government incentive schemes. Indeed, most people would not be opposed to reducing their dependence on and bills for their energy utility.
Will it be possible to offer solar energy for free in five years’ time? No payment per kwh, but only a flat monthly fee just for the PV system (connection)? Or sharing the solar energy from your roof with your friends and neighbors for free?
Who would pay for the PV system investment (by the way another 30% less than today)? No idea yet, but that does not mean it is not possible! The guys who invented Twitter and WhatsApp did not know upfront either, yet their companies are worth a great deal of money...
Rather than working solely on technology improvements, the solar industry would do well to work on innovations for business models.
The industry needs to get rid of dependence on the yearly-changing government feed-in tariffs, tax advantages and subsidies. Let’s put our energy into universal business models that could work in any country; that have the potential for a niche in the rapidly and continuously growing global PV market. That is what the industry needs most now: to stop the current whirlpool of cost reductions and margin compressions forced by decreasing incentives, which lead to uncertain market demand and hence oversupply and the need for more cost reductions.
The most successful internet companies where not related to better transistors or other “wiz kid” technology innovations. The major success stories such as Google, Facebook, Twitter, etc. all emanated from superb business models based around free services.
Friday 26 August 2011
Solarplaza recently published the Top 10 of the world’s biggest PV markets for 2010 and previous years. But what will this Top 10 look like in 2014?
If we look back 3 years, we can see how unpredictable market dynamics are. After all, who would have believed that Italy would have turned out to be the world’s largest PV market in 2011? Who would have believed that Spain would have fallen out of the Top 10 in 2011, after being the world’s biggest market in 2008? And what about the global economic situation and other international developments impacting the solar industry and market developments...? It is in fact anyone’s guess when it comes to looking three years ahead... But it’s fun to try - so here is my best guess:
Market Size in 2014 [MW/Year]
1. Germany - 6500 MW
2. Italy - 5500 MW
3. USA - 4500 MW
4. Japan - 3300 MW
5. India - 3000 MW
6. China - 2000 MW
7. Australia - 1400 MW
8. France - 1100 MW
9. Spain - 800 MW
10. Greece - 750 MW
When Germans build cars, they make the best. Why would that be different with PV? Germany is the most developed and experienced market in PV, and the country has the world’s best PV business infrastructure, with thousands of PV companies. Germans have a great ability for technological and business innovations, have a green drive and clear renewable energy goals. All of which are the right ingredients for staying at the top, even after the FiT era. The expected dip in sales in 2011 is probably just a temporary phase, during which Germans are preparing for grid parity in 2012/2013. Being one of the world’s most stable economies, I expect solid market growth, which will be fuelled by the German attitude, “My green neighbor has PV, so I want/must have it too.” Market saturation is still far away, so there is plenty of room for further market growth. International companies believe in the future of German customers too: they are lining up to sponsor German football teams. Like in football, Germans always play in the top league. Losing the number one position to Italy this year might very well be a one-off mistake...
Italy is Italy and things are done differently in Italy. Five years ago a tiny market of 11 MW, the Italian market will be 500 times bigger than in 2006 and become the world’s largest market in 2011. Italians are creative, impatient and like speed. Plus, the Italian market is attractive – and you can’t teach the Italians anything about attractiveness... Maybe the market will face a little fallback after the record year 2011, but I expect them to bounce back, reaching the goal of 20 GW cumulative installed PV power even before 2014. High irradiance figures combined with high energy prices are helping to bring Italy closer to grid parity this year – or at least next year – in the residential market. Some additional taxes or levies on the energy price to finance the feed-in tariff will do the rest. Italy will definitely remain a Top 3 market by 2014. My guess is that, even without a FiT, they will reach 20 GW. Italy is an ideal market and base for new business and financing models based on grid parity circumstances. The business infrastructure is already in place. All major PV players have established Italian branches – and not because of the nice cars! Italy is a market for the future, with electric cars powered by solar energy. Not because they hate the noise of fast cars, but because these accelerate faster than the current Ferrari.
The USA will become the world’s biggest PV market. The only question is when... My guess: not yet – but in 2014. The US market might grow at least 50% per year and the potential is enormous with 50 States. But, as per Europe, every State has its own policy(makers) and federal policy is not as sustainable as PV systems themselves. At the present time, most States still have a small market size; easily 10 times less than that of Belgium in Europe. By 2014, several Sunny Desert States will be contributing, with some very large-scale projects (e.g. California, Arizona, Texas, Nevada, New Mexico), and several other States will have well-developed residential and commercial market segments (e.g. New Jersey). But, if the economy is up, the dollar strong, Democrats still in charge, paperwork for PV reduced and the federal tax credit still available, the USA may well become the world’s number one market even sooner. Is that feasible?
The shift from nuclear to renewable energy will help to make the Land of the Rising Sun an increasing PV market. After almost following in the steps of the Samurai by killing its own leading market position a few years ago, Japan is now on the way back to the top. The high energy prices and rapidly decreasing solar module prices help a lot. Also helpful are the mature domestic PV industry, the very well-developed PV business infrastructure – and let’s not forget public awareness. Japanese customers are already familiar with solar PV systems, with PV ads in all media channels. Ambitions and the potential are huge. A modest 30% growth rate per year will put Japan in the number 4 position with a size of around 3300 MW.
Probably one of the best places on earth for solar energy. The highest irradiance, high economic growth, permanent power shortage and no domestic natural energy sources – apart from abundant sunshine... All major markets have taken at least 3 years to build up their PV business infrastructures – and that is what is happening now in India. In the coming years, cheap solar energy will become unavoidable for all energy utilities in India. BOS cost (labor, engineering, etc.) will be low in India, and with module costs coming down rapidly, there is no better alternative. The Indian PV market potential is infinite. In the long term, India is ready to become the world’s biggest PV market. It will just take a little more time, because it is too hot to work too fast in this sunny country. My guess is at least a 100% growth, putting them into position 5 for 2014.
Will the Chinese domestic PV market be smaller than the Indian market?
The race might be close. But China might be more focused on industrial development and making money through export first, before developing its domestic market. Irradiance in the relevant populated areas in India is better than in China. And in a situation of no subsidies the market will follow the sun. Besides, there are more power shortages to solve in sunnier India than there are in China. On the other hand, the financial power of China is better, and if the Government would provide the same loans for PV installations that they have for manufacturers, and in the same amounts (billions of dollars) growth could be much higher. Being more manufacturing-driven, my guess is that China will focus more on export and sales and India more on domestic energy supply.
In an overview of countries with huge solar energy potential, Australia cannot be excluded. Although still addicted to coal, Australia might see the (sun)light soon, as they increasingly discover the potential of this clean, reliable, predictable and cheap energy source. And on the map it looks like there is also plenty of space for ground-based solar PV power plants... A natural choice for rapid market development. The Australian market is emerging and a solid 40% market growth per year will bring them into the Top 10 at place number 7 for 2014.
The time is over for nuclear power. Building new nuclear power plants is too high a (financial) risk. Financing a 20-year solar PPA contract is easier than financing a new nuclear site. Who wants to invest for another 40 years in such power plants, knowing solar and wind energy are favored by customers and voters alike? And will also be cheaper within 10 years? Solar energy will be a natural choice for France. The French love their innovative products and business concepts. And the French like their independence. New players will find their way into solar. And customers love to be independent with their own energy source. Only a 30% year-on-year growth is sufficient to put France into the 8th position.
Yes, why should Spain not regain its place as top-of-the-market? After the burst of the PV bubble in 2009, Spain is crawling back up, and very soon it may no longer need subsidies to make solar PV affordable. Energy prices are rising, and the companies that have survived are stronger and more experienced. Even more important, the Spanish banking sector has sufficient experience. Grid parity is close and Spain is Europe’s most logical and best-suited country for large-scale ground-based PV power plants. At a 30% market growth per year, Spain could end up 9th in the 2014 Top 10. Provided there is no economic meltdown in Europe, Spain could be the reviving surprise.
There needs to be at least one surprise in the Top 10. Greece is the silently but steadily growing market. Shadowed by its economic problems, the Greek market is doing great with over 200% growth per year since 2007. If it experienced just 40% growth in the coming years, it could suddenly enter the Top 10 in 2014. No domestic energy resources other than abundant sunlight and rising energy prices will help to develop Greece into an attractive grid parity market. Just replacing fossil fuels by solar power from all the islands will not only cut costs but will provide a sustainable future again for Greece.
There is always room for more surprises. Who in 2007 would have expected the Czech Republic as the number 3 market in 2010? It only takes 3 years to develop a market and business infrastructure. So if countries like Brazil, Chili, South Africa, Israel and Morocco start next year, they could easily end up in the 2014 Top 10.
The above Top 10 is just a best guess. An interesting experiment to look back on in 2014, to see whether predicting the future is still impossible – but nevertheless fun to do. I can’t wait to look back in 2014 and find out what surprising and foreseeable facts were overlooked...
This forecast is open for discussion and therefore I hope to meet you in Hamburg at our Global Demand Forum , where keynote experts will be sharing their vision on where modules are heading in the coming years!
Wednesday 20 July 2011
Look back just 20 years in time. The year is 1991. There is no Google, no lap-tops or indeed many other things that now look like they’ve been here forever. Cell phones are only for the happy few and the World Wide Web, or what we now call 'the internet’, has only just been launched in August of this year. Then, in the twenty years from 1990 to 2010, worldwide mobile phone subscriptions grew from 12.4 million to over 4.6 billion. And between 2005 and 2010 alone, the number of internet users doubled, and was expected to surpass two billion in 2010. Looking back it looks like a complete revolution has taken place. But if you are old enough to have fully experienced this period, you’ll remember that it just felt that developments were progressing fast but also very smoothly.
So what can this ICT revolution teach us for the application of solar energy? Everybody loves solar energy, but the cost is still an obstacle. It’s not surprising so few people in the world are using photovoltaic solar energy. Will this cost-issue be solved soon? Will there be a revolution?
Looking into the future, ten years from now, the answer is a resounding yes. Let’s assume a conservative 5% cost and price reduction year on year from now on for Pv Systems or solar electricity. This calculation is based on technology improvements, economies of scale and other optimizations such as reduced transportation cost etc. And this is a conservative estimate, since in the past 10 years the yearly cost reductions have been higher. The astonishing and convincing result is that within ten years solar energy, even in the less sunny northern European countries, will be available at around €0.15/kWh. Compare this to today’s current cost of electricity from the grid! And would any sane person predict that the cost of fossil fuel-derived grid electricity will decrease over the coming decade? In the sunnier Southern European countries the cost will be even less than €0,10/kWh within this period. So, who then will still want to buy grid-electricity when solar energy is half the cost?
In 10 years, solar energy will be competitive in all residential PV markets in at least Europe and America. And in 20 years solar energy will be so cheap it will be competitive in any application; residential, commercial and utility scale power plants. Solar cells and modules will be so cheap they will become available in any size, form and color. How will this impact our lives?
Since it will be attractive to generate solar energy from any roof, facade or even any indoor and outdoor surface absorbing (day)light, all industries and consumers will be thinking electric. Solar electricity will become available everywhere at low cost. Small and large scale convenient energy-storage solutions will make the availability of cheap (solar) electricity possible anytime and anywhere in and outside buildings.
Excess solar energy which you don't use immediately can be saved for later, or for charging your electric vehicle - with this cheap solar energy, within 20 years the EV will be much cheaper to drive than an 'old timer' running on gasoline. And the car industry, already investing millions, will have kept up with this power revolution. Mass production will bring down the price of EVs to a level lower than the antiquated fossil fuel cars.
So, we’re looking forward to cheap sustainable energy for everybody around the world, an energy revolution, but has this revolution already started? The solar industry is growing like crazy. And this is not just due to its novelty or to a green commitment. Prices for solar systems are decreasing rapidly. Because of the scale of current investment (much of it Chinese), industrial companies and banks can predict that solar panels and systems will soon be produced competitively, and without depending on subsidies or government support. The investors are not all opportunists either, or crazy. With hundreds of millions being invested today in building new manufacturing plant, the global industry already includes hundreds of manufacturers. They all want to have a share of a market which will take a substantial percentage of the world energy mix within 10-20 years.
