The silent revolution continues

Last week, one of the international solar heroes died: Hermann Scheer. We had the pleasure and honour to have him as a keynote speaker at two events. Driven, passionate, energetic and convincing. Listening to him gave you the feeling: it is a matter of time until the non-believers will find out why the solar energy revolution is unavoidable. We mourn over his death, but his legacy and message will remain.

The left wing hobby
Even today, many critics are convinced solar energy is just a left-wing hobby.
Why is the development of solar energy going so slow? Why isn’t it yet affordable without subsidies? You see, it is just a hobby for dreamers...

Well, in fact, the development of solar energy isn’t going slow. The market and industry are growing like crazy. Can we reasonably expect a world to change its whole fossil infrastructure into a renewable one in just a few years? It will take more years, maybe even a few decades, but to my opinion,it is going very fast already. And even more important, it will only go faster and nobody will be able to stop this development. Solar energy is here to stay and its role will grow, whether we like it or not.

Where are your sandals?
Times have changed. When I started in this business, in the early 90’s of last century, the solar industry and business were small, very small. Talking about my passion, reactions were always with the undertone of “sure, solar energy, very nice for left-wing oriented environmentalists and dreaming fundamentalists. Where are your sandals by the way?”.
At the start of this century, when the business grew into a tiny global industry with emerging activities in China, the mood among friends changed when explaining the about latest developments. “Still in solar pv? Can you make a living in that business?”. And now, only less then a decade later, the reactions changed to the positive even more: “Wow, you have a business in solar energy? Cool! I was thinking to switch my career into renewables too and solar is really a cool technology!”.

PV a danger for the grid?
In his many presentations, Hermann Scheer described three similar stages as well. First, there is the denial: “Solar can never be taken serious.” Then, when it is getting more serious, the established bigger corporation will fight against it, like: “solar PV is a danger for the grid”. This is what can be seen in the German media today. Big companies are afraid of what will happen. If the German market will continue to grow rapidly, in a few years, solar PV will become a major, if not dominant energy source. And because renewable energy has a privileged position on the grid, the established energy giants will have to live with it and accept it. For now, they still try to fight it.
After these two stages, will follow the third, even more interesting phase. It is the phase where the former non-believers will state “that they always believed in it from the start and that is why we are getting involved now as well”. It is the phase where solar PV can no longer be ignored. Simply because the mass wants it and because it has become attractively cheap, cheaper even than electricity from the grid.

The last ones without a PV roof
This phase is closer than many in the world can imagine. Only a few years away in Germany. Just picture yourself as German citizen 3 years from now. Solar pv systems, will be on roofs of many of your German neighbours and will generate cheaper energy than you buy from a major utility. You will be a fool if you don’t invest in it yourself, and maybe even more relevant, you will be among the last ones in your neighbourhood without a PV system.

The US: bigger, bigger, bigger
On the other side of the Ocean, in the US, a similar revolution is going on. Nowadays, one after another, energy utilities in the US are starting solar PV programs and large scale initiatives. It is only a few years ago, that with a single exception, none of them showed any interest. Now, the initiatives are all multi MegaWatt and even the first “1 GigaWatt” project proposal has been launched. This is only the beginning of course. Utilities will find out, that there is hardly a more abundant, secured and stable energy source, with guaranteed and predictable cost for a 25 year period. For a comparison: which utility can predict its cost for coal and fossil fuel and thus its energy prices for the coming 25 years? For solar PV plants, no financial State guarantees are needed (like for Nuclear plants), you don’t end up with garbage (either nuclear or green house gasses) and after 40 years, you don’t have to clean up mess or cover it for many years. And the great news from the solar industry is: solar PV will only get cheaper in the coming years. So, if your peers are getting involved, you better join soon too. More utilities will follow and more and more they will start with bigger projects. In the US they like everything bigger: from hamburgers, pizza’s, SUV’s to PV power plants. The development goes only in one direction: more solar energy.

Keep on dreaming
There is no argument or reason why this development will stop or turn. Solar energy will only get cheaper and cheaper. Can we imagine that within 10 years from now, in almost all its small and large scale applications, solar energy is cheaper than electricity made from any fossil fuel? Without any government support? And, o yeah, it is clean energy by the way as well...

