Here comes the sun
Why solar has a bright future ahead
A bright future for solar? Seriously? I wouldn’t be surprised if this statement raises an eyebrow or two. What you probably have recently heard or read is that the solar industry is going through a tough time, with high-profile bankruptcies, trade wars and incentive cuts being the order of the day. As if that wasn’t bad enough, there is a common myth that solar energy is still very expensive and will never be competitive with other renewables such as wind, much less against conventional, fossil-fuel based power generation.
A bit of history: how did we get here?
For sure the solar industry is in a state of flux. Since 2011, it has simultaneously faced module manufacturing oversupply and weakening demand stemming partly from reduced incentives, typically feed-in-tariffs, in European markets in an attempt to curb budget deficits. The result has been plummeting prices for PV modules, vanishing margins and losses among players in the upstream part of the PV value chain, i.e. wafer, cell and module manufacturers. Pricing pressures have also cascaded downstream to equipment suppliers and system integrators. From a technology perspective, the collateral damage came in the form of reduced competitiveness of emerging solar technologies such as CSP or CPV against PV. Although both are viable, their economic advantages were reduced dramatically as PV system prices dropped.
The term Solar shakeout has been used in the media to describe current market conditions: relentless industry consolidation in the form of defaults or shifts in market strategy. As noted in this excellent article however, shakeouts are a natural and healthy phase of industry evolution and growth. And growth is precisely one of the key reasons why we see sunnier days ahead.
Solar is growing
2012 will be remembered as a historic year for solar, not only because of the shakeout but, more importantly, because solar PV hit the 100GW installed milestone. “This global capacity to harness the power of the sun produces as much electricity energy in a year as 16 coal power plants or nuclear reactors of 1 GW each. Each year, the world’s PV installations reduce CO2 emissions by 53 million tons,” according to the European PV Industry Association (EPIA). Moreover, despite the turmoil the industry is going through, the market continued to grow in 2012 and reached approximately 30 GW of new installations worldwide. Although exponential installation growth will not resume in the near future, installed capacity could double again as soon as 2015.
Solar is also growing in scale: although residential and commercial installations will continue to capture a substantial share of the market, utility scale installations are moving beyond the 100 MW size, especially in emerging markets.
An important market trend is geographic diversification of solar, with demand shifting away from historical to emerging, non-European markets. While demand was clearly dominated by installations in Germany and Italy in 2010 and 2011; demand growth outside of European markets was much faster in 2012, with almost 30% of installed capacity (8.5 GW) installed in the top-three emerging markets: US, China and Japan. For the first time ever, China is likely to displace Germany as the country with strongest demand in 2013, although installations in Germany continue to be significant going forward.
Elsewhere in Asia, Japan is now a very strong supporter of solar after the shift away from nuclear following the Fukushima disaster, and the Indian market is growing quickly supported by the reverse-auction based National Solar mission as well as aggressive provincial programs. The Middle East has started to foster the creation of a PV industry to capitalize on the benefits created from freeing up oil for exports by using solar, and South America and certain regions in Africa are now turning to solar as an alternative to consuming expensive electricity from the grid, or to replace costly backup diesel generation in remote locations.
Reaching grid parity
Renewable energy detractors keep pointing out that solar and wind are artificial markets, since their existence relies upon the availability of incentives that will render installations economically attractive. It is for this reason that reaching grid parity is considered the holy grail for renewable energies, and solar is no exception. Grid parity is the crossover point where the price of solar PV energy generation is equivalent or even cheaper than power generated from traditional fossil fuels. The good news is that rising electricity prices and especially rapidly falling system prices have put solar on the fast track to reaching grid parity in several countries around the world such as Italy, Hawaii and some regions in India (Check out these grid parity interactive graphic and white paper by Bloomberg). This is happening across market segments especially residential and industrial, however it is also expected that in the near future solar will be able to compete in wholesale electricity markets.
An example of this trend is the planned mega-solar plants in Spain. Scheduled to go online as soon as 2015, they will have to compete with gas, coal and nuclear generation in the absence of any subsidies. Chile is another emerging, grid-parity driven market where mining companies are switching to solar to cut down power costs.
Do you still think solar is living on borrowed time? Tell us what you think…