And then suddenly, in twenty years, solar energy will be there as if it had existed forever. It will be competitive and it will seem completely normal to everyone to rely on solar systems. Today, we may not see a solar revolution. But, we are already part of a solar evolution - and it’s developing fast.
Friday 24 June 2011
"We will enable, help and secure the development of a sustainable future with clean energy supply for our children". Does this sound familiar to you? The websites of the solar investors and sustainable and solar energy funds all declare this great ambition. But, in the end, what counts are the financial numbers. "We need at least 12% ROI on the project. Certainly with all the risks involved". There is this great chorus line, saying "it’s all about the money...".
Better than 2% at your savings account
Have you ever seen a solar fund promoting an offer of a 6-7% guaranteed return on your deposit? It would still be a much better alternative to the 2% on your savings account at the bank, and I bet there is a great future for such an initiative. No one would become very rich, but it would enable solar project developments for private people at a decent return. It would make green and clean solar power development attractive for many people.
The green or the greedy?
Investors could be put aside as greedy people/companies. But the reality is that they accounted for maybe even around 50% of the global market volume and development in the last 10 years. Without the ‘greedy’ investors probably only a handful of large scale projects would have been built. This means the global market demand would have been much smaller. And the market volumes and industry dynamics would have been different. Module and system prices would definitely have been substantially higher. If it was just aimed at the green sustainable-inspired people and customers, the global PV market development would be focused on residential PV applications, on many small PV systems, with just a few exceptions for companies looking for a green image. So, who will help the development of the solar industry and markets more - the green or the greedy people?
Higher returns now lead to quicker competitive prices
The higher the returns offered to investors now, the faster the global market and industry will grow, and the sooner module and system prices will decline due to economies of large scale production; and the sooner green people can buy their clean energy at low prices. Besides this, the investors and financial institutions and banks will get used to solar as an easy, reliable, predictable, trusted, low maintenance technology - a reliable asset with interesting returns. This will be helpful when solar energy becomes competitive and when further market development requires the involvement of big companies, investors and banks.
Global energy hunger
The more investors are facilitated with good returns on their large scale projects now, the faster the industry will grow; and the sooner this will lead to lower production costs and, finally, competitive price systems. Thus, we can sooner reach grid parity where incentives are no longer needed at all. And the investors will have found out that solar PV is a superb, reliable and sustainable asset for further investments, even if the returns are less. They will stay in this growth business because the world’s energy hunger can only increase.
Money makes the PV world go around
Money does not only make the world go round. With solar energy, higher subsidized returns speed up achievement of grid-parity, where government support is no longer needed. A 'quick money shot' with good returns will fire up the PV market and keep it running forever. This 20 year period of FiT-payments will still be ‘nothing’ compared to the incentives, tax advantages and environmental tax exceptions that the fossil fuel industry received over the last 70 years. The PV industry will be like a gasoline engine. The initial ignition takes some (money) fuel. But once it runs, it’s hard to stop. And with solar PV it will never stop as the energy source is infinite and the cost competitive.
Thursday 16 June 2011
Growing industry and government budget cuts force prices to drop
Solar modules prices have dropped by another 20% during the first five months of 2011. Top-brand modules are now available at $1,40 per watt and sometimes even less. Half-way through 2008, the sales price still stood at around $4 per watt. Why are prices plummeting and where will this end?
A decade of continuous growth
Last year, the global solar PV market grew an astonishing 100%. For any industry in the midst of a global economic crisis, this is not a bad result. And it was not the first time this spectacular growth had occurred - it first happened back in 2008. Only in 2009 did the global crisis hit the PV market, slowing growth down to around 15%.
Since 2001, the global PV market showed an average growth rate of 50% of new installations per year. No wonder the solar industrial players invested heavily in capacity expansion. After a decade of continuous growth, it does not look as if there is any turbulence ahead for the solar PV market. After all, governments will continue to seek sustainable energy solutions and fossil fuel independence. And as for the end user, the majority would definitely prefer clean solar energy if available at competitive prices.
Still more industry entrants
Even more stimulated by the glorious market demand figures we saw in 2010, the solar industry invested heavily in capacity expansion. This will bring down cost and sales prices, helping it to reach the holy grail of grid parity even sooner.
But, besides the rapid growth of the existing industry leaders, many new players have been attracted too by the growth figures and market forecasts. New small companies and very large (Asian) corporations have started to produce silicon, cells and solar modules. And why not? Market saturation is nowhere to be seen. It does not look as if the solar energy market will stop growing some day - apart from the odd temporary slow-down.
Government budget cuts
At the same time, governments of leading markets saw budget claims for Feed-in-Tariffs in 2010 go through the roof. In the light of general budget cuts and economic problems, Germany, France, the Czech Republic and Italy therefore decided to cut back the FiTs and other grants for 2011. The purpose of this move is to cool down the explosive market growth and excessive budget claims. Not only did they lower the tariffs (subsidies); the revised schemes mean that smaller and roof systems are favoured over big ground-mounted power plants.
The subsidy reductions are forcing the solar industry to reduce cost and system prices in order to remain attractive to its customers, ensuring it still provides an attractive return on investment. Besides, the shift from fewer large-scale power plants to more smaller-scale systems will be a more costly job in terms of sales efforts.
Governments cutting budgets to cool market growth
The result of a rapidly expanding industry on the one hand, coupled with budget cuts on the other have led to a rapid fall in prices. The industry is growing at full speed, and facing more competition in the major leading markets. Germany, France, the Czech Republic, Italy, etc. are being cooled down with seriously lower incentives. This parallel development produces a cocktail which will bring about a rapid price decline for solar modules, inverters and total solar PV systems....
In order to control further budget cuts, these countries will calculate their FiT levels for 2012 in accordance with market growth in 2011 or on solar module price development. It is even possible that these leading markets will (slightly) shrink in 2011 (Germany, the Czech Republic, Italy) compared to the record year of 2010. Although the dynamics are hard to forecast, the promising emerging markets (India, China, etc) are yet not big enough to make up for any slower growth in these leading markets. Nevertheless, with system prices going down rapidly, it might very well be that we can expect another year of global growth.
Spiral of declining prices
Of course, new markets are popping up. But governments closely follow the leading markets, introducing FiTs and incentives according to the latest market prices. In the UK, the incentives for large-scale power plants were drastically cut, even less then a year after their introduction.
Inevitably, this spiral of developments leads to (rapidly) falling system and component prices. And the dynamics are hard to control. The existing leading industry players will fight hard (i.e. lower their prices) to capture and increase their share of the market. New players will fight hard to enter the market. And if the market continues to grow substantially, governments will lower the FiTs even more in order to control the overall budgets.
Where and when will this spiral end? Well, not until solar system prices have reached a point where subsidies, grants or FiTs are no longer necessary to make solar energy competitive with other energy sources. And in some markets, this is already a close call for certain market segments. Germany and Italy, with high electricity prices, are serious candidates to reach grid parity for residential customers next year.
New era of strong growth on the horizon
Industry leaders and experts forecast that solar modules will be sold for under $1 per watt three years from now. An average decline of module prices of around 7-10% per year. Large solar PV systems and power plants could then become feasible at $2 per watt. This will lead to competitive prices for solar electricity, without any government support.
Inevitably, this development will change the business models. In the near future, solar PV systems will be sold as energy and cost saving devices - whereas currently they are sold as profit generators based on government subsidies. With regular electricity prices likely to increase, and as solar system prices continue to decline in the near future, an infinite market is appearing on the horizon. The solar industry can prepare itself for an era of continuous tremendous market growth. But first it needs to fight to get itself through the coming years.
Friday 27 May 2011
Solar energy too expensive? It depends how you make the calculation. How long will a PV power plant last? The general practice is for investors to base their calculations on a 20- to 25-year period for a megawatt ground-based PV system, using a fixed structure to calculate the return on investment. Does this give a correct calculation? Why not base it on 60 years and consider the replacement of inverters every 10 years and modules every 20 years?
Is a 25-year depreciation period realistic? What is possible with a PV power plant after 25 years? You could replace the modules by super cheap new modules. The inverters will have been replaced 5 years earlier and will still be doing fine. The rest of the system - concrete, cables, steel structures - are not likely to be eaten by rabbits or ants. Permits and grid connection are most probably still valid as well, since the world is desperate for electricity. So, by replacing the modules with new efficient cheap blue gold panels, available for - who knows - maybe as little as $0.50/Wp, the megawatt power station will be as new. Ready to produce electricity for a further 25 years.
One thing is sure: If a PV power plant is completely depreciated in the first 25 years, the production cost for electricity in the next 25 years will become extremely low. Making it a serious contender to compete directly with electricity from coal and nuclear power plants... And who would believe that electricity on the market will be cheaper in 25 years? In other words, the renewed PV power plant will, once again, become an extremely profitable electricity production site...
It is like renovating your house or building. Replace the windows, but keep the walls and structure intact. Maybe a new kitchen and a lick of paint will give the house a value even higher than ever before. So why, in a world of growing energy needs, would a PV power plant be worth less after 25 years? Isn’t it more likely that the plant is worth even more?
Why would coal and nuclear power plants be depreciated in 50 years and PV power plants in just 25 years? Don't coal power plants present higher risks? Who will be able to estimate what coal prices will be in 25 years' time? Or the costs involved for CO2 emission rights? Or, indeed, other emission reduction measures which may be introduced? These figures certainly seem to be less predictable than what the cost of solar energy will be in 25 years' time. However, it will be difficult to ascertain just how much cheaper modules will be 25 years from now...
Friday 22 April 2011
“Solar panels are unsightly, have low efficiency, cost tons of subsidy money and have a high carbon footprint. “
Edwin Koot writes about the 10 major myths about solar energy.
1. Generating Solar Energy Is Only Possible In Countries With A Lot Of Sunshine
The fact is, the energy of the sun is the most evenly spread source of energy in the world. In any part of the world where there is light, solar panels will work. The world’s biggest market for solar energy is … Germany, a country not particularly blessed with long days full of sunshine, but a country with a smart government nonetheless. In the summer, more than 10% of the household electricity in the south of Germany is generated by solar panels.
Of course, when you’re living in the Sahara region, your ROI will be higher, but there are many other factors playing a role, such as the presence of a grid, the local consumer price for electricity, your energy usage pattern, the political stability in a your country, your need for independency from external sources of energy, and many more. As an example, in Northern Alaska it is smarter to invest in solar energy than to pull a cable from a far away power plant or grid connection point.
2. Solar Panels Are Only Attractive In Niche Markets
Solar energy is an attractive product in any place where people need electricity, which nowadays is anywhere in the civilized world - globally. That is a much larger market than just large-scale solar plants in desert areas, which are very competitive markets, because they need creation of new grids, are competing with wholesale prices for electricity and are crowded with many other power-generating enterprises.
When you concentrate on solar panels for household or entrepreneurial use that can be mounted on a rooftop, you can compete against the local consumer and corporate rates for electricity. You can compare this with the market for compact fluorescent lamps, where the consumer at the end of the day saves money by investing a small sum of money. The ROI is made at the end-consumer level: the height of the electricity bill. The investments are very simple, and no new grids or other types of costly infrastructure are needed.
3. Solar Energy Needs A Lot Of Public Financial Support And Could Never Become Competitive
“People will never buy laptops.” “Flat screens televisions are too expensive for the general consumer market.” “Mobile communication is too expensive in comparison with landlines.” These are some of the opinions that we have heard in the past, and how untrue they were! Laptops, flat-screen televisions and mobile phones are now everywhere, because people wanted them, needed them and were willing to pay for them, and finally the prices went down because of mass production methods that could be applied for the innovative products. The same is now happening with solar energy systems.
In the past three years, the prices of solar panels have gone down by half, as a result of the introduction of large-scale production methods. Marketing research shows that innovative consumers want solar energy now. In 5 years, your average consumer worldwide will want his solar panels, just like he wants his smart-phone and laptop. Your consumer will want them, because the solar energy from those panels will be cheaper and greener than the electricity from the grid.
Public funding was created in the past to accelerate this process of acceptance by the general consumer. In the largest markets, the subsidies are now in the process of being terminated. By next year, in Italy and Germany solar energy without any form subsidy will already be cheaper than electricity from the grid. The other European countries will follow this trend soon.
