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By Raj Prabhu, Co-Founder and CEO of Mercom Capital Group
After years of overcapacity, bankruptcies and record low prices we are now
seeing price stabilization, higher capacity utilization rates and a
move towards supply-demand equilibrium. Market conditions for solar look much better
than they did just three months ago and we are reiterating our global
installation forecast of ~38 GW for 2013.
 One of the big overhangs, the China-EU trade case, has been settled,
which could have otherwise set off an all-out trade war. This brings some
sorely needed certainty to the market. A rate of €0.56 (~$0.74) per watt was
the agreed upon pricing for Chinese panels coming into the EU. Under the settlement
terms China will be allowed to meet half of Europe’s panel demand (7 GW)
without being subject to tariffs. China, on the other hand imposed antidumping
duties on the U.S. and South Korean polysilicon manufacturers, but not on
polysilicon from the EU. Although trade skirmishes will likely continue, this
settlement is a relief for the markets.
China and Japan are installing at a rapid pace and making all the right
moves in terms of policy to give some confidence to the market that they are
ready to take over as top solar markets for some time to come.
The Chinese State Council has once again raised solar installation
targets with the new goal of installing 35 GW by 2015, up from 21 GW. China’s push
towards stronger domestic demand is primarily driven by necessity - to help domestic
manufacturing and address air pollution problems. It would have been inconceivable
just a few years ago to think that China would look to solar as a solution to its
unprecedented environmental problems. That is precisely what is happening now. Strong domestic consumption gives the Chinese solar market which has been known mainly for low cost manufacturing destination some credibility.
In a move to diversify its energy generation sources after the Fukushima
disaster, Japan announced policies to aggressively promote renewable energy. Japan
now has one of the most generous solar tariffs in the world at ~¥37.8 (~$0.38)/kWh
which is driving installations. The Agency for Natural Resources and Energy
(ANRE) has reported that Japan added 1,240 MW in solar installations in just
two months, April and May. While Ministry of Economy, Trade, and Industry
(METI) reports that it has approved over 19 GW of PV project applications under
its FiT scheme, about 16 GW of those were approved in the 2013 calendar year.
With a 2013 forecast of 8.5 GW and 7 GW respectively, China and Japan
are on pace to be the top installers this year. PV installations in the United
States continue to grow and are forecasted to reach about 4.5 GW in 2013. Other
major markets forecasted in 2013 are Germany at 4 GW, Italy at 2 GW, UK at 1.5
GW and India at 1 GW.
 Germany
Germany has installed just 2.1 GW of PV as of July this year, compared
to almost 4.4 GW installed in the same period last year. The digression formula
adopted by the German Federal Network Agency
(Bundesnetzagentur) of reducing tariffs by 1.8 percent every month seems to
have had the intended effect of restricting annual installations to the desired
3.5 - 4 GW range. The Federal Network Agency has extended the same digression
formula for the period of August - October 2013. German PV installations in
2012 were a record 7.6 GW, while cumulative PV installations in Germany are now
at 34.5 GW as of July 2013. Germany has set a goal of subsidizing its solar
program up to 52 GW. Germany will finally be giving up its leadership position as
the top PV installer to either China or Japan this year.
 Italy
Italy’s solar subsidy program, Conto Energia V, has come to an end as
the annual cost of PV incentives paid out has almost reached the cap of €6.7B
(~$8.8B) as of July 2013. Italy was the top PV installer in 2011 with
installations of 9.2 GW. Italy’s cumulative PV installations exceed 17 GW and
solar energy contributes to over 7 percent of the energy generation mix. Due to
excellent solar isolation and high electricity costs most parts of Italy have
reached grid parity. Italian projects have had one of the highest ROIs among
developed solar markets. Without direct subsidies the markets will have to rely
on incentives like net metering, rebates and PPAs. There are unofficial reports
that the government is looking to overhaul renewable energy subsidies in the
near term.
United
Kingdom
The UK is on pace to install over 1 GW of solar in 2013.
PV installations in the UK are driven by a feed-in-tariff program which
is modeled similar to Germany’s. The FiT program uses digression to control the
pace of installations at an optimal level. UK’s FiT’s are reviewed every three
months, like Germany, and rates are adjusted based on capacity installed in the
prior periods.
The UK FiT program has nine groups: 0-4 kW, 4-10 kW, 10-50 kW, 50-100
kW, 100-150 kW, 150-250 kW, 250 kW-5 MW, stand-alone, and an export rate
category.
For the period starting July 1, 2013, tariffs ranged from ~£0.15 ($0.23)/kWh
for 0-4 kW size installations to ~£0.05 ($0.09)/kWh for stand-alone installations. 
United
States
The United States continues to demonstrate strong growth with PV
installations projected to be ~4.5 GW this year. U.S. PV installations were 3.2
GW in 2012 and 1.9 GW in 2011.
The United States solar market is driven by the 30 percent Federal
Investment Tax Credit (ITC), which is valid until the end of 2016 along with State
Renewable Portfolio Standards (RPS) and state and municipal rebate programs.
