By: Raj Prabhu, Managing Partner at Mercom Capital Group
Solar demand continues to defy odds so far in 2012, which may result in another year of growth contrary to pessimistic views early in the year. Module prices continue to fall spurring demand. Tier 1 modules are now in the ~$0.70 range, after falling about 20 percent this year, and about 60 percent since the beginning of 2011. Negative forecasts have turned positive.
Stubborn European demand, especially from Germany and Italy, is a big reason why the markets are doing well. Germany has already installed about 5 GW as of July, and is on pace to match last year’s 7.5 GW installations number if not exceed it. The delay in implementing Conto Energia V has helped with installations in Italy, which could end the year with around 3.5 GW in installations.
Other markets that could help market growth in 2012 include the United States, China, Japan and India. The United States continues to do well, spurred by state RPOs and solar lease programs, while China set a goal of 21 GW of solar installations by 2015 and is looking to install about 5 GW this year. Japan’s new FiT program is one of the most attractive in the industry and could help drive the country’s large scale solar market which was previously non –existent. India, through its national and state programs, is on pace to install about 1 GW this year.
Recent themes in most markets have been to cut subsidies, as growth around the world has slowed and serious efforts are being made to cut debt.
While the continuous and steep fall in module prices has been the demand driver in most markets, the oversupply of solar panels, especially coming from China at low prices, has resulted in the United States imposing anti-dumping tariffs at about 35 percent on Chinese solar manufacturers, citing unfair export subsidies. The imposed anti-dumping tariffs were much higher than expected, and initial reaction was that it would hurt demand due to higher cost of panels. The European Union (EU) has now followed suit, making things much more serious as EU is a much larger market for Chinese panels than the United States. China is talking about retaliation and all this uncertainty does not bode well for the markets going into 2013.
The never-say-die German
market continues to surprise everyone, and it looks like it may even surpass
last year’s record installation of 7.5 GW. Germany has already installed almost
5 GW in the first 7 months of 2012. This is amazing as analysts and experts
were forecasting that Germany would only install 2-3.5 GW just six months ago.
After long drawn-out
negotiations and delays, the newly reduced FiT program went into effect and
will be retroactively effective from April 1, 2012. For installs up to 10 kW
capacity, the new FiT will be 19.50 Euro Cents (~$0.26)/kWh, down 20.2%. For
installs up to 1 MW capacity, the new FiT will be 16.50 Euro Cents (~$0.22)/kWh,
down 24.9%. For installs up to 10 MW capacity, the new FiT will be 13.50 Euro
Cents (~$0.18 Cents)/kWh, down 26.4%. A monthly digression will also retroactively
take effect from May 1, 2012. Germany will subsidize its solar program up to 52
GW. The goal of this new FiT program is to bring the installation levels to a
manageable 2.5-3.5 GW per year, but as long as module prices and system costs
keep going down and if investors can make a decent return, installation levels
will keep surprising the markets.
Italy replaced its solar
policy, Conto Energia IV, with Conto Energia V, which was passed into law and
was supposed to take effect at the end of August; however due to a delay it is
now expected to take effect in October. Conto Energia V calls for a €700
million (~$883 million) subsidy cap and also provides a FiT premium for solar
panels made in Europe to the tune of ~€20 (~$25)/MWh. The Gestore dei Servizi
Energetici (GSE) announced that the annual cost of PV incentives had reached
€6B (~$7B) in July, triggering the 45 day notice period for Conto Energia V to
kick in at the end of August 2012. However, that date is now postponed until
October, creating a “mini rush” situation.
Italy will not get close to
its 2011 installation levels, which were over 9 GW. 2012 is expected to finish in
the 3.5 GW range.
France is one of the first
countries in Europe to shift from a feed-in-tariff system to a bidding system
for large-scale projects, above 100 kW. France
introduced a 500 MW hard cap on annual new installations in 2011. It announced
feed-in-tariff cuts yet again in April, which are now about 30 percent lower
than a year before, but the tariffs are still very lucrative, for example: 9-36
kW roof-top systems receive $0.42/kWh.
Recent data shows 709 MW
were installed in the first half of 2012. France also approved about 540 MW of
PV projects recently and plans to call another tender in the next few weeks. The
current French market is largely a reflection of grandfathered projects from
2010 coming online - there are about 3.5 GW of grandfathered systems with 2 GW
expected to be connected in 2011 and 2012.
The United States installed
about 1,800 MW in 2012, almost doubling from 2011, partly fueled by the mini rush
caused by the 30% treasury cash grant program expiration at the end of 2011.