And other countries worldwide will follow, for the simple reason that the global market is getting bigger and bigger and solar systems are getting cheaper and cheaper. That is one thing for sure. The other side is that nobody knows what the costs for traditional energy will be in 10 years. Today, new nuclear plants won’t be even build without substantial government funding, because their future is so insecure.
4. The Efficiency Of Solar Panels Is Still Too Low
True, it could be better. Like cars getting more economical every year, solar panels are getting more efficient every year. Are the current panels not good enough? No, the technology is mature and the panels are good. What is at stake now, is not the efficiency of panels, but the price per generated kilowatt-hour. It is no longer about the type of motor in a car, but about how much fuel the motor consumes per mile.
There will still be new types of solar panels developed, with better efficiency, but the real success of solar energy in the future will lie in large-scale production matters and growth of the global market. A low purchasing price for a solar panel will be the determining factor for low-cost generation of solar energy for the consumer.
Are you waiting with buying a car because the models will be better, faster and greener in 2 years? Not if you need a car right now … In the same way, people need solar panels right now and buy them now, because they help them realize certain goals, such as independency from the grid, lowers costs for electricity and a carbon footprint shift. No new technologies are needed to create a breakthrough for solar panels. They are the breakthrough.
5. Solar Panels Have A High Carbon Footprint And Are Not Sustainable
Solar panels are usually made from silicon. Silicon is found in sand, one of the most widespread natural elements on earth. The ovens used to transform the sand into silicon use a lot of energy - that is true. But the payback time for the energy used to produce a solar panel is only 1 to 2 years. This means that in this time the panel generates the total amount of energy that has been used for its complete production - thanks to the free energy of the sun.
All power generated after the payback time is pure green profit, while solar panels can last 25 to 40 years! Other sources of energy have much longer payback times. Specifically, nuclear power plants have extremely long payback times, so long that it is questionable whether all the power that was generated during their lifetime is enough to pay for the energy used to build and disassemble them.
6. Solar Panels Are Unreliable, Because On Cloudy Days And During The Night They Do Not Work
Right now, the market for wind energy is (still) bigger than the one for solar energy, although the sun is a more reliable source of energy than the wind. But solar energy will soon surpass wind energy, firstly because solar panels can be used anywhere and secondly because they can be implemented in a modular way. This means that is very easy to expand the solar energy system in the course of months or years.
The combination of solar and wind energy is a nice option, but the future lies in the combination of solar energy with energy storage on a local and on a central level, especially now that the market for transport of electricity will grow further.
The market for central storage of energy is also going to be a phenomenal growing market. Central storage of energy in batteries creates the possibility to store the power generated during the day and use it in the night. An example is charging your electrical car at night. Energy storage is already a hot item - you only have to think of laptops, iPods, iPads and electric scooters and bicycles - but solar energy will give this market a big boost. The combination solar power generation and energy storage for later use is a perfect one.
The markets for central storage of energy and for solar energy systems will stimulate each other mutually, because when storage gets cheaper, it becomes cheaper to generate solar energy with the purpose of storing it and using it at a later time.
7. The Big Energy Corporations Do Not Believe In Solar Energy And Thus It Can Not Be Good
Shell finished their engagement with solar energy already. Exxon does nothing with solar energy. Many large energy corporations prefer to invest in coal power plants. But, don’t expect a wholesale slaughterhouse to specialize in gourmet green meat products. Shell has oil in its blood and their business is based on it. Large multinationals are like large tankers on the ocean: they are very difficult to maneuver and cannot make quick changes in course.
Solar energy is a sport for fast and flexible entrepreneurs, with a preference for innovation and sustainability. The market is volatile and ever changing, like the wind in the sails of an elegant and fast sailing ship. An entrepreneur in solar energy has to be like the shipper of such a sailing ship, sometimes tacking in headwind, sometimes easy-going down the wind, but never windless …
And as such, electronic market giant Sharp, a worldwide market leader in solar panels, shows us that some large companies do believe in solar panels. Sharp understood that mass production of solar panels would lower their price, and that ‘mass = cash’. The mass market for solar panels is about to come into existence – and not just in Japan.
Shell has predicted that in 2040, 50% of the worldwide energy will be generated by sustainable sources. Chances are big that sooner or later Shell will buy one of the consolidated winners in the solar energy market. Some of the ‘small’ solar panel producing companies have already grown into large corporations, with thousands of employees and turnarounds of a few billion dollars per year.
Google grew in 10 years to become one of the largest companies worldwide, so why not a company in solar energy systems?
8. Solar Energy Has No Role In The Global Generation of Energy
At this moment, solar energy contributes to only 1% of the worldwide need for energy. But, this contribution could be growing surprisingly fast. Germany is the guiding country, where it is expected that in 5 years, 10% of all energy used will come from solar panels.
And what Germany can do, other countries can do too. For emerging economies, it has already become useless to build large coal or nuclear power plants when solar panels are getting so cheap so quickly. You can compare this with the introduction of the mobile phone in India and other countries that didn’t even have a mature landline grid.
Those grids were never further developed and will never be, because they were made redundant by the introduction of the mobile technology. The same thing could happen with the introduction of solar energy on the markets of the emerging countries. The building of new, large power plants will become redundant, because individual, decentralized power generation is cheaper, more efficient and much more flexible.
The photovoltaic world market has grown in 2010 with more than 100% compared to 2009, and it already started to grow in this way in 2009. If this logarithmic growth percentage of 100% continues, then solar energy will cover the entire global energy needs in less than 10 years!
9. Solar Panels Are Unsightly And Take Up A Lot Of Space
That really depends on taste. Of course, there will always be people who believe a smoking chimney of a coal power plant is the apex of industrial technology and esthetics. Other people don’t mind showing that they are generating their own electricity and therefore have solar panels on their roofs. Anyway, there will always be enough space on earth for all solar panels ever needed.
Mind you, only a relatively small desert area of 200 by 250 kilometers (125 by 155 miles) filled with the solar panel technology of today would be needed to fulfill the total need for electricity of Europe. But, luckily, we don’t have to enter into those beautiful desert landscapes, because there is enough roof area available in Europe to realize this supply. And on a lot of roofs, the panels won’t even be visible.
Also, more attractive panels will be introduced on the market as production methods and innovations proceed. Compare it with the cars of today, which are so beautiful, compared to the vintage cars of the ‘60’s and 70’s … or not?
10. Solar Energy Systems Are Unreliable And Require Maintenance
Solar energy systems do not have moving parts and therefore require no or hardly any maintenance. The most fragile part in a grid-connected solar energy system is the inverter, which converts the DC from the solar panels into AC equal to the voltage of the grid.
An inverter costs about 10% of your total energy system costs. It consists of some pieces of micro-electronics, can last about 10 years, and can easily be replaced for a then probably even low price.
Only in dry and dusty climates, it can become necessary to clean the panels regularly with a little water. If you live in an environment where it rains often, you don’t even need to do that.
A recycling program for solar panels has already been put in place in many countries, so if after 25 years of loyal service you would need to replace your solar panel, the solar energy sector has processes to recycle all panels for 100%. And no coal power plant can beat that..
Monday 4 april 2011
Without a vision there is no mission; without a mission there is no
action. The vision of a world being powered by solar energy might seem
impossible - but it makes sense to seek a way to make it possible.
Man on the Moon
In most cases, the impossible is in fact feasible, if we just try. If you had asked in the 1950s whether it was possible to send a man to the moon, people would most likely have laughed in your face. Only a little over a decade later it happened. Although there are some skeptics who still believe it all happened in a Hollywood studio... but who can blame the disbelievers? In the USA anything is possible.
Now, let’s take a look at solar PV. All of the last decade’s forecasts in global market growth have been surpassed. With the exception of the somewhat modest growth experienced during the “crisis-year” 2009, 2008 to 2010 saw the global market growing an astonishing 100%. Numerous markets, for example Italy and Germany, have demonstrated that a growth rate of over 100% is indeed very feasible. So, if they are in a position to do so, more countries will hopefully follow suit. It is a proven model. The solar industry is growing with increasing speed - so fast, in fact, that analysts are worried about an oversupply situation this year for solar cells and modules.
The “Impossible” Scenario
Now, let’s think of “the impossible.” Let’s envision a scenario of a yearly market growth of 100% for the next decade. How impossible is that in fact? It has been done before. What would be the result within one decade?
Well, that would lead to an annual market size of 30,000 GW (yes, gigawatts, not megawatts) in 2021, just a decade ahead. Conservatively estimated, that is equal to the output of around 8,500 GW of new coal fire plant capacity, or equivalent to 8,500 coal plants of 1 GW capacity each. Not bad. And enough to cover up to seven times’ the forecasted growth in global electricity demand till 2020 according to IEA studies. This means we would cover the growth and part of the current electricity demand. It means in fact closing down fossil power capacity for solar power. If we did just two years at 100% growth - and indeed the industry is eager for growth - it no longer seems so “impossible” after all...
33 Trillion Kilowatt Hours of Solar Energy
According to the IEA, the electricity consumption forecast by 2030 will be around 33 trillion kWh. In order to provide this totally by solar PV, based on an average of 1,600 kWh/kWp system yield (assuming most of this power is installed in sunny regions such as India, China, the Sahara, etc.), this would require 20,600 gigawatts of cumulative installed solar PV power. According to the 100% year-on-year growth scenario, this cumulative amount of solar power will be installed by 2020...
The conclusion can therefore be drawn that a continued rate of 100% year-on-year growth until 2020, which has proven possible during the last three years, will be sufficient to cover the entire world electricity consumption in 2020 and onwards. Imagine... this would not only mean unlimited, clean, cheap, reliable, predictable green power for everybody in PV, but also in grid management, energy storage, etc.
Nike and McDonalds
Like the global market, the Germans, Italians and several other countries have demonstrated that 100% year-on-year growth is possible for a few years in a row. There are over 150 more countries to follow suit. The solar industry proved it is possible in 2010, with 118% cell production growth. And I bet the industry is ready to take up this challenge for another decade. The task is to prove that the “impossible” scenario is in fact possible. We are investing in sending people to Mars - it makes sense to clean up the mess on Planet Earth home first, within the coming ten years.
Nike said it in an advertisement campaign: “Just do it!” And to add another famous slogan to that one: “I’m loving it!” too...
Friday March 4, 2011
Last week, another ambitious Chinese vertically integrated manufacturer, which entered the supply chain last November, published its modest target of 2.5 GW production capacity within 3 years. At full capacity, this company alone would be sufficient to supply the entire US PV market.
And this company is not the only new entrant. You only need to visit a Chinese PV exhibition to get the distinct impression that more solar modules are being sold worldwide than cell phones. With a difference though. In the cell phone business, there are only a few brands. Alongside all these new entrants on the market, the existing top-tier manufacturers are focusing on capacity expansion and forecasting planning ramp-up as well - determined to expand their share of the global market.
European Markets Under Discussion
We all know that the global PV market boomed a tremendous 90% in 2010 compared to 2009. All reports predict a bright future for solar energy. So, from that perspective, it seems logical for new entrepreneurs and major business corporations to step into the lucrative solar industry right now.
Nevertheless, I can’t help but wonder what these new entrants know about the current market dynamics and forecasts in Europe, which in 2010 took 80% of the global market. Indeed, despite the great opportunities, there are nevertheless a few uncertainties which must not be overlooked. Last year’s number 5 market, the Czech Republic, might disappear from the top 10. Indeed, Spain already did so - and there are no signals this market will pick up again in the near future. France is facing a market cap of 500 MW. The UK and Belgium are discussing a ban on large-scale projects. Germany will most probably reduce its FiT by another 15% in July. And this week the Italian cabinet concluded that the FiT Program worked out so well that the original target of 8 gigawatts’ installed capacity might be reached this year. So they need to take stock and think carefully about the next Energy Law, the 4th Conto Energia. Most likely, they will decide to reduce the FiT a little faster and earlier. Luckily, they did not decide to introduce market cap.
Now, I might be a born pessimist, but these developments don't seem indicative of another major boom in Europe this year and the next. So, where will all the modules go? Perhaps I am just missing the bigger picture and developments elsewhere. Maybe the US market is ready to boom and secure global market growth. Or perhaps new Chinese market stimulation programs are still off my radar screen but ready to kick in. Or maybe I am underestimating new markets and new FiT programs such as that in the Philippines, for example.
