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…