Significant module price declines of almost 60 percent since the beginning of
2011 and falling system costs have helped spur demand. With state renewable
portfolio standards (RPS) driving installations and the increasing popularity
of solar leases, demand in 2012 looks strong and could be another banner year
for U.S. solar installations.
The United States does not
have a central, cohesive solar incentive policy. Instead, the market is driven
by state RPSs, state and municipal rebate programs and the 30 percent federal
investment tax credit (ITC). California, the largest solar market in the United
States, is fueled by an aggressive RPS of 33 percent by 2020. Almost 30 states
have some sort of a RPS in place, and about half of them have a solar
carve-out. Solar lease programs, where consumers lease instead of upfront
investments, are extremely popular--especially in California--and are largely
driving the residential market there.
Challenges in the United States
market include the uncertainty surrounding the antidumping case where the
government imposed anti-dumping tariffs of about 35 percent on Chinese solar
manufacturers citing unfair export subsidies. The anti-dumping tariffs imposed
were much higher than expected and initial reaction was that it would hurt
demand due to higher cost of panels. Chinese companies have a workaround which
would reduce the impact by sourcing through Taiwan or Korea as anti-dumping
only covers modules manufactured in China and not when sourced from other
The National Energy
Administration (NEA) in China announced recently that it has hiked
its 2015 target for solar power capacity by almost 40% to 21 GW from 15 GW.
This sets the pace for Chinese installations in 2012 which could more than
double compared to 2011 installations of over 2 GW. The installations in the
first half of 2012, according to National Development and Reform Commission
(NDRC), was 1.3 GW, which means there has to be a significant pick-up in
installations in the second half of 2012.
There is speculation of a new
policy announcement in the next few months to support the new 21 GW target. A
few possibilities include: long-term FiT with guarantee against retroactive
cuts to bring certainty to the markets, a solar RPO in some form targeted
towards utilities, and special tax considerations for solar. Some of the
current subsidy programs driving the Chinese market are the GoldenSun program,
and the 1.00RMB (~$0.16)/kWh FiT.
Some of the challenges in
China include an economic slowdown leading to tightening of credit by the state
owned banks, significant debt exposure to solar manufacturers have made the
banks more cautious when lending to projects, low tariffs, bureaucracy,
cumbersome permitting process and transmission bottlenecks which could push the
policy towards favoring distributed solar projects in the future.
Japan has been struggling
with power shortages since the Fukushima disaster and has set a goal of
achieving 28 GW of cumulative PV by 2020. The Ministry of Economy, Trade, and
Industry (METI) announced a much-anticipated feed-in-tariff program in June
valid for 20 years. The FiT is very attractive, with PV systems below 10 kW
receiving ¥42/kWh (~$0.53) and systems above 10 kW receiving ¥40 (~$0.51). For
systems less than 10 kW, the government will purchase only the excess power
produced for a period of 10 years, for systems larger than 10 kW the government
will purchase all of the power produced. The new FiT program is designed to
stimulate new large-scale power projects as there was no FiT available for
projects 500 kW or higher previously.
The new FiT is widely
expected to kick-start PV installations in a big way, though we have to be wary
when the incentives are too generous which usually lead to boom-bust cycles as
witnessed in many markets. Japan, with the new program, joins China and India
as the markets of the future as European subsidies and demand slows.
Indian solar installations
are driven by the Jawaharlal Nehru National Solar Mission (JNNSM) with a goal
to install 20 GW of solar power by 2022, various state policies and state
RPO’s. India has already installed about 825 MW this year and is on pace to
install over 1 GW in 2012.
JNNSM and most states use a reverse auction
process to select projects while the state of Gujarat (which has the most
installations of any India state so far) has a FiT policy in place. India went
quickly from almost no installations three years ago to one GW this year and is
one of the most promising future solar markets along with China and Japan.
consensus forecast is based on Mercom's views and methodology with data
compiled from: Auerbach Grayson, Auriga, Barclays Capital, BNEF, Citi,
Collins Stewart, Credit Suisse, Daiwa, Deutsche Bank, EPIA, Goldman Sachs, GTM
Research, HSBC, ICBC China, IDC Energy Insights, IHS iSuppli, IMS Research,
Jefferies, JP Morgan, Kaufman Bros, Macquarie Capital, Mercom Capital Group,
Piper Jaffray, R.W Baird, Solarbuzz, Stifel Nicolaus, UBS, Wedbush Securities
and other government, public and private sources.