Or perhaps history will repeat itself, like when the Spanish market collapsed in 2009 and Germany covered all the loss in Spanish demand. Will further new markets perhaps cover up any hiccups which may occur in Europe? Will modules find their way like a river finds the ocean? Would these new manufacturers put their money on this happening again?
Missing Strategic Insights?
In addition to all of this, the price of oil is rising very rapidly. Could it be that we are approaching the peak oil tipping point, with the price of oil only increasing from now on? If so, solar will become competitive even sooner, with solar modules becoming more in demand than ever before. Could it be that these new Chinese producers have strategy reports containing these insights?
The question spinning in my head is: What do these Chinese manufacturers know that we don’t? Or is it perhaps: What do we know that they don’t?
Monday February 21, 2011
In 2010, global market volume for wind energy was 41 gigawatts, a modest 7% higher than the volume in the record year 2009. In 2010, the solar PV market was 14,5 gigawatts, a growth of over 90% compared to 2009.
The wind energy market achieved this market size in 2006, which would suggest that solar PV is only 4 years behind in its development. In 2009 the ‘gap’ was still 7 years: the PV market volume of slightly more than 7 gigawatts of newly-installed power was already achieved by the wind energy market back in 2002.
Wind and Solar Energy: Similar Growth Paths
Looking at the growth curves of both technologies, we see much similarity (see graph below). Both have gone through the phases of attractive subsidies, individual markets exploding, and markets facing subsidy cuts. But, overall and globally, the wind energy market, and now the solar PV market, have shown nothing but growth.
Now, it seems that PV is catching up with the wind growth path. Looking ahead, the wind energy market is expected to grow 9-15% in the coming years, reaching a volume of around 60 gigawatts in 2014. Solar PV, for its part, may well reach a market volume of 36 gigawatts by that time.
No Market Decline
Particularly encouraging is the fact that the wind energy market has shown no decline since 1996. So there is no reason to suggest that the PV market will ever decline. Renewable Energy is a sector set for growth. Does anyone believe that RE will lose importance in the years to come? Or that oil prices will plummet because oil demands will easily be met by increasing production capacity? Or that growing energy demands can easily be met by new coal and nuclear power plants? Or that the earth’s ever-increasing population will be supplied easily with fossil fuels? And then there is this little CO2 issue driving the need for clean energy.
The Sun is More Reliable
If Renewable Energy in general, and wind energy in particular, are setting the trend for the global PV market, then the solar energy market is expected to grow to a yearly volume of over 50 gigawatts within the space of only 5 years. It would not surprise me if solar PV becomes a bigger market than wind energy some day - my guess being within less than 10 years. PV is more versatile in that it can be applied in many more ways. Apart from the large-scale projects which are driving the wind energy market, PV also has a bright future for decentralized (small) power applications, and in small applications, on- and off-grid, as well as in a vast array of products. And, at the end of the day, the sun is even more reliable and predictable than wind. Wind is sometimes hard to predict. One can be pretty sure that the sun will shine every day...
Monday February 14, 2011
The Optimist’s Prediction for the Global PV Market in 2011
According to the optimists in the PV business, the world’s leading and dominant market, Germany, will continue to grow in 2011. Maybe not another 90% like in 2010, but at least a safe 20%. This after an amazing, record-breaking year 2010 with the installation of over 7 gigawatts of PV power. The optimists believe that the industry will be able to decrease its prices, and as such compensate for the German feed-in tariff reductions in January and July. At the same time, these lower (module) prices will lead to explosive growth in other markets with even better feed-in tariff levels, such as those we see in Italy, the UK or Ontario.
This will stimulate the utility scale PV project market in the USA and project development in other robustly-growing markets such as those of Japan, Korea and Belgium. The optimists foresee China and India emerging as voluminous markets driven by new incentives, lower prices and their acute need for more (clean) electricity. And there is more. New markets are popping up simultaneously, starting with new feed-in tariff and incentive schemes such as those in the Philippines or Thailand, or the huge project initiatives in Morocco.
Add up all these forecasted growth markets and the global market could well grow an additional 20-25% as compared to the record breaking year 2010, resulting in a market size of over 18 gigawatts for 2011. And this is without even taking into account the possible positive effects of continuously increasing oil prices.
The Pessimist’s Prediction for the Global PV Market in 2011
The pessimist, on the other hand, foresees the German market shrinking, because the feed-in tariff reductions are too great for the industry, which will not be able to follow with the necessary cost and price reductions needed to keep the system prices attractive for investors. The pessimist foresees too much of a mess in the Italian market. As nobody knows what has actually been installed in 2010, the Government may well interfere in the current incentive scheme. Furthermore, feed-in tariff reductions have been accounted in Italy as well as in other markets. But, how much can we trust this announcement - or indeed, a new Government - in these difficult economic times faced by Italy? The pessimist may also see a Spanish horror scenario looming. Can retroactive measures be excluded? The pessimist also sees the Czech market collapsing in 2011; the Spanish market returning to zero as investors have completely lost faith in the Spanish Government; and the Belgian market facing a difficult second half of the year when strongly reduced module prices will be needed in order to keep investors interested in large-scale projects.
The pessimist foresees that the French market will remain on hold and doesn’t expect to see the introduction of any new incentives to attract investors in large-scale power plants. The pessimist also believes that India and China will not become huge markets in the near future. To develop projects in bureaucratic India will take much more time than expected. Besides, the companies that won the tenders under the National Solar Mission might not be able to build and finance their projects at the accepted low feed-in tariffs. China will focus predominantly on exporting their products rather than on building domestic plants. The UK and Ontario may reconsider their incentive schemes this year, as investors are tending to exhaust the budgets with applications for large-scale ground-based projects, which was not the original intention of the program. The pessimists also see new markets that look promising, but they believe that it will take a few years to develop these into sizeable markets of a few hundred megawatt volume.
If we add up these developments and forecasts, this could mean a global market in 2011 of around 12.5 gigawatts, i.e. 10-15% less than the 2010 figures.
Who Will be Right - the Optimist or the Pessimist?
No-one could have predicted that a volcano would erupt in Iceland in 2010, any more than they could have predicted the oil well issue faced by BP, or the political changes in Egypt. So, who can predict what will happen in 2011 and how this will impact the PV market? Always expect the unexpected. Will the euro survive? Will the dollar fall? Will the Italian Prime Minister survive? Will oil prices continue to rise? Will inflation and interest rates rise rapidly? Will we see oversupply and solar module prices crashing?
There are simply too many factors influencing the future - so maybe the best approach is to believe neither the optimist nor the pessimist, but rather to opt for a more middle-of-the-road outlook. The scenario we arrive at if we take the mid-point of a 15% global market shrinkage (pessimist view) versus a 25% global market growth (optimist view) is a scenario which presents a 5% increase, or a market of around 16 gigawatts of new installed PV power. Not bad in today’s uncertain global economic climate. But, for sure, the wrong prediction.
Tuesday February 1, 2011
India is hot! You can walk around in a t-shirt in streaming sunshine in January, a period that we in Northern Europe call “winter” and during which we may be ice skating or skiing! The Indian food is hot and spicy as well. And the economy in India is “hot” - all excellent conditions which forecast a sunny future for their PV market.
Potentially one of the richest countries
During the Conference “The Solar Future: India” last week in New Delhi it became clear that India is on its way to becoming a solar super power. The question is not if, but rather when. The majority of the experts and participants present at the Conference believe India will be ranked among the major solar PV markets within 5 years.
There is of course good reason to believe this. There is abundant sunshine for at least 300 days per year. The country has much more sun than Spain. The permanent power shortage leads to power cuts, mainly during peak hours at midday, when the sun shines brightest. The economy, population and energy demand are increasing year by year. And India has no energy sources other than the sun. In a way, it is therefore one of the potentially richer countries in the world in terms of potential energy supply. What is needed to kick-start the development of India’s solar market?
Never seen a PV panel
This fundamentally comes down to one thing: education and information. There is no lack of solar entrepreneurial spirit among the Indian people and companies. Many Indian businessmen have been educated in Europe or the US and have close ties to experienced foreign companies, suppliers, EPCs eager to enter India. Indeed, this is not the most difficult part of India’s market development.
More challenging is the financial banking sector. And financing is key in the development of any PV market. Unfortunately, it is not easy to import financing from foreign (experienced) institutions. The Indian financial sector will need to be educated right from the bottom. Indian bankers who have probably never seen PV panels before are now being asked to finance grid-connected project developments costing over 10 million dollars. No wonder they have many questions and take time to evaluate their risks. The country is not familiar with project financing for renewable energy systems, and definitely not used to loans spanning more than 10 years. Basic information needs to be spread. What is solar PV? How reliable is this energy technology? What are the risks involved? Does it make sense to invest money in this energy source?
It takes 4 years to develop a market
As they say, “Seeing is believing.” More real-time monitoring of data, developers with track records, and real panels on the ground are necessary. No doubt this will happen. In a few years these Indian bankers and investors will see that solar projects probably are the most steady cash flow generators possible. It is just a matter of time before the financial sector will embrace solar PV.
As stated in a previous blog, it takes time to educate and develop a market. For most markets it takes some 3 to 4 years to develop into a market of several hundred megawatts in annual installations. Let us recall Spain; in the first year, with the world’s most generous feed-in tariff, Spain did installed “only” 13 MW of new grid-connected installations. Four years later (2008), Spain had the world’s largest market, with 2600 MW. In 2008, the PV market in the whole of India, which is larger in size than Europe with at least four times Europe’s population, installed less than 15 MW. It is expected that this figure could rise to around 500 MW in 2011. Based on the many State programs and initiatives, this figure will surge to more than 2000 MW by 2013.
Take the Indians on a European PV tour
The Indian market will be kick-started by the National Solar Mission and the Gujarat PV Program. These two initiatives alone could lead to more than 500 MW of new installed PV power in 2011. And many more Indian States will follow suit. With a global solar industry looking for larger markets besides Germany, it might be an idea to help the Indian bankers and investors - taking them on a tour of Germany, Spain or the USA; showing them the hundreds of large-scale projects already implemented; teaching them about real-time data monitoring; informing them about financing possibilities and the risks involved - in essence, showing them that solar PV is a mature technology and not rocket science, and hence building their trust. The sooner these Indian financial stakeholders are convinced, the faster the Indian PV market will grow.
Take the Indian bankers to cold Europe
There is no longer a lack of modules or investors in the global market, and there is no shortage of EPCs willing to implement projects in India jointly with local people. The main obstacle is lack of information and trust among financial stakeholders. This does not have to be the most difficult task. Let’s arrange a European large-scale PV project tour for the Indian financial executives. The costs for this will be worth the money as it will help to develop the huge new booming PV market.
Indeed, the biggest problem may well be that of rendering the tour attractive to these Indian visitors - taking them from their hot climate to one which is cold not only in terms of the below zero degrees climate but in terms of frozen economies - and to top it all, non-spicy takeaway food!
Solarplaza is ready to organize this European PV tour for Indian PV financial executives. Which of our stakeholders are willing to contribute?
Monday January 10, 2011
Feed-in tariff schedule for coming years will design the roadmap to grid parity in the world
What will happen with the global market demand for solar PV in 2011? Will we see another magnificent year like 2010, with a record growth of 80% compared to 2009? Or will the global market shrink or grow just modestly, due to a collapsing German market as a result of politicians trying to break the world’s leading market? In this case it could lead to an industry facing oversupply, price erosion and an industry consolidation, with German companies facing financial problems or even bankruptcy. This scenario would mean that a lot of the invested money and the jobs created over the last decade will get lost.
Unrealistic but phenomenal growth in 2012?
What is the problem? The German market grew almost 90% compared to 2009, leading to more than 7000 MW of new installations in 2010. Germany now accounts for over 55% of the global market volume. The average yearly growth rate since the year 2000 is around 67%. It is hard to imagine what this would mean if it continues at the same rate. It would mean that in 2012 more than 20,000 MW and in 2015 more than 90,000 MW of solar power would be installed... It would also mean that Germany would generate more than 25% of its total electricity consumption through solar PV in 2015. Great and phenomenal figures! But with the current Feed-in tariff system, the total cost related to this growth path would be phenomenal as well. And since all electricity users will have to pay for this through a surcharge on their electricity consumption, the price for a kWh from the grid would grow quite high too. This scenario however also means, that grid parity would be reached sooner, and most likely before the year 2015....