 Some of the other factors driving installations are growth in
utility-scale projects and distributed generation through third party financed
residential and commercial installations. Solar lease programs, where consumers
lease systems instead of making the upfront investment, are going main stream
with over $2 billion raised in residential and commercial lease funds in 2012
and about $2.1 billion raised already in 2013. Several states with high retail
electricity costs and high solar insolation have reached or are close to reaching
grid parity. The Mercury and Air Toxics Standards (MATS), an EPA rule to reduce
toxic air pollutants from new and existing coal and oil-fired power plants, is
projected to force about 50-75 GW of coal power plants to retire by 2016 due to
the high cost of compliance. Though natural gas will be the biggest beneficiary
of this rule, it will also help drive solar and wind installations. Japan
Spurred by generous tariffs, Japan is on course for a record year of PV
installations, with a few teething problems. Japan decided to diversify its
energy generation sources after the Fukushima disaster and announced policies
to aggressively promote renewable energy. The Ministry of Economy, Trade, and
Industry (METI) announced a FiT program in June 2012, with PV systems below 10
kW receiving ¥42/kWh (~$0.43) and systems above 10 kW receiving ¥40/kWh
(~$0.51). METI then announced a 10 percent cut in tariffs to ~¥37.8/kWh (~$0.38)
starting April 1, 2013, still making it one of the most generous tariffs around
the world.
The Agency for Natural Resources and Energy (ANRE) has reported that
Japan added 1,240 MW of solar installations in just two months, April and May. Of
the over 19,000 MW of non-residential PV project applications that have been
approved by METI under its FiT scheme, about 15,513 MW of those were approved
in the 2013 calendar year. In an interesting development, new approvals have
all but dried up since March 31, 2013, when the FiT changed from ¥42 (~$0.42)/kWh
to ~¥37.8 (~$0.38)/kWh. Though the obvious reason for the drop seems to be the
rush before the FiT cut, the  cut itself is very small with the tariff still
extremely generous. We have been talking about transmission bottlenecks in
Japan for some time, but now grid connection issues are becoming more apparent.
Japan’s grid is monopolized by 10 operators who behave as 10 separate
local grids with almost no interconnection. These grids were built to transmit
power from large mega power plants and not for smaller renewable energy
projects. Reports indicate that some of the PV projects are getting rejected
citing overcapacity and grid stability issues. METI admits that some of the
facilities approved have not begun construction and they are conducting a
survey to find reasons behind the delays including whether there is a shortage
of materials. The real reason may be all of the above, putting the burden on the
Ministry and various utilities and agencies to come up with a long-term solution.
It remains to be seen how serious these bottlenecks will be and how it will
affect the installation forecast over the long term. Considering Japan is now forecasted
as one of the top two solar markets in the world, any delays or slowdown will
have an effect on the global solar supply chain.
Japan has set a goal of achieving 28 GW of cumulative PV installations
by 2020.
China
As we previously reported, China’s push towards stronger domestic demand
is primarily driven by the necessity to help its domestic manufacturing industry
and solve its air pollution problem.
There are a lot of positive developments coming out of China that are
good for the solar industry in general. The Chinese State Council has once
again raised the solar installation targets with the new goal of installing 35
GW by 2015 or about 10 GW a year. This move to ramp up domestic consumption
will help struggling local manufacturers. The Chinese State Council also announced
several other measures such as controlling uninhibited capacity expansions, new
efficiency standards of 20 percent for monocrystalline, 18 percent for polycrystalline
and 12 percent for thin film that have to be met for new capacity addition,
shutting down inefficient operations and incentivizing consolidation through
tax breaks, and encouraging self-consumption among homeowners and businesses.
New tariffs for distributed solar projects, the first of its kind, were
recently announced by The National Development and Reform Commission at a rate
of 0.42 Yuan ($0.07)/kWh.
Encouraging still, is the strong push to address pollution problems prompted
by growing public discontent. China recently launched its first of seven pilot
emission trading schemes (ETS) with plans to expand nationally. Though there
will be growing pains, this is a small but significant step towards a  carbon or
cap-and-trade market with a goal of reducing CO2 emissions by 40?45 percent by 2020 from its 2005
levels. The government has also mandated installation of equipment to remove
nitrogen oxide from coal power plants and has promised severe punishment for
failure to do so. Power plants will receive subsidies for installing the equipment
and further incentives for coal power plants that upgrade their facilities to
reduce pollution. A goal has also been set to reduce sulfur dioxide by 16
percent and nitrogen dioxide by 29 percent by 2013.
Overall there is generally a greater push and support for renewables and
solar than ever before.
India
Indian solar installations have been driven by the Jawaharlal Nehru
National Solar Mission (JNNSM) with a goal to install 20 GW of solar power by
2022, and various state policies and state RPOs.
There were a total of 622 MW of installations
in India in the first seven months of 2013, with only 73 MW installed in the
last three months
The decisions made by India to pursue
anti-dumping investigations and domestic content requirements (DCR) have all
but paralyzed the sector. The Indian economy continues to face challenges with
slow growth, high interest rates and a weak rupee, making life harder for solar
companies.
We are currently forecasting India to reach 1
GW in 2013, which is basically flat year over year.
A more detailed update on the Indian solar market can be found here.
This consensus forecast is based on Mercom's
views and methodology with data compiled from: BNEF,
Credit Suisse, Deutsche Bank, Digitimes, EuPD, Fubon Research, GTM Research,
HSBC, Hyundai, ICBC China, IHS iSuppli, IMS Research, KDB Daewoo, KGI,
Macquarie Capital, Maxim Group, Mercom Capital Group, Mirae, Navigant
Consulting, Piper Jaffray, Raymond James, Solarbuzz, Woori, Yuanta and other
government, public and private sources.
Note: Dollar-rupee conversions were
calculated at $1 = Rs.60. The Indian Rupee is trading at record lows.
Dollar-Euro
conversions were calculated at $1 = 0.75
Dollar-Pound
conversions were calculated at $1 = 0.64
Dollar-Yen
conversions were calculated at $1 = 98.10
Dollar-Yuan
conversions were calculated at $1 = 6.15
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