My message for those who don't believe in a solar future yet and for the
‘dreamers’ of the past who started in solar many years ago: keep on dreaming! We are close to the tipping point.

The solar pv industry: will anything stop the optimism?

Almost all manufacturers of silicon, solar wafers, solar cells and modules have announced capacity expansions for 2011. Some even claim that they are already sold out for 2011. The solar industry is full of optimism. There is good reason for that. This year the global solar industry will see its sales almost grow 60% compared to 2009, which was already a record year with more than 70% growth compared to 2008.

There seems to be an unbeatable optimistic feeling within the solar pv industry. Solar PV is taking an unprecedented growth path. Capacity expansions are announced every day. And even as we speak, new manufacturers throughout the supply chain are entering the market. Who and what will stop this industry and solar energy on its way to become a major energy source? 

I know, capacity is not production, and Press Releases about capacity expansions are just Press Releases. But you don’t announce or build new capacity, if you are not optimistic about the near term solar business future.

The ‘what if’ scenario

In my thoughts, I have to admit, sometimes I have some doubts. Haven’t we seen such unstoppable optimism before in some other industry, just before a force majeure leads to severe market and industry corrections? Has anyone considered where all the modules will go next year and in 2012? What if German politicians pull the break and this major market, which covers 55% of the world market, will shrink instead of grow? What if a new Italian government will change the Conto Energia? After all, Italy has an unbeaten record of governments changing almost once a year on average, since the middle of last century…What if the double dip economy crisis will hit the US? And what if France caps its market to 500 MW next year? And if the Czech Republic disappears out of the top-10 markets in 2011? And what if all of this happens at the same time? Am I too much of a negative pessimist here?

The party has just begun

Maybe I am just too much influenced by the renewable energy policy changes in my own country. By the status of our government as unreliable partner and the common phrase among businesses: “Never trust the government”. The global solar PV market market development is still 99% dependent on subsidies and feed-in tariff incentives  initiated by governments. Isn’t the global solar industry just a little too positive about the governments in all the fore mentioned countries?

On the other side, more and more countries are just starting off with incentive schemes and even if some countries pull the break, there are more than 100 countries which have not even thought about supporting PV financially. Besides, PV is getting cheaper every year, so we will be arriving at grid-parity shortly. The party time only just began.

Cumulative board room expertise

But, more importantly, all these capacity expansions and all these new market entry decisions will be based on serious board room discussions. Based on business market studies, market surveys, consultant and investor advise, internal expert knowledge, sales trend analysis and well examined business plans with complex Excel spreadsheet models. These decisions will be based on the cumulative knowledge of all the involved internal and external solar industry experts. All of the industrial players together can’t be wrong, isn’t it? They probably know that they can produce a solar ingot, wafer, cell and module much cheaper than today’s market price. They know that even if the leading German market will face another 22% Feed-in tariff reduction in 2012, profitable production is still feasible. They probably know that mass production is still profitable even at a price level necessary to achieve grid parity in major markets like Germany and the USA. They will have to know, because grid parity is only a few years away and these new production equipment and plants normally are written off in less than 7 to 10 years.

So, if all these experts know where to go, there should be good reason to be optimistic. I will need to push away this little voice in my head that has some concerns. After all, photovoltaic solar energy is an infinite energy source, so why can’t we be on a route to infinite growth?

Why will the global market show further growth in 2011 and 2012…?

The year 2010 promises to become another revenue record year for the global solar PV industry. The newly installed solar PV power in 2010 could reach the all time high of around 14,000 Megawatt worldwide. This will be a market growth of around 100% compared to 2009. Will the industry continue this boom in 2011 and onwards?

Germany: 55% of the global PV market
Germany will take up around 55% of the global PV market volume in terms of newly installed solar power in 2010. The Feed-in Tariff will decrease 13% per 2011, as regulated by law. As stated in a previous blog post, to my opinion, this will not impact next years’ market growth. The industry can and will adjust their pricing in order to keep this major market alive and kicking. Even in 2011 a strong German market growth can be expected again, as customers will be encouraged to quickly install a PV system, before the FiT will be cut-back a more serious 22% in 2012. That is, if the German government will not decide to implement a ‘cap’ on the market volume eligible for the FiT. As Spain demonstrated, ‘caps are killing’ for a market and in the case of Germany, depending on the cap figure, it could have a serious impact for the global solar industry.