“Go-and-stop” scenario is killing
This gives the German government a dilemma. Stopping growth abruptly will not only hurt the global industry, but many German manufacturers and companies as well. But how then can future growth be controlled?
A market cap, like a maximum acceptable volume eligible for the FiT? Lessons learnt from the past are that “caps are killing”. A ‘go and stop’ scenario will lead to a run on the ‘last FiT subsidies’ resulting in an ‘empty bucket’ halfway through the year. What should the companies do the second half of the year? Quickly lay-off employees and hire them again just before next years’ round? It will make the industrial manufacturers hesitant to invest in new machines and equipment for production expansion, hurting Germany in the back as leading high-tech solar equipment supplier.
It seems better to control the growth by bringing down the feed-in tariffs gradually, but predictably, in pre-announced and pre-controlled steps per quarter, avoiding end-of year rallies. This will give the industry a clear focus and marks for necessary cost reductions. This would not only effect German companies, but as the leading market, it would force the entire global industry to cut cost gradually, since most manufacturers in the world still rely heavily on sales in this market.
Politicians defining the global roadmap
German politicians have the unique opportunity to define the global roadmap towards grid parity in Germany and other countries in the world. The pace can be structured, the goal of grid parity reached within less than 3 years. A continuation of the market growth means larger volumes of modules and inverters are needed and volume is the way to reduce cost of production for modules, inverters and systems. That means grid-parity can be reached sooner and feed-in tariffs can be reduced sooner as well. More manufacturing volume also means the need for more, smarter and more efficient high-tech equipment and machines. Not by coincidence an area where Germany holds one of the best positions on the global market.
Germany: the trainer pushing its athletes
The solar industry is training for the big game when grid parity is reached and subsidies are no longer needed. It looks like a sports team training to get ready for the highest level of competition. In our world: competing with fossil fuel. The athlete trainer of this industry is Germany and all it has to do is push its athletes a little harder each time to be more powerful and efficient, until they are ready for the big game. Now, let’s hope that the German politicians are a bit sports minded and understand the chances for a Gold medal....
Monday December 20, 2010
All the way back in 1995, a revolutionary 3.3 megawatt ground-based solar PV power plant was connected to the grid in Serre, Italy. At that time the world’s largest PV system, it was built as a demonstration project and financed through various subsidies.
From Big Beers to the Biggest PV Plant
It took almost a decade before the market for bigger PV projects really took off. From 2004, when the German Feed-In Tariff started to flourish, tens of power plants of 1 MW or more were being built in Germany. A 5 MW plant, at that moment the world’s largest, was built near Espenhain for 22 million euro, or 4.4 euro per Wp.
And in 2005 the new record was a 10 MW power plant project in Bavaria, which cost 49.5 million euro. Bavarians think big - be it cars, beers or solar PV.
From that point on, development grew faster and faster. By the end of 2007, even more PV plants of over 10 MW had been built, with several in Spain, where the lucrative Feed-In Tariff had started two years earlier, with further 10 MW projects in Germany.
Large-Scale Power Plants at Rocket Speed in Spain
Due to the Spanish FIT law, large-scale power plant developments gained rocket speed in 2008, with 4 power plants above 40 MW and one at a whopping 60 MW in Olmedilla, Spain. The latter was constructed in 16 months at a cost of 384 million euro, or 6,40 euro/Wp. Due to the lucrative Spanish Feed-In Tariff, the price could go up to provide a nice margin for everyone involved… Like a Pamplona bull run, the Government’s Feed-In law resulted in large-scale development of further such projects. Even today, Spain still contains about 70% of the world’s large-scale PV power plants - in total over 1000 big projects. An impressive overview of the world’s largest PV power plants can be found on the great website www.pvresources.com.
Thin Film Enters the Ballgame
Although an outsider might think that the bigger the project the more interesting it will be to use high-efficiency modules, less efficient thin film technology entered the arena in 2009. In this year a few more +50 MW projects were completed, mainly in Germany, including one using Cadmium Telluride thin film modules. At the end of 2010, three projects of over 80 MW will be finished and connected to the grid, including the first one in North America: the Sarnia project in Canada, once again built using First Solar thin film, at around 3,75 Euro/Wp.
‘Small Step for the Industry…’
From +50 to 250 MW is a relatively small step for the industry, but a giant leap for market development. Energy utilities are now starting to seriously consider solar PV. The next steps will likely take place on that side of the Ocean as well. Sunpower and NRG Solar plan to start construction of the 250 MW California Valley Solar Ranch project in 2011. And earlier this year, First Solar announced the development of a 550 MWp power plant project in the desert near Los Angeles. Energy utilities PG&E and SCE will buy the power.
Solar PV: Fast, Experienced and Cheap
What does this teach us? First of all, development of large-scale PV power plants is progressing rapidly. Secondly, the building process goes fast. In 2008 in Spain, over 2 Gigawatt was installed in the space of a year. Thirdly, there is a tremendous track record of experience. Finally, prices have come down, but there is room for improvement. If large-scale orders of top-tier module brands can be purchased for less than 1,30 euro/Wp and the other BOS-cost will be less than 1 euro/Wp, total system cost should be able close at 2,30 euro/Wp today. With module prices expected to decline the coming years, turnkey system costs must be achievable at under the 2 euro/Wp mark.
The Next Step: Better, Faster, Bigger and Cheaper
Anyone who says that solar PV is not yet a proven technology is invited to take a look at the overview of existing large-scale power plants throughout the world. And do not forget that behind each project are investors, installers, banks, engineers, consultants and many more experts involved who made this happen. Through sheer drive, these involved people and companies are keen to prove that they can do better, faster, bigger and cheaper next time around.
Not Available Around the Corner
And this will continue. We will see bigger projects, for cheaper. It will be nothing more than a natural development to see +100 MW plants being built over the next 3 to 5 years. Not one, but several. Because if one company can, others will want to prove they can do better and cheaper. For example in the case of First Solar taking the 500 MW mark, the market and industry are following suit, aiming at 1000 Megawatt projects. To my expectation, these projects will be announced within 3 years and built within 6 years.
These projects will require the involvement of strong, bankable, large companies. Even if the projects cost less than 2 euro/watt, the investment cost of a 100 MW project will be around 200 million euro. Not something a multinational energy utility will buy from the first PV installer around the corner....
A Different Ballgame
Today, production costs have been achieved at as low as 15 eurocents per kWh by a solar PV plant in France. The cost per produced kWh will soon get close to 0,10 euro/kWh, even without any support of feed-in tariffs. That is a different ballgame. The PV power plant proposition will become attractive for many utilities looking for quickly-installed, clean, reliable, cheap power, without future risks related to global political changes, possible CO2 taxes, fuel price and currency fluctuations.
Separating the Men from the Boys
The development of these large-scale projects will fuel industry consolidation and will distinguish the men from the boys in this industry. Only the real big bankable companies will be able to guarantee a continuous supply of these large amounts of modules. And these companies will compete heavily for these projects - they guarantee their base load manufacturing capacity, and take a hell of a lot less sales and acquisition time than selling 30,000 systems to households at the same volume…
And although the title “The biggest solar PV project in the world” is moving around faster and faster, it is not bad for your image and branding to have it bestowed on your company for a while....
Monday December 6, 2010
India will not wait for centralized electricity grids
Why is India set to soon become one of the world's largest PV markets? Because all the necessary ingredients are there: Permanent energy shortages, strong economic growth, growing energy demand, lack of fossil energy sources, and abundant sunshine. Solar PV is already competitive in India in several market segments such as for powering telecom towers. Tens of thousands more will be built in the coming years. Interesting market... But let’s take it one step further. Solar PV will be competitive with grid electricity in India within 5 to 10 years.
We are talking serious business
Average electricity consumption per household in India is expected to show a stunning growth, from a little over 600 kWh to more than 1000 kWh. So wake up Europe and the US - this is still per year and not per quarter as is the case for us! Because India’s population is more than double that of Europe and the US combined, we are talking serious business. How to power the rapid economic growth in India?
Can anyone make a serious guess as to coal prices in 20 years’ time?
Import more fossil fuel? Build more coal and nuclear power plants? Like in most democracies - and India is the world’s largest - it takes a couple of years to have such a plant available for power supply. Bureaucracy comes with democracy. Let’s say the plan to build a new central power plant starts today. You will be a winner if the power supply is operational in 5 years’ time. Plus, you will need expansion of the grid. On the other hand, what will the cost of (decentralized) solar PV systems be in 5 years’ time? At the very least, a lot cheaper than today - and likely close to grid prices. But even more important, you can calculate the exact cost of the produced (solar) energy for its 25 years’ lifetime. Those costs will be flat and completely predictable. Put that against the cost of electricity from coal or oil over the next 25 years - not forgetting possible CO2 taxes. Can anyone make a reliable prediction? So, if you are an investor and you don’t like risks in your business model, what makes more sense?
Skip the old-fashioned cable phase
No wonder the Government of India is taking first steps with solar energy under the National Solar Mission. The target: 20,000 megawatts of cumulative installed solar power by the year 2022. This seems an impressive number, but the program might indeed become reality...
Let’s make a comparison with telecommunication systems. Countries like China and India went straight from no telephones to mobile telephones for everybody. They never went through the era of cabled phones. Phones with wires - how old-fashioned is that? Now, will it make sense for India to invest its money into expensive and financially risky projects like centralized fossil power plants and grid expansion? With solar PV sure to become competitive in India within 5-10 years, this outdated approach can be skipped. Like with mobile phones, India can go straight to a decentralized power supply from financially more attractive and predictable PV systems.
No waste of money on old-fashioned technologies
In fact, their growth and development stage gives India a clear advantage. They don’t have to waste money on old-fashioned technologies. They will learn from the mistakes we made in the past - and this in a period of strong economic growth. Compare that with financially struggling economies in the Western World, where government budget constraints hinder investments in renewable energies.
Bureaucracy? Talk to a Californian installer!
There are some hurdles here and there - such as bureaucracy and corruption. But, is that much different from the Western world? Ever talked to a Californian solar entrepreneur about all the paperwork required for a new PV installation?
Power to the wireless people
It won’t surprise me if market development in India progresses at a faster rate than the National Solar Mission is targeting. Within a decade people in India will not wait for the Government stimulus programs in order to use solar power - just as no-one waited for the Government in order to install cables underground for “new telephone connections.” Photovoltaic energy systems will just provide the cheapest energy. This decade, no-one will wait for expensive centralized fossil power stations and grid expansions. People and new entrepreneurs will use and provide decentralized cheap solar energy. More than ever it will be “Power to the people!”
Monday November 22, 2010
The solar industry is growing up. First there were solar modules. Then more and more manufacturers entered the market. How to distinguish? TüV certification came up as the new hype. A sign for quality, and reliability of the manufacturer. At least they had to pay a serious amount of money for certification, so this proved the company was not a opportunistic one-day-fly. But, with more than 400 brands being TüV certified a new step was necessary. Next came the ‘white list’ of Banks. Your module is not on the ‘white list’ of a bank? Then forget about obtaining financing for the PV project. By the way, can anyone provide the qualification rules and name the independent body qualifying modules for the ‘white list’? Your module can be IEC-certified by TüV, but banks aren’t so transparent about how they produce lists and financial products.
The white lists are growing. Some banks can accept more than a hundred module brands. More and more manufacturers have grown into big companies with a solid track record and balance sheet.
Modules are not rocket science
Does it make sense to focus so much on the solar modules? The modules are guaranteed for 25 years of power. Quality in most cases is more than sufficient. What other products can be found these days with so much guarantees and quality certification? Manufacturers claim that production of PV modules is ‘not rocket sience’. So why focus so much on a piece of glass with some silicon slices?
And next came insurances. Modules, projects and the companies can be insured, all for the sake of the investors and banks. Does this all make sense and what will be the end of this development?
Do banks have inverter white lists?
Solar modules are only part of a solar PV system. If modules hardly ever fail, aren’t inverters a more crucial component? Inverters are the real high-tech part of your energy production unit. Your module could be doing pretty well, if the inverter fails you won’t generate much electricity.
Still, we don’t hear banks talk to much about a white list of acceptable inverter brands.
