zondag 12 september 2010

Is the UK the next gold rush solar pv market?

Last week in Valencia, many experts and friends shared their market knowledge, insights and views at the Fourth Global Demand Conference.
At the first day, the emerging PV markets were discussed. At the second day the demand dynamics in top-10 markets in the world.
At the conference and at the PVSEC exhibition floor, it was the general opinion that the UK is one of the most promising PV markets.

Facts and rumours suggest that hundreds of MegaWatt's are under development. Some market players expect a GigaWatt market in 2011. Not only many residential and commercial pv roof projects. It was said that big financial institutions are preparing ground mounted projects for hundred or more MW's. Financing seems not the biggest problem. For equity funds, the opportunities to make a decent return on investment, are limited these days. The interest rates are very low. The feed-in tariff for solar energy provides an attractive investment alternative. And many investors and funds from the UK have built up experience with pv power plant investments in Spain. They understand the pv technology, worked with a FiT mechanism and know the UK market.
How fast will the UK PV market grow? As stated in my previous blog, it normally takes new markets at least 3 years to develop to a level of one or more hundred MW of new installations per year. Can and will it go faster in the UK? There are more international players, there is more experience and more money available.
On the other hand, the UK market is relatively unexperienced, is lacking a well developed supply chain and most potential customers do know nothing about solar pv and feed-in tariff mechanisms.

In it's second year, the pipeline of (ground mounted) pv projects under development in Spain was endless, but at least many thousands of MW's in volume. Most of them were never built. Permits were not in place, the project financing could not be arranged, modules were lacking, etc. At the time more than thousand solar PV parcs were actually built in 2007/2008, the government paniced and killed the market with a revised incentive scheme. More than 10 billion euro's were invested, with a substantial share by foreign big investors. Those investors, making a very good return on investment, will have to be paid for 25 years.

Although the UK is a big country, with enough room for ground mounted projects, it does not seem like the natural fit. Does it make sense to fill the beautiful Cornwall landscape with large solar PV fields? It seems more logic to use the free commercial and residential roof space. After all, PV is the ideal distributed energy source to produce energy at the point of energy use. In extremely sunny area's (here is meant sunbelt countries and deserts and not Cornwall), it makes sense to built large scale PV power plants.

The UK FiT is so attractive, that several companies are even offering solar pv systems free of charge to roof owners. The roof owner receives the solar energy free of charge and saves money on its energy bill. The pv system owner, using the roof owner's roof, receives the FiT and maintains the system. Both benefit and make money and apparently the system owner makes a very good return on investment. The model is so attractive, that more and more companies start offering it.
In a similar situation some years ago in The Netherlands, the offering of free-of charge PV systems lead to questions in the parliament and not much later the whole incentive program was killed, completely. 'Over subsidized' and not the intention of the pv stimulus program, was the conclusion. Although more was at hand and the arguments were incorrect, the sentiment was so negatively influenced that it took another 4 years before a new complicated and unsuccessful incentive program was introduced again in 2008.
A similar thing is about to happen in the Czech Republik. The market boom, or better explosion, will lead to a possibly disastrous reduction of the current over attractive FiT. Most PV projects are ground mounted and although better than the UK, the irradiation is still considerably less than in Southern Spain. The experts at the conference expect the Czech market will shrink in 2011.

Except for sunshine itself, for anything that is offered for free, someone has to pay for it. When a pv market is extremely hot and PV systems are even offered for free, rather sooner than later, some will raise their voice. Electricity rate payers will question their premium payments flowing in the pockets of big investment firms. Opposing politicians will question the generousity of the incentives and debate even more the effectivenes and efficiency to generously stimulate solar as RE source over alternatives like wind or biomass.
Why has the German market been sustainable? What definitely helped was its stable economy and well designed incentive regulation. But what makes a difference is the realistic return on investment. The government always aimed at around 7-8%. High enough to convince investors and low enough to prevent the boom-to-burst scenario.

Booming markets burst sooner (Spain, Czech Republic). Gradually growing markets (Germany) are more sustainable.
There is a risk that a gold-rush in the UK market will lead to serious adjustments sooner than 2012 as announced in April.
What the solar industry needs, are sustainable markets, the more the better.
What the industry does not need, are hit and run markets, booming one year and bursting the next year. Where adjustments to the incentive system come suddenly and are uncertain. Investors will back off, because in the end, they do not like uncertainty at all.

Let's hope the UK market will be able to grow steadily to become a sustainable market that will help the solar industry grow. That will help to bring cost and system prices down. And in the end that will help to create markets where incentives are no longer necessary.

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