Against all odds and despite several capped, cancelled, and cut subsidies over the past few years, the solar market has continued to grow by leaps and bounds. However, in almost all cases, that increased demand has come from one market: Germany.
That is starting to change, and opportunities are shifting to new regions.
The newest German subsidy code includes soft volume caps on installations – above which its feed-in tariff (FIT) subsidies fall at a faster rate – and with more than five per cent of its energy consumption generated from solar, it is coming up against hard structural limits on solar penetration. With Germany approaching secular decline, and manufacturers starting to hit the near-term limits on cost reductions, the industry is at a critical transition point and desperately needs to find new markets to soak up supply.
In order to find, prioritise, and quantify these critical new markets, Lux Research recorded subsidy data and generated “grid parity,” levelized cost of electricity (LCOE), and internal rate of return (IRR) analyses for various regions. Those regions included: the 50 U.S. states individually, 31 of China’s provinces and semi-autonomous regions (SARs), plus a further 75 countries and regions globally – covering a total population of 5.68 billion, or approximately 82 per cent of the total global population.
The analysis, which accounted for the declining module and total system costs for six key PV technologies, examined six photovoltaic (PV) technologies across three key applications: residential rooftop systems (typically <10kW), commercial roof-top systems (100 kW to 1 MW), and utility ground-mount systems (>1 MW). The analysis found that:
- The global solar market will climb from 15.8 GW in 2010 to 37.5 GW (worth $65.4 billion) in 2016, a compound annual growth rate of 15.5 per cent. This is lower than the industry’s past history of 30 per cent + annual growth rates, and speaks to its maturity and move away from subsidies as a driver of growth. However, the main takeaway is that system price declines through 2012 outpace volume increases, and the industry actually shrinks on a revenue basis, from $64.4 billion in 2010 to $56.9 billion in 2012, before recovering to $65.4 billion in 2016.
- With subsidies, a surprising number of markets have IRRs worthy of attracting investment attention. In 2010, there were 20 residential markets, 29 commercial markets, and 24 utility markets worthy of attention by developers. In 2016, the number of markets worthy of investment by project developers increases dramatically to 45 residential markets, a whopping 88 commercial markets, and 85 utility markets.
- Commercial systems lead the way in reaching grid parity. Only Hawaii was there in 2010, but by 2016 grid parity will have reached 10 markets – with sunny Latin American countries like the Dominican Republic and Nicaragua showing well.
- Though no markets were truly at residential grid parity in 2010, Hawaii is the first to accomplish this milestone in 2011. By 2016, a total of seven residential markets attain this feat, including widely heralded markets such as Italy and surprises like Denmark and Ukraine - primarily due to expensive retail power.
- The decrease of subsidies in core European markets and the continued introduction of subsidies in Asia and North America are causing the market to tilt in favor of the latter regions. Europe shifts dramatically from over 80 per cent of the market in 2010 to only 43 per cent in 2016, while Asia-Pacific rises from 13 per cent in 2010 to over 28 per cent in 2016. North America goes from 6 per cent in 2010 to 19 per cent of the market in 2016. The Middle East and Africa, Central and South America, and the rest-of-world segments remain small, given a lack of subsidies in big countries – though plenty of upside exists due to good sunshine and poor grid coverage.
Looking forward, winning solar vendors will be the first to build sales pipelines in new regions. The move beyond Germany and Italy will require solar project developers, financiers, and module and inverter makers to open offices in new countries.
To a certain degree, this is already happening; Sharp is selling in significant quantities into South Africa, and others are taking a closer look at countries such as Malaysia and Thailand.
Given the wide array of modules available to project developers, a downstream presence like this will increasingly determine winners and losers. Players such as Trina Solar and First Solar that actively open new markets will continue to lead, while there is an opportunity for new players to emerge from demand geographies with a long lifetime – like Brazil and Africa – first as contract manufacturers, then as increasingly integrated players.
Matt Feinstein is an analyst at Lux Research, a Boston-based firm that provides globally strategic advice and on-going intelligence for emerging technologies. Visit www.luxresearchinc.com for more information.