But, thinking one step further, even certificates and white lists of inverters won’t be sufficient for customers. What counts in the end, is the reliability of all the components together: your complete PV system. Customers just want to be sure that a system will produce electricity.
What is needed is a quality guarantee for your complete PV system. And maybe even more important: the produced electricity should be of acceptable and good quality. The grid operator will have to accept your electricity input. And your appliances at home should work well on the solar electricity coming from your inverter. The electricity quality guarantee will put even more emphasis on the only high-tech component of the PV system: the inverter.
White list for PV systems
What might be helpful is a ‘white list’ of complete pv systems. Systems well designed and engineered with a perfect combination of components that have proven to work well together. The financing industry should take its focus a step further to quality control of the end product, a reliable complete system producing good quality electricity.
Did you ever complain about the certificates of the boogies in a new car? Ever asked if your tiles are on a white list? You just want all components in a car to work well together, for many years. In the near future, the brand of the solar system supplier, could become more important than the module or inverter brand. In that perspective it makes sense that module manufacturers expand their activities over the complete supply chain. From silicon to cell and module and even further downstream to complete system and project supply. The future might be system branding or branding of the end-product: electricity. Will the customer be ready to buy First Solar electricty, Trina solar energy or accept uncertified ‘Jansen solar electricity’?
Monday November 15, 2010
The idea of organizing a French PV conference was warmly welcomed by some of our
French contacts. "Are you sure? We have holidays coming up, an expo is taking
place in the same period, we are waiting for new regulation and, if you do, you
will need to do it in Paris and in the French language, otherwise forget about
French speakers and participants". You can’t get more motivated to pick up the
challenge, I thought. And without regret, because the Solarplaza conference last
week in Marseille was well attended and a success.
Simple as the Italian market
"French like to make things complicated first, so they have a challenge to work on", I quote from a French senior executive and speaker at the conference. A foreign participant sighed and stated: "I wish the French market was as simple as the Italian market". Times have changed...as if the currently booming Italian market was a well organised paradise for investors a few years ago.
Femmes fatale and bureaucracy
Beautiful landscapes, great architecture, numerous historical places and castles, the best wines, beaches, mountains with snow, les femmes fatales and plenty of sunshine. France is one of the most beautiful countries in the world, ideally suited for solar PV. But, France is also different in many ways. A nuclear energy powered nation, and a utility monopolist closely tied with the government. EDF plays a crucial role in grid connection applications of new pv projects, currently leading to a multi GigaWatt pipeline. Sometimes, inscrutable relationships exist between the elite government officers and EDF managers. And, didn’t the French invent the word bureaucracy?
PV: looking like a normal power plant!
So far, France is a BIPV focused market. The FiT for BIPV is higher, but discussions about what BIPV is, are more complex. The government beliefs that this segment will create more domestic jobs, since solar modules in the end are just a building product. A fair conclusion. Now, let's hope that the new jobs created will not be a result of bureaucratic complexity.
Nevertheless, promising new developments are taking place. In Southern France, some bigger ground based projects have been built and others are planned. The first power shortages have occurred in this vital economic and beautiful touristic region. Although it is not easy to find a piece of land for a large PV project, it seems more easy these days than planning, permitting and building a new nuclear power plant. And,since wind energy has a bad image for some reason in this area, large scale solar will be one of the best and fastest solutions. Even EDF now seems convinced of this.
A French contrator explained: "During a pv roof project visit, the EDF people were surprised. Seeing the inverter and transformer room and recognizing the power devices, they reacted enthusiastically: "wow, this looks like a normal power plant!"
Educating the nuclear elite
As stated in a previous blog, France proves once again that it takes time to develop a market. Growing a market is not just opening up new sales offices. Government people and even more the elite MBA schooled nuclear supporters need to be educated. This will take more than serving one glass of its solar radiation based, most famous and indispensable product over lunch time...
There is reason to be optimistic. The potential for PV application in France is enormous. Like with a lot of things in France, a little more patience will be needed. And besides, Italy, has shown that a country known for bureaucratic complexity can turn into the number two market of the world.
The Sarkozy challenge
Time to work on education and a strong solar lobby. Why not start in the centre of power: a pv system for President Sarkozy. If the white house has solar panels, this world leader cannot remain without. Of course, French historical architecture ‘is something different’ and definitely ‘more complicated’ for PV application. But, isn't the French focus on BIPV and looking for challenges? Well, here is one to get started!
Tuesday November 2, 2010
"Grid parity" is considered the holy grail for the pv industry: the moment in time and place where the cost of solar electricity equals the price of electricity from the grid. The long awaited moment when solar PV will be able to compete (without subsidies or other incentives) with fossil generated electricity. But, what will actually happen when this mark in time is reached?
First of all, there is no 'one' grid parity for the solar industry. It will depend on various variables, like region (local sun shine conditions), the local cost of grid electricity
and the actual price of a PV system (varying per application and country due
to different cost for permits etc.).
Solar electricity is not an Apple gadget
Grid parity will be achieved sooner in Southern Italy than Germany for residential applications (more sunshine, higher electricity rates and, sometimes, higher cost for permits) than in Germany. Actually, grid parity is close (maybe even within 2
years) for home owners in the South of Italy.
Will these lucky Italians run to their installer when grid parity is reached? I am afraid not...
There is an important hurdle to take: will these lucky Italians in 2013 have the 6000 euro on the shelf to buy their money making 3 kWp solar energy system? They probably can save a few euro’s per month, admitted, for the next 20 years. But I’m afraid that it will not convince them. Like other people, electricity is not their top-priority. Electricity is not an Apple gadget, but a commodity. A natural thing that is supposed to be available all the time. Not something to worry about. A commodity that will be available anyway, green or not. Probably the Italians will be more concerned about tickets for the next football game, which is typically not a commodity, providing more pleasure (emotion and passion). For most Italians, like others with a grid connection, having a PV system is not their dream or lifetime fulfilment. Except maybe for the green and environmental oriented people and some technology geeks. But this is (still) a minority group and won’t make the solar PV market boom.
The ‘energy utilities of tomorrow’
The critical challenge for PV market development at, or even just before, grid parity is the financing. Almost half of the modules is put up a residential roof. So, the financing of such a PV system for private households is the new business opportunity. So, how can the solar industry reach the masses to create a real market boom?
The most logic way is by offering a simple and compelling service: selling cheaper electricity for a fixed price during the next 20 years. It is time for ‘the energy utilities of tomorrow’. Where you pay less per month, still are secured for permanent electricity supply and can show off with your own green power system on your roof. Without any upfront investment. The new energy utilities will take care of all the risks and hassle: investment, system design, installation, financing, maintenance, billing, etc.
Solar As a Service
Grid parity will mean the start of a new era opening up many business opportunities for lease companies and for the financing industry, offering new types of PV mortgages and other financing products. This also means that the solar pv market development will not depend on the brand, size or price of solar modules. To reach the critical mass of customers, more companies are needed to sell the new financial services. The pv industry, for good reason, has been very focused on technology. But what is needed next to let the market really boom, are (new) players selling solar as a money saving service. Like the software industry, we switch to SAS: Solar As a Service. This means that many new companies are needed to develop the market. The industry will have to switch its focus. Electrical installers, are not born financial service companies. It will take time to develop this new business infrastructure.
Solar is all about saving money
At grid parity, customers will be able to save a few euro’s on their monthly energy bill. But, this will not offer them the high returns like in the good old times with high feed-in tariffs. Grid parity without further incentives will not inspire the many investors. In the residential sector, a new market and customer group will have to be explored. And this will take time. My forecast is that, at grid parity, the solar PV market will continue to grow substantially, every year again. But, without incentives, an enormous grid-parity market boom does not seem logic. Unless, of course, the oil price jumps to $200 in 2 years (who knows?) and solar becomes so attractive....But, even such a case, I expect the financing to be critical.
In the near future, PV systems will be sold to the mass as a smart way to save money without any hassle. Solar energy as a service. Financially attractive. The money you save, you can use to visit more often the arena supporting your favourite football team.
Thursday October 21, 2010
Last week, one of the international solar heroes died: Hermann Scheer. We had the pleasure and honour to have him as a keynote speaker at two events. Driven, passionate, energetic and convincing. Listening to him gave you the feeling: it is a matter of time until the non-believers will find out why the solar energy revolution is unavoidable. We mourn over his death, but his legacy and message will remain.
The left wing hobby
Even today, many critics are convinced solar energy is just a left-wing hobby.
Why is the development of solar energy going so slow? Why isn’t it yet affordable without subsidies? You see, it is just a hobby for dreamers...
Well, in fact, the development of solar energy isn’t going slow. The market and industry are growing like crazy. Can we reasonably expect a world to change its whole fossil infrastructure into a renewable one in just a few years? It will take more years, maybe even a few decades, but to my opinion,it is going very fast already. And even more important, it will only go faster and nobody will be able to stop this development. Solar energy is here to stay and its role will grow, whether we like it or not.
Where are your sandals?
Times have changed. When I started in this business, in the early 90’s of last century, the solar industry and business were small, very small. Talking about my passion, reactions were always with the undertone of “sure, solar energy, very nice for left-wing oriented environmentalists and dreaming fundamentalists. Where are your sandals by the way?”.
At the start of this century, when the business grew into a tiny global industry with emerging activities in China, the mood among friends changed when explaining the about latest developments. “Still in solar pv? Can you make a living in that business?”. And now, only less then a decade later, the reactions changed to the positive even more: “Wow, you have a business in solar energy? Cool! I was thinking to switch my career into renewables too and solar is really a cool technology!”.
PV a danger for the grid?
In his many presentations, Hermann Scheer described three similar stages as well. First, there is the denial: “Solar can never be taken serious.” Then, when it is getting more serious, the established bigger corporation will fight against it, like: “solar PV is a danger for the grid”. This is what can be seen in the German media today. Big companies are afraid of what will happen. If the German market will continue to grow rapidly, in a few years, solar PV will become a major, if not dominant energy source. And because renewable energy has a privileged position on the grid, the established energy giants will have to live with it and accept it. For now, they still try to fight it.
After these two stages, will follow the third, even more interesting phase. It is the phase where the former non-believers will state “that they always believed in it from the start and that is why we are getting involved now as well”. It is the phase where solar PV can no longer be ignored. Simply because the mass wants it and because it has become attractively cheap, cheaper even than electricity from the grid.
The last ones without a PV roof
This phase is closer than many in the world can imagine. Only a few years away in Germany. Just picture yourself as German citizen 3 years from now. Solar pv systems, will be on roofs of many of your German neighbours and will generate cheaper energy than you buy from a major utility. You will be a fool if you don’t invest in it yourself, and maybe even more relevant, you will be among the last ones in your neighbourhood without a PV system.
The US: bigger, bigger, bigger
On the other side of the Ocean, in the US, a similar revolution is going on. Nowadays, one after another, energy utilities in the US are starting solar PV programs and large scale initiatives. It is only a few years ago, that with a single exception, none of them showed any interest. Now, the initiatives are all multi MegaWatt and even the first “1 GigaWatt” project proposal has been launched. This is only the beginning of course. Utilities will find out, that there is hardly a more abundant, secured and stable energy source, with guaranteed and predictable cost for a 25 year period. For a comparison: which utility can predict its cost for coal and fossil fuel and thus its energy prices for the coming 25 years? For solar PV plants, no financial State guarantees are needed (like for Nuclear plants), you don’t end up with garbage (either nuclear or green house gasses) and after 40 years, you don’t have to clean up mess or cover it for many years. And the great news from the solar industry is: solar PV will only get cheaper in the coming years. So, if your peers are getting involved, you better join soon too. More utilities will follow and more and more they will start with bigger projects. In the US they like everything bigger: from hamburgers, pizza’s, SUV’s to PV power plants. The development goes only in one direction: more solar energy.
Keep on dreaming
There is no argument or reason why this development will stop or turn. Solar energy will only get cheaper and cheaper. Can we imagine that within 10 years from now, in almost all its small and large scale applications, solar energy is cheaper than electricity made from any fossil fuel? Without any government support? And, o yeah, it is clean energy by the way as well...
My message for those who don't believe in a solar future yet and for the
‘dreamers’ of the past who started in solar many years ago: keep on dreaming! We are close to the tipping point.
