maandag 10 januari 2011

German politicians are the trainers of the solar industry

Feed-in tariff schedule for coming years will design the roadmap to grid parity in the world

What will happen with the global market demand for solar PV in 2011? Will we see another magnificent year like 2010, with a record growth of 80% compared to 2009? Or will the global market shrink or grow just modestly, due to a collapsing German market as a result of politicians trying to break the world’s leading market? In this case it could lead to an industry facing oversupply, price erosion and an industry consolidation, with German companies facing financial problems or even bankruptcy. This scenario would mean that a lot of the invested money and the jobs created over the last decade will get lost.

Unrealistic but phenomenal growth in 2012?
What is the problem? The German market grew almost 90% compared to 2009, leading to more than 7000 MW of new installations in 2010. Germany now accounts for over 55% of the global market volume. The average yearly growth rate since the year 2000 is around 67%. It is hard to imagine what this would mean if it continues at the same rate. It would mean that in 2012 more than 20,000 MW and in 2015 more than 90,000 MW of solar power would be installed... It would also mean that Germany would generate more than 25% of its total electricity consumption through solar PV in 2015. Great and phenomenal figures! But with the current Feed-in tariff system, the total cost related to this growth path would be phenomenal as well. And since all electricity users will have to pay for this through a surcharge on their electricity consumption, the price for a kWh from the grid would grow quite high too. This scenario however also means, that grid parity would be reached sooner, and most likely before the year 2015....

“Go-and-stop” scenario is killing
This gives the German government a dilemma. Stopping growth abruptly will not only hurt the global industry, but many German manufacturers and companies as well. But how then can future growth be controlled?
A market cap, like a maximum acceptable volume eligible for the FiT? Lessons learnt from the past are that “caps are killing”.  A ‘go and stop’ scenario will lead to a run on the ‘last FiT subsidies’ resulting in an ‘empty bucket’ halfway through the year. What should the companies do the second half of the year? Quickly lay-off employees and hire them again just before next years’ round? It will make the industrial manufacturers hesitant to invest in new machines and equipment for production expansion, hurting Germany in the back as leading high-tech solar equipment supplier.

Controlled steps
It seems better to control the growth by bringing down the feed-in tariffs gradually, but predictably, in pre-announced and pre-controlled steps per quarter, avoiding end-of year rallies. This will give the industry a clear focus and marks for necessary cost reductions. This would not only effect German companies, but as the leading market, it would force the entire global industry to cut cost gradually, since most manufacturers in the world still rely heavily on sales in this market.

Politicians defining the global roadmap
German politicians have the unique opportunity to define the global roadmap towards grid parity in Germany and other countries in the world. The pace can be structured, the goal of grid parity reached within less than 3 years. A continuation of the market growth means larger volumes of modules and inverters are needed and volume is the way to reduce cost of production for modules, inverters and systems. That means grid-parity can be reached sooner and feed-in tariffs can be reduced sooner as well. More manufacturing volume also means the need for more, smarter and more efficient high-tech equipment and machines. Not by coincidence an area where Germany holds one of the best positions on the global market.

Germany: the trainer pushing its athletes
The solar industry is training for the big game when grid parity is reached and subsidies are no longer needed. It looks like a sports team training to get ready for the highest level of competition. In our world: competing with fossil fuel. The athlete trainer of this industry is Germany and all it has to do is push its athletes a little harder each time to be more powerful and efficient, until they are ready for the big game. Now, let’s hope that the German politicians are a bit sports minded and understand the chances for a Gold medal....

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