Saturday, January 24, 2009

The effect of Spanish Solar Industry Growth

The Spanish PV market grew by more than 2661 Megawatts of new installed power in 2008. As a result, the global PV market has grown by around 5600 Megawatts.

This enormous 100% increase compared with the 2007 figure explains part of the scarcity and high module prices in 2008. But, with a cap of 500 MW in 2009, it also means that the Spanish market will decrease in size by at least 80% (or more than 2100 MW) this year. And that is bad news for the global PV industry as it faces an oversupply situation and bad economic times. However, this turns into good news for the customer, as prices along the supply chain have decreased by at least 20-40%. Solar modules are now cheaper than ever before. Record growth could be even higher. The figures for the Spanish PV market were published by the Spanish magazine Energias Renovables, which quoted sources from CNE (Comisión Nacional de la Energía). CNE pays out to the energy utilities that in turn give the feed-in tariff to customers with a PV installation. The more than 300% increase compared to 2007 could be even higher. CNE estimates that the 2008 market could well be above 3500 Megawatts. This would mean that the Spanish market in 2008 alone was bigger than the global market figure for 2007. Even the figure of 2661 MW is astonishing, and comes as a surprise to most people in the solar energy business. It not only made Spain the world’s biggest PV market in 2008, but clearly demonstrates that the new regulation will have a major impact on the global PV market. Although other PV markets in the world will continue to grow, the impact is such that the global PV market in 2009 is likely to decrease by around 10% compared to 2008 according to calculations by SolarPlaza.

Lessons from Spain

In 2007, and during the first half of 2008, all the sign for PV were positive. There was a very attractive feed-in tariff in Spain, credit lines were easy to get, oil prices were rising and economies growing rapidly. Now, the industry faces a strong head wind with oil prices very low, economies in recession, finance hard to obtain and the world’s largest market regulated by a cap with a 30% lower feed-in tariff. The consequence will be felt throughout the entire industry. Several major international companies recently announced cut backs in staff. As many Spanish companies were focused on the domestic market, jobs, and a part of the solar energy business infrastructure, will be lost. What happened in Spain clearly shows that the global PV market is still strongly dependent on government support programs and decisions by politicians. What is needed for continuous market development is not the highest feed-in tariff, but a stable and long-term policy and program. What works is a feed-in tariff that is decreased by clear steps over time. It provides the industry with targets for cost reduction, working towards a situation where incentives are no longer needed. It is no coincidence that Germany, not the country with the best solar resources, is the world’s leading PV market.

Germans set to take the lead again

The German government decreased the feed-in tariff by almost 10% at the start of 2009. Nevertheless, this market is likely to continue to grow steadily. Module prices in the world markets have fallen by more than 20% over the last months. Germany will therefore resume the lead from Spain to again be the world’s largest PV market in 2009. The stable solar policy pays off…

Strong long-term outlook for USA

Many people expect that Obama's renewable energy plans will lead to a further push for solar energy in the USA. The eight year guaranteed Tax Credit regulation, approved under President Bush, offers an excellent starting point for stable growth. Experts predicted a market growth of around 50% before Obama was elected. Much will now depend on recovery of the economy and details of Obama’s plans. But even if the Californian and whole US-market were to grow by 100% in 2009, the US market will be comparable with that of Spain (about 500 MWp). The longer-term prospects are even better. Several energy utilities in the USA have discovered PV as a serious and viable option for power supply. Many large scale PV projects, like the 800 MWp project by PG&E in California, are being prepared and developed. The push for renewable and solar, and an economic recovery, could make the USA one of the major PV markets from 2010 onwards.

What will happen in China?

The Chinese PV industry grew explosively in 2008 with soaring demand from Spain and Germany in particular. Declining global demand, which started at the end of 2008, means the Chinese PV industry will face hard times in 2009. Sources indicate that many of the hundreds of PV module manufacturers have already gone out of business. Will the Chinese government support its industry with incentives for development of the domestic market in 2009? Rumors indicate that the government is working on this. Reliable figures are hard to obtain, but experts estimate that the market size was less than 50 MW in 2008. If a feed-in tariff were introduced in 2009, it would be unlikely to have a major impact on demand for 2009.

Italy is the place to be The most attractive feed-in tariffs can now be found in Italy. The market is growing rapidly as investors have discovered the opportunities, certainly with currently decreasing module prices. In terms of size, Italy will still be smaller than Spain in 2009, but with many projects under development, Italy could become the second largest market in the world in 2010.

Global market consequences

What are the consequences of this all for the global PV market? The promising growth in other markets will not be able to compensate for the 2100 MWp loss in Spain in 2009. Promising markets are France, Czech Republic, Belgium, Korea, Greece and India. All were still below 50 MW in size in 2008. As in Spain, even under the most attractive circumstances, it takes at least three years to achieve a market size in the hundreds of MW. As a result, and based on its global market demand model, SolarPlaza expects the global PV market to decline instead of grow in 2009.

Long-term perspective still very good

The long-term perspectives for the global solar energy market remain great, however. Module prices are declining and industry members expect prices to fall further during 2009. It will bring solar energy closer at the stage where government support is no longer needed.

And, above all, the long-term market drivers that push solar energy will remain in place:

+ oil prices are expected to increase when economic recovery returns due to supply limitation

+ an increasing number of countries have started CO2 reduction plans including Renewable Energy support programs

+ continuously growing electric power demand, pushed by economic growth in Western countries and Asian rising stars such as India and China

+ continuously decreasing cost of solar modules makes solar energy attractive as a reliable energy source in a growing number of market segments

+ growing interest for electrified transportation (automotive industry opting for electric cars) which will stimulate decentralized electricity production

The big question for the near-term is which of the solar PV manufacturers will be able to survive the global decrease in demand and economic crisis in 2009, and maybe 2010. Those who can will have a bright future and infinite market potential ahead. When the cost of solar energy for customers reaches the cost of energy from the grid, the market potential for a reliable, predictable and 25 year fixed cost energy source will be infinite. This ‘grid parity’ will be reached in the next three to five years in major markets in the world.


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