Monday October 11, 2010
Tuesday October 5, 2010
The year 2010 promises to become another revenue record year for the global solar PV industry. The newly installed solar PV power in 2010 could reach the all time high of around 14,000 Megawatt worldwide. This will be a market growth of around 100% compared to 2009. Will the industry continue this boom in 2011 and onwards?
Germany: 55% of the global PV market
Germany will take up around 55% of the global PV market volume in terms of newly installed solar power in 2010. The Feed-in Tariff will decrease 13% per 2011, as regulated by law. As stated in a previous blog post, to my opinion, this will not impact next years’ market growth. The industry can and will adjust their pricing in order to keep this major market alive and kicking. Even in 2011 a strong German market growth can be expected again, as customers will be encouraged to quickly install a PV system, before the FiT will be cut-back a more serious 22% in 2012. That is, if the German government will not decide to implement a ‘cap’ on the market volume eligible for the FiT. As Spain demonstrated, ‘caps are killing’ for a market and in the case of Germany, depending on the cap figure, it could have a serious impact for the global solar industry.
Scenario 1: Germany introduces a market cap
Let’s visualize a scenario where the German government will introduce a market cap in order to control the costs for the electricity rate payers paying the FiT premium. A cap that’s lower than the current market volume will force the industry to sell its extending product volumes elsewhere. There are no markets able to consume several GigaWatts, simply because the business infrastructure is not yet ready for it. As a leading and well developed market, Germany was ready to cover up for the losses in Spain in 2009. The companies, the sales people and the engineers were available to do the job.
But, which market can backup for Germany if a cap will reduce demand in Germany in 2012? Which market could easily take over a few GigaWatt extra from Germany? Can Japan take a few more GW and grow 200% in one year without importing modules? Can Italy grow with a few more GW in one year? It seems at least more logic than for instance the world’s number 3 market California taking a few GW extra. California is yet far away from the 1 GW mark and the financing issues and administrative and procedural hurdles make it unlikely to take up a few GW in just one year. If all these markets can’t, where will all the modules go? And if no market can consume the GW’s, what will happen? A price fight competition is a likely scenario, making casualties among manufacturers, including several German companies. Not only downstream, but also upstream. A cap on the German market effectively means a cap on the global market. And that will lead to a natural stop on production capacity expansion. Thus leading to a fall back for the leading German equipment manufacturers. They will lose high qualified jobs too. Can a German government afford to lose jobs in its globally admired and growing solar industry and current economic environment? This seems unlikely and let’s hope the government is smart enough to stay away from a market cap…
Scenario 2: FiT reduction will lead to further market boom
It is my belief however that, without a cap, but with further cut-backs on the FiT up to 22% in 2012, as regulated by law, the German market and global market will continue to grow rapidly. There is a good chance that the industry can bear this 22%. First of all, there is still room for reduction of PV system costs. Modules can be produced cheaper by technology improvements, and further upscale of mass production and acceptance of a lower profit margin. Some manufacturers of crystalline modules stated that they are already close to $1 per Watt production cost. Add to that cheaper inverters and other BOS components, where cost reductions based on mass production have not yet really taken off, and turnkey PV system cost should be close to $2,50 per watt very soon. And with the Euro improving against the dollar as currently is the trend, it should be feasible.
Back-up market for Germany
In other words, there will be room to keep the German market going. And, once module and system prices are this low, other markets like Italy, with higher FiT’s will become even more attractive and thus very thirsty for modules and systems too. Not to forget about the many new and emerging markets, like the UK, India, China, etc. Bringing down the PV system prices to match the German requirements will also open up new markets. All in all this could lead to an even greater hunger for modules and systems on the global market. Manufacturers will sell as much as possible in the most profitable markets and sell anything else in Germany. In this scenario, the global market could grow along with the industry, which is still expanding its capacity rapidly and with new entrants looking for a piece of the pie. This scenario could lead to continued strong growth of the global PV market and industry until at least 2012.
44 more GW in Germany by 2014?
This scenario will give other markets the possibility to grow and build up their business infrastructure. By the end of 2012 these markets, like the US, Italy, India and other Asian and European markets will then become ready to consume multi GW’s per year. That will hopefully make the world market able to survive a fall back scenario in Germany. And that seems inevitable in the end. Even a ‘modest’ 30% annual market growth scenario in Germany would mean an additional 44 GW of installed PV power by 2014. There are enough question marks if Germany, its grid and energy infrastructure can accept this huge amount of solar energy production capacity.
The maximum beer consumption
So, let’s hope the German government understands the dilemma and will give its industry and market at least another 2 years of reduced FiT, but without any cap. That will give the rest of the world the possibility to get ready for GW consumption, for the modules Germany can’t take anymore. That will not only help the global PV industry, but of course its own German solar businesses as well. They will then be able to expand their activities to these new markets in the coming years. It is a little like the Germans taking beer. They can consume a lot and maybe even the most per capita in the world, but there is a physical limit too…
Sunday September 26, 2010
The Chinese solar pv industry is growing rapidly. In less than a decade, starting with a few small module manufacturers, China today turned into the leading upstream manufacturer of silicon, wafers, solar cells and modules. More than half of all solar cells and modules produced in the world are now from China. The share is likely to increase with huge investments and factory expansions coming up.
Factories are built where no markets are...
Where are most factories being built these days? Actually, not where the biggest markets are... First Solar modules come from Malaysia, REC produces in Singapore, Sunpower in The Philipines and China isn't a big market as well. The reason is simple: the factories are built where the incentives are the highest. Tax holidays, investment subsidies, cheap land and other incentives are offered to seduce companies to build a cell or module factory in their country. There seems almost a competition going on among countries. Someone has to pay for that and in the end that will be the tax payers.
The Chinese PV industry built with German tax money
The pv industry and market is considered to be small and still in its infancy. In the coming decade the global revenue pool for solar pv will increase to more than 200 million euro. More then once, it can be heard that government and industry people complain, that this huge Chinese solar pv industry complex has been built with European/German tax money.
With a very small domestic market, the majority of all Chinese solar modules are sold on the subsidized leading European markets, with Germany by far the most important. At the same time, the German solar industry is facing hard times with tougher competition from China. The German market is booming, meaning German rate payer will have to pay a higher premium on their electricity bill and at the same time Chinese brands are increasing their market share in Germany. Is it fair that a big part of the German rate payers money goes to China?
In other countries, like France, government people and advisors are questioning whether incentives like a Feed-in Tariff actually help to develop a domestic solar industry...Isn't it only helping the Chinese with the development of their PV industry?
German equipment in Chinese factories
A few thing can be said. First, it does not have to be bad if mass manufacturing of solar cells and modules will have its base in China. To start, let's not forget that in most factories in China, German equipment is installed to produce the cells and modules. Upstream, German companies have achieved a leading position in high-tech equipment manufacturing.
Germany is in the driver's seat
Secondly, the Chinese companies, in their aim to achieve a bigger market share, will have to bring down cost of cell and module production. Like in 2011, Germany will decrease its FiT in 2012 again. With the expected further market boom in 2011, Germany will cut back its FiT's with another 22%, as described by the latest regulation. The Chinese solar industry, being completely dependent on the German market, will have no other choice than to bring down cost accordingly in 2012. In other words, Germany is fully in control, and will steer and drive down the cost of (Chinese) solar modules faster and faster towards grid parity. Even sooner than expected, Germany will achieve a market situation where FiT incentives are no longer needed. Solar energy, based on very cheap Chinese solar modules, will then be able to compete with electricity from the grid. Solar cells and modules will become a mass and commodity product. Produced in huge factories, this mass production will result in tiny margins. For comparison, look at the current situation of flat screen production. Fully automated mass production, tiny margins and job cuts more than new job generation. Only interesting for a few big industrial multinationals. With the high-tech jobs related to the installed manufacturing equipment. In this scenario, it makes more sense for European countries to be positioned more upstream in high-tech equipment manufacturing.
Jobs, jobs, jobs: the future will be downstream
Secondly, talking about job creation. As mentioned above, the most jobs will not come from automated mass cell and module production. Besides high value and high-tech jobs in equipment manufacturing, the large numbers of jobs will be created down stream. Like the design and installation of solar pv systems based on Chinese modules. Global leader and front running Germany is the example for other markets: most of the thousands of new jobs are created downstream. Development of projects, sales, engineering, roof and electrical installation and financing and insurance of PV systems. Market development is the real job generator, not industrial mass production.
Downstream business is the real job generator
And let's not forget the expected industrial opportunities for local product development. As mentioned in one of my previous Blog postings, every market will offer new business opportunities for new solar (roof) products. Based on imported cheap standard solar cells from Asia, products can and will be invented to fulfill local market needs. Hence, this will offer new high value jobs, which require creative, smart and well skilled local people.
Europe: help yourself and start more FiT's!
My conclusion for now is and advise would be to the French and other governments: don't be afraid for the Chinese module invasion based on a generous FiT program. Don't bother that you don't see a solar cell and module industry emerge in your country. Let China have this piece of the cake. You will only help yourself more. Then, even sooner French and other European companies will be able to import the best and cheapest cells and modules to create new and more profitable local downstream solar business. That will create a bigger revenue pool and the most jobs! Let China produce the fireworks and let's do the party in Europe!
Monday September 20, 2010
Ten years ago...
Ten years ago the global PV market was around 200 MW. Currently, that is what is being installed in Germany alone in less than 2 weeks….For the year 2010, the newly installed volume is forecasted to be around 12,000 MW. That is a multiple of 60 times in 10 years. Big companies, and none of them were Chinese, were producing like 20 MW per year in 2000. Ten years ago it was predicted that with an average of 30% market growth per year, in 2010 the installed volume would be around 4,000 MW per year. Instead, in reality, we are now facing 3 times that amount….
Ten years from now
Now, let’s take a snapshot of how the solar pv market and industry will look like in 2020… For households, solar electricity generated from your own roof is cheaper than electricity from the grid in the USA and all Southern European countries. And even in the ‘rainy’ Northern European Belgium and The Netherlands. Of course, without any subsidy or Feed-in Tariff. FiT programs do not exist anymore. ‘Grid parity’ is an old fashioned word. Now the trend is ‘cheap solar’. The market showed a CAGR of 30% since 2010. The global annual market volume is around 140 Gigawatt, which is more than 10 times the figure of 2010. But that was long time ago, when pv was still a tiny energy source. The revenue pool is now over 200 billion euro per year and millions of people are working in solar.
India and China doing 8 to 10 GWp per year In ‘history’, PV was still heavily subsidized and completely reliant of Germany. Things are different these days. The German market is not yet saturated, but the best roofs in the country are full with panels. All new buildings have PV integrated. Architects start their design with a optimal roof for solar pv generation. Currently, the biggest growth markets however are USA, Southern Europe, the Middle East and Northern African countries. And of course Asia. India and China are huge and booming markets. Each around 8,000 to 10,000 MegaWatt per year. Hundreds of multi MegaWatt power plants and several plants each hundreds of MegaWatt in size are built this year. All countries without fossil fuel resources are switching to solar. No other energy source is so predictable in terms of cost per kWh in the sunny regions. Investors do not trust coal and other fossil energy sources. The cost of ‘ old fashioned’ polluting fossil kWh’s is unpredictable and high due to carbon taxation.
The leading manufacturers produce 15 GWp per year
The sunny North African countries are building GigaWatt scale PV power plants, preparing for supply of cheap energy to Southern Europe via High Voltage connection lines through the Mediterranean Sea. Standard crystalline solar cells and modules are so cheap, that the solar industry, besides producing large volumes for utility scale pv power plants, is working on high profile products for optimal building integration. Nowadays, leading manufacturers, all from China, are producing 15,000 MegaWatt per year.
Europe is focusing on building integrated products
Residential customers and the building industry are now only interested in good looking products, which, by culture and tradition, vary per country. Cells are shipped around the world in huge quantities and assembled into building products and solutions in each market. A new industry in Europe has emerged around building products based on solar cells. Red and pink modules are doing very well in Italy, Spain and Portugal these days, fitting perfectly on traditional terracotta roofs. Black modules are a hit in Northern Europe. Booming is the market of energy storage systems and smart grids. And of course all technology combining electric car charging systems and solar energy production.
GW scale power plants are built in 2 years...
