zondag 22 augustus 2010

The German PV market in 2011

What will happen in the German PV market in 2011? It presently looks like this year will show record figures for newly installed PV power, like last year. Customers want to make use of the current feed-in tariff, before this incentive will be reduced at the beginning of 2011. Since the government announced additional reductions of the tariffs in 2009, sales rocketed. It looks like the further feed-in tariffs are cut back, the faster the market is growing...With another reduction following on January first 2011, this is likely to boost sales till the end of this year. So, what will happen next year? Will the government be surprised when they see record numbers at the end of this year and decide that another feed-in tariff reduction will be necessary in 2011? Will they get scared that the public, their voters, will no longer accept the premium they pay on their energy bill to subsidize the feed-in tariffs?

One could conclude that the subsidies are still too generous. They could think that a further feed-in tariff reduction will cool down the spectacular growth....But, will that happen? Well, the global solar industry can certainly not survive without the German market, which takes more than half of the world market. So, in order to survive and keep their market share, the industry will have to reduce module and system prices. This will reduce their margins and profit. But, it is better to lose part of your profit than being forced out of business. This is what we call the 'consolidation'; survival of the fittest. Only the companies able to bring down cost and accept lower margins will stay in business.

Further feed-in tariff reductions will cause the market to grow faster
So, let's imagine, the German government will further reduce the feed-in tariffs in 2011, in order to 'cool-down' the market growth. My feeling is that this measure will be counterproductive. The faster it will reduce the tariffs, the more urgency the customers will feel to 'buy their own solar system', before this incentive gets reduced even further...And the industry will consolidate even faster. Cost and prices will need to be adjusted. This means acceptance of lower margins, or grow faster in order to reduce cost of production. This could help to hold and expand their market share in the fast growing German market.

Can the growth be cooled down?
Does the German government have any other solution to cool down a fast market growth? Frankly, I do not know how. Introducing a market cap for its feed-in tariffs will lead to a run on this incentive as well, and will force companies out of business, because there are no sales after, say 'May, since the cap has been reached'.

Too big to fail
Germany has chosen for renewables and the people and customers like it so much, there is simply no way back. Does it matter? No, Germany will lead the way in photovoltaics in the future. It has simply grown too big. It can't be ignored anymore. Not by the government, not willing to stop this job-machine, not by its population, which embraced solar PV and not by the global PV industry, because the market is simply too big to lose. Yes, it will cost the German energy user money and slightly raise their energy bill for many years. But energy bills will be raised anyway, due to increasing cost of conventional energy sources like coal (carbon taxes) and oil (scarcity). In the long term, these same customers and voters only benefit from more solar and renewables. For example with more predictable and stable energy prices. Germany will build up a large and still growing share of clean and sustainable energy supply. And, let's be honest, who would not prefer such a country to live in and leave that for your children?

Germany and solar pv is like Google
Germany sets the trend in renewables and is market leader. As technology innovators, Germans will always be able to make money on solar. German industries, investors and entrepreneurs can be found everywhere around the world. They have the knowledge, experience, industrial and innovative power, people and money to maintain world leaders. I think, that the German market will keep on growing. In 2011 and onwards. And fast as well. At this speed, it might even become the first market reaching grid-parity, when the cost of solar power equals the retail cost of conventional electricity. This will speed up the market even more and create more business opportunities around the world. Germany, and its solar industry infrastructure, could become a Google in solar pv. Too big and important to fail. Leading the way with forward thinking. And Google is still not doing too bad...

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