Scenario 1: Germany introduces a market cap
Let’s visualize a scenario where the German government will introduce a market cap in order to control the costs for the electricity rate payers paying the FiT premium. A cap that’s lower than the current market volume will force the industry to sell its extending product volumes elsewhere. There are no markets able to consume several GigaWatts, simply because the business infrastructure is not yet ready for it. As a leading and well developed market, Germany was ready to cover up for the losses in Spain in 2009. The companies, the sales people and the engineers were available to do the job.

But, which market can backup for Germany if a cap will reduce demand in Germany in 2012? Which market could easily take over a few GigaWatt extra from Germany? Can Japan take a few more GW and grow 200% in one year without importing modules? Can Italy grow with a few more GW in one year? It seems at least more logic than for instance the world’s number 3 market California taking a few GW extra. California is yet far away from the 1 GW mark and the financing issues and administrative and procedural hurdles make it unlikely to take up a few GW in just one year. If all these markets can’t, where will all the modules go? And if no market can consume the GW’s, what will happen? A price fight competition is a likely scenario, making casualties among manufacturers, including several German companies. Not only downstream, but also upstream. A cap on the German market effectively means a cap on the global market. And that will lead to a natural stop on production capacity expansion. Thus leading to a fall back for the leading German equipment manufacturers. They will lose high qualified jobs too. Can a German government afford to lose jobs in its globally admired and growing solar industry and current economic environment? This seems unlikely and let’s hope the government is smart enough to stay away from a market cap…

Scenario 2: FiT reduction will lead to further market boom
It is my belief however that, without a cap, but with further cut-backs on the FiT up to 22% in 2012, as regulated by law, the German market and global market will continue to grow rapidly. There is a good chance that the industry can bear this 22%. First of all, there is still room for reduction of PV system costs. Modules can be produced cheaper by technology improvements, and further upscale of mass production and acceptance of a lower profit margin. Some manufacturers of crystalline modules stated that they are already close to $1 per Watt production cost. Add to that cheaper inverters and other BOS components, where cost reductions based on mass production have not yet really taken off, and turnkey PV system cost should be close to $2,50 per watt very soon. And with the Euro improving against the dollar as currently is the trend, it should be feasible.

Back-up market for Germany
In other words, there will be room to keep the German market going. And, once module and system prices are this low, other markets like Italy, with higher FiT’s will become even more attractive and thus very thirsty for modules and systems too. Not to forget about the many new and emerging markets, like the UK, India, China, etc. Bringing down the PV system prices to match the German requirements will also open up new markets. All in all this could lead to an even greater hunger for modules and systems on the global market. Manufacturers will sell as much as possible in the most profitable markets and sell anything else in Germany. In this scenario, the global market could grow along with the industry, which is still expanding its capacity rapidly and with new entrants looking for a piece of the pie. This scenario could lead to continued strong growth of the global PV market and industry until at least 2012.

44 more GW in Germany by 2014?
This scenario will give other markets the possibility to grow and build up their business infrastructure. By the end of 2012 these markets, like the US, Italy, India and other Asian and European markets will then become ready to consume multi GW’s per year. That will hopefully make the world market able to survive a fall back scenario in Germany. And that seems inevitable in the end. Even a ‘modest’ 30% annual market growth scenario in Germany would mean an additional 44 GW of installed PV power by 2014. There are enough question marks if Germany, its grid and energy infrastructure can accept this huge amount of solar energy production capacity.

The maximum beer consumption
So, let’s hope the German government understands the dilemma and will give its industry and market at least another 2 years of reduced FiT, but without any cap. That will give the rest of the world the possibility to get ready for GW consumption, for the modules Germany can’t take anymore. That will not only help the global PV industry, but of course its own German solar businesses as well. They will then be able to expand their activities to these new markets in the coming years. It is a little like the Germans taking beer. They can consume a lot and maybe even the most per capita in the world, but there is a physical limit too…