Nowadays, GW scale pv plants can be built within 2 years. That is the reason that Energy utilities like them so much. And of course because the production cost per kWh are so predictable and the O&M cost are so low. The global industry is positive about its future for the next decade and is predicting further growth of at least 25% per year. The forecasts are that around 2030, the annual market volume will reach 1,000 GigaWatt. Impressive, but still tiny compared to the potential addressable market volume as the global electricity demand is still increasing. And, let's face it: even at this impressive growth rate, solar PV is not even able to cover only the growth of the global electricity demand...
Let's get back to 2010 and agree to talk again on 20 sep 2020 to evaluate if I was too pessimistic.
Sunday September 12, 2010
Last week in Valencia, many experts and friends shared their market
knowledge, insights and views at the Fourth Global Demand Conference.
At the first day, the emerging PV markets were discussed. At the second day the demand dynamics in top-10 markets in the world.
At the conference and at the PVSEC exhibition floor, it was the general opinion that the UK is one of the most promising PV markets.
Facts and rumours suggest that hundreds of MegaWatt's are under development. Some market players expect a GigaWatt market in 2011. Not only many residential and commercial pv roof projects. It was said that big financial institutions are preparing ground mounted projects for hundred or more MW's. Financing seems not the biggest problem. For equity funds, the opportunities to make a decent return on investment, are limited these days. The interest rates are very low. The feed-in tariff for solar energy provides an attractive investment alternative. And many investors and funds from the UK have built up experience with pv power plant investments in Spain. They understand the pv technology, worked with a FiT mechanism and know the UK market.
How fast will the UK PV market grow? As stated in my previous blog, it normally takes new markets at least 3 years to develop to a level of one or more hundred MW of new installations per year. Can and will it go faster in the UK? There are more international players, there is more experience and more money available.
On the other hand, the UK market is relatively unexperienced, is lacking a well developed supply chain and most potential customers do know nothing about solar pv and feed-in tariff mechanisms.
In it's second year, the pipeline of (ground mounted) pv projects under development in Spain was endless, but at least many thousands of MW's in volume. Most of them were never built. Permits were not in place, the project financing could not be arranged, modules were lacking, etc. At the time more than thousand solar PV parcs were actually built in 2007/2008, the government paniced and killed the market with a revised incentive scheme. More than 10 billion euro's were invested, with a substantial share by foreign big investors. Those investors, making a very good return on investment, will have to be paid for 25 years.
Although the UK is a big country, with enough room for ground mounted projects, it does not seem like the natural fit. Does it make sense to fill the beautiful Cornwall landscape with large solar PV fields? It seems more logic to use the free commercial and residential roof space. After all, PV is the ideal distributed energy source to produce energy at the point of energy use. In extremely sunny area's (here is meant sunbelt countries and deserts and not Cornwall), it makes sense to built large scale PV power plants.
The UK FiT is so attractive, that several companies are even offering solar pv systems free of charge to roof owners. The roof owner receives the solar energy free of charge and saves money on its energy bill. The pv system owner, using the roof owner's roof, receives the FiT and maintains the system. Both benefit and make money and apparently the system owner makes a very good return on investment. The model is so attractive, that more and more companies start offering it.
In a similar situation some years ago in The Netherlands, the offering of free-of charge PV systems lead to questions in the parliament and not much later the whole incentive program was killed, completely. 'Over subsidized' and not the intention of the pv stimulus program, was the conclusion. Although more was at hand and the arguments were incorrect, the sentiment was so negatively influenced that it took another 4 years before a new complicated and unsuccessful incentive program was introduced again in 2008.
A similar thing is about to happen in the Czech Republik. The market boom, or better explosion, will lead to a possibly disastrous reduction of the current over attractive FiT. Most PV projects are ground mounted and although better than the UK, the irradiation is still considerably less than in Southern Spain. The experts at the conference expect the Czech market will shrink in 2011.
Except for sunshine itself, for anything that is offered for free, someone has to pay for it. When a pv market is extremely hot and PV systems are even offered for free, rather sooner than later, some will raise their voice. Electricity rate payers will question their premium payments flowing in the pockets of big investment firms. Opposing politicians will question the generousity of the incentives and debate even more the effectivenes and efficiency to generously stimulate solar as RE source over alternatives like wind or biomass.
Why has the German market been sustainable? What definitely helped was its stable economy and well designed incentive regulation. But what makes a difference is the realistic return on investment. The government always aimed at around 7-8%. High enough to convince investors and low enough to prevent the boom-to-burst scenario.
Booming markets burst sooner (Spain, Czech Republic). Gradually growing markets (Germany) are more sustainable.
There is a risk that a gold-rush in the UK market will lead to serious adjustments sooner than 2012 as announced in April.
What the solar industry needs, are sustainable markets, the more the better.
What the industry does not need, are hit and run markets, booming one year and bursting the next year. Where adjustments to the incentive system come suddenly and are uncertain. Investors will back off, because in the end, they do not like uncertainty at all.
Let's hope the UK market will be able to grow steadily to become a sustainable market that will help the solar industry grow. That will help to bring cost and system prices down. And in the end that will help to create markets where incentives are no longer necessary.
Monday August 30, 2010
Feed-in tariffs in more and more markets will help the industry become subsidy independent
The best examples are the current leading markets Germany, Italy, Belgium and the story of Spain. It took these markets at least three years to arrive at a level of more than 100 MW of newly installed PV power annually.
By nature, sales people tend to be very optimistic once an incentive scheme is announced in a new market. “This market will be booming and huge, we heard of a pipeline of more than 1 GigaWatt”. Haven’t we heard these lines in the past, soon after their new feed-in tariff was introduced in Spain, Italy, Bulgaria, etc.?
The realistic market growth curves
The facts show how reality works. In Spain, after the introduction of one of the most attractive feed-in tariff regimes ever, and in an overwhelmingly sunny country, the first year 'only' 11 MW were installed. The second year, the market boomed to a 'staggering' 23 MW, exploding to a 96 MW in its thirdyear of existence. Why did it take 'so long'?
PV better than Madoff?
Let’s face the facts: most people on this planet still don’t know what a solar panel is. “Where will the hot water come out? And where do I find the battery?”. How can you expect a banker to believe that your project with blue panels, yes, without water connection, will generate electricity, and is a reliable bankable project because the government is paying you a guaranteed 20 year 15% ROI? Sure baby, my neighbour also believed Madoff offered a good investment opportunity...
For the same reason, why should private and business customers and roof owners be smarter than bankers? (ok, admitted, bankers haven’t shown much intelligence in the last years)
Educating your grandmother
It takes time to introduce new technologies in a market. Certainly if these are only related to a commodity (electricity) and only attractive if they come with new, sometimes complex government regulation, like a ‘feed-in tariff system (FiT)’. Try to explain that to your grandmother!. And let’s not forget the local permitting processes and interconnection agreements with big and usually fast institutions like energy utilities.
The development of the global PV market is all about education. Education of a whole new business infrastructure to develop supply chain and education of customers. And every country or market has its own particularities.
The experiences in Germany, Italy, Spain, Belgium and all these other markets show it again: after 3 years party time really starts. So, have patience, but trust, that markets like the UK, Ontario, Bulgaria, etc will definitely provide substantial market volume in a few years (if the FiT will remain in place).
Party time after three years
It is likely that in time, more and more people will have learned about ‘blue panels’ producing electricity and giving good financial returns. Plus, well experienced and educated bigger solar pv companies with a track record in for instance Germany, will expand their activities in more and more countries. Helping local companies to educate their market quicker. The good thing is also, that more and more countries have started with feed-in tariff regimes. The number of emerging markets is growing rapidly. Most of them still in their infancy, but give them a few years and they will really start to boom. And with so many new markets joining, the best of the global PV market growth party is yet to come!
Will governments keep the faith?
The worst what could happen is that governments start to loose faith in the feed-in tariff model, because of what is happening now in Germany and happened in Spain. Once the business infrastructure is in place and the story goes around (after 3 years), it is a challenge to control the market growth engine. Markets keep on booming. Spain showed that a resolute break will have a disastrous effect on the domestic business infrastructure. The money invested to build up a market and business infrastructure can be thrown away in one year.
More anniversary parties will help the market become independent
A well designed annual FiT degression in pre announced steps helps. Sudden and panicked interim cut backs usually have a contra-productive effect. People take a run ‘on the last high tariffs before they are further reduced’.
The Feed-in tariff has proven to be the best incentive scheme to develop a domestic PV market and business infrastructure. With well built in annual reductions of the tariffs, the FiT model is still the ideal way to bridge the limited number of years this financial support is still necessary. With the PV industry expanding and developing rapidly and cost coming down quickly, solar PV is on track to stay on its own feet, without the need for any financial support. In many major markets, this is only a few years away... Germany is already celebrating its 10th anniversary with their FiT. If other markets follow this example and Germany pushes the right buttons, the global PV market and industry will see a further continuous growth and subsidy independence within a decade for the major market segments like residential applications.
The solar future in inevitable and the best is yet to come. Let’s educate!
What will happen in the German PV market in 2011? As it looks right now, like last year, this year will show record figures for newly installed PV power. Customers want to make use of the current feed-in tariff, before this incentive will be reduced at the beginning of 2011. Since the government announced additional reductions of the tariffs in 2009, sales wen sky-high. It looks like the further feed-in tariffs are cut back, the faster the market is growing...With another reduction following on January first 2011, this will likely boost sales till the end of this year. So, what will happen next year? Will the government be surprised when they see record numbers at the end of this year and decide that another feed-in tariff reduction will be necessary in 2011? Will they get scared that the public, their voters, will no longer accept the premium they pay on their energy bill to subsidize the feed-in tariffs?
One could conclude that the subsidies are still too generous. They could think that a further feed-in tariff reduction will cool down the spectacular growth....But, will that happen? Well, for sure, the global solar industry cannot survive without the German market, which takes more than half of the world market. So, in order to survive and keep their market share, the industry will have to reduce module and system prices. This will reduce their margins and profit. But, better loose part of your profit than being forced out of business. This is, what we call the 'consolidation', a survival of the fittest. Only the companies able to bring down cost and accept lower margins will stay in business.
Further feed-in tariff reductions will grow the market faster
So, let's imagine, the German government will further reduce the feed-in tariffs in 2011, in order to 'cool-down' the market growth. My feeling is, this measure will be contra productive. The faster it will reduce the tariffs, the more urgency the customers will feel to 'buy their own solar system', before this incentive gets reduced even further...And the industry will consolidate even faster. Cost and prices will need to be adjusted. This means acceptance of lower margins, or grow faster in order to reduce cost of production. This could help to hold and expand their market share in the fast growing German market.
Can the growth be cooled down?
Does the German government have any other solution to cool down a fast market growth? Frankly, I do not know how. Introducing a market cap for its Feed-in tariffs will lead to a run on this incentives as well. And will force companies out of business, because there are no sales after, say May, since 'the cap has been reached'.
Too big to fail
Germany has chosen for Renewables and the people and customers like it so much, their is simply no way back. Does it matter? No, Germany will lead the way in photovoltaics in the future. It has simply grown too big. It can't be ignored anymore. Not by the government, not willing to stop this job-machine, not by its population, which embraced solar PV and not by the global PV industry, because the market is simply too big to loose. Yes, it will cost the German energy user money and slightly raise their energy bill for many years. But energy bills will be raised anyway, due to increasing cost of conventional energy sources like coal (carbon-taxes) and oil (scarcity). In the long term these same customers and voters only benefit from more solar and renewables. For example with more predictable and stable energy prices. Germany will build up a large and still growing share of clean and sustainable energy supply. And, let's be honest, who would not prefer such a country to live in and leave that for your children?
Germany and solar pv is like Google
Germany sets the trend in Renewables and is market leader. As technology innovators, Germans will always be able to make money on solar. German industries, investors and entrepreneurs can be found everywhere around the world. They have the knowledge, experience, industrial and innovative power, people and money to maintain world leaders. I think, that the German market will keep on growing. In 2011 and onwards. And fast as well. At this speed, it might even become the first market reaching grid-parity, when the cost of solar power equals the retail cost of conventional electricity. This will speed up the market even more and create more business opportunities around the world. Germany, and its solar industry infrastructure, could become a Google in solar pv. Too big and important to fail. Leading the way with forward thinking. And Google is still not doing too bad...