FiT-free PV markets

'FiT for Free' has nothing to do with feed-in tariffs or solar energy, but is a fitness brand in the Netherlands. Still, solar PV companies in Holland expect to remain in better shape when 'freed from FiT'.

Fed up with the government

Dutch solar entrepreneurs are completely fed up with the inconsistent, unsustainable, discontinuous incentives their government called 'an optimized FiT'. Unanimously, they begged the government and politicians this year NOT to continue this incentive, nor to introduce any new subsidy. The current net metering regulation is sufficient to make the Netherlands, blessed with high energy prices, one of the world's first grid parity markets. This year has already seen numerous projects and new business models started and implemented. And guess what happened... the market started growing – without either incentives or a FiT.  And so did the number of new companies. It felt like the market had been freed. No government ruling or control.

Just entrepreneurs and customers.

Tired of FiT

Not only in NL is the solar industry tired of FiTs and the continuous changes enforced by governments and politicians running after the rapidly changing dynamics of the global PV industry. It is hard fully understand what is happening. Once they think they have figured out a nice FiT regime, prices collapse further and we are even seeing local companies break down. Instead of making them happy, these decreasing module prices scare them off. Budgets are running out of control due to the tsunamis of PV applications. The paradox is that the more the governments decrease a FiT, the faster people invest in a solar system. It is customer psychology. In the end, you do not want to be the loser who missed all the good tariffs in the past, being left with the 'leftovers' or even no FiT.

Pain in the roof

For all other stakeholders in the market, such as investors, banks, installers and EPCs, these ever-changing regulations are a 'pain in the roof'. Working with unforeseeable peaks in demand is indeed a business challenge in terms of personnel, cash flow management and purchasing capacity. The frustration could be felt at the latest Global Demand Conference in Munich. All major EU markets – Italy, Germany, France, Belgium and the UK – are now being confronted with new (unexpected) FiT cutbacks. It is the same everywhere, with governments prepared to expect the unexpected. You could almost feel the fatigue among the speakers and participants in Munich. “We are done with this. We need a sustainable model where at least you know what will happen six months from now. Otherwise no business or project planning will be feasible…”

Always expect the unexpected

It feels like the Dutch weather forecast: promised a sunny season and suddenly it starts raining. This feels like a cold shower. For immediately in your family the discussion starts to steer towards a really secure, sunny place, even at extra cost... For the solar entrepreneurs, the situation is almost the same: escape from the uncertain weather.  Let's move to where the sun shines permanently. And that is exactly what more companies will be doing – exploring business opportunities in sunny countries such as India, China, Chile, Mexico, South Africa and Brazil. Markets where at least one thing is sure: plenty of sunshine!

And what did the new temporary coalition in the Netherlands do in its wisdom and eagerness to show of its greenness? Introduce a new subsidy, effective 2 July!

It is time to take a holiday and get in shape for the second half of the year...

The Dutch solar energy market: Grid parity and alive and kicking – with no incentives

Recently, the Dutch module manufacturer Scheuten Solar and the Dutch Solar cell producer Solland Solar both ran into financial troubles. Equipment from the thin-film startup Helianthos was sold in public auction following the breakup of this initiative. On top of this, the government stopped all subsidies and incentives in 2012. One could be forgiven for thinking that solar is now officially dead in this country, which was a leading market with unique projects just one decade ago.

Tiny but independent of incentives
However, much to the surprise of many, today this market is alive and kicking. In fact, there are over 50 initiatives being operated by all kinds of stakeholders: municipalities, corporates, housing associations, environmental groups and enthusiastic civilians. Some of these initiatives are sizable, with a couple of MW. Since the government cut  all incentives for solar PV in 2012, the Dutch market has grown rapidly. Numerous new companies have entered the market. Market volume will most likely grow more than 50% in 2012 to more than 45 MW. Admittedly, this is small in comparison to the country's Belgian and German neighbours. But what is exceptional about this case is that this will be a market volume realised entirely without government support. Indeed, it would appear that the government's withdrawal stimulated market growth. How come?

End of crazy stop-and-go policy
First of all, entrepreneurs hate uncertainty – and the ‘stop-and-go’ policy of regularly changing complicated subsidy schemes drove customers and stakeholders crazy. The feeling was, “It is better to have certainty than no subsidies.” The rapid drop in solar module prices and one of the highest electricity prices in Europe are helping to establish a sustainable grid parity market for residential PV applications. Not bad for a country renowned for its cold, windy and rainy climate.

No shocking financial benefit
The interesting situation today is that the government now has little influence. Apart from some general fiscal instruments for commercial applications, the market is mainly based on residential applications driven by net metering.
PV systems can now be purchased on a 10-year payback basis – again without any incentives. However, this is not the sole reason the market has started to grow. The financial benefits of investing 5000 euro for a saving of around 500 euro per year isn’t exactly shockingly convincing – definitely not in a country known for its stinginess. System prices are also still higher than those in Germany. So what is the driving the Dutch?

Green sun-loving Dutch
First of all, a serious part of the population has ‘green sympathies’. Environmental protection has always been a serious topic – perhaps due to the fact that most of the country would not survive melting polar ice, as well as being densely populated. Still, these green tendencies have always been present so do not explain why the market has suddenly started to boom. Furthermore, financial yields were better when the subsidies were in place. No, this does not explain the solar behaviour of the sun-loving Dutch.

No heroic roof conquerors
Why, then, are Dutch people suddenly joining en masse the collective purchase initiatives? Thousands of households have signed up for a 1-3 kWp PV system on their roof within just two months. This is just one of over 50 initiatives running. The attractive system prices offered as part of the massive collective purchase campaign are fine, but not the best available on the Dutch market today, and definitely higher than those Germany.
So why are people suddenly all going solar? My personal opinion is that the market is driven by a few things. One is the relatively low entry cost of just 2,500 euro for a 1 kWp system. An amount that a considerable part of the relatively rich Dutch population can afford to invest for a good cause. Secondly, it is viewed as important that a household is able to make a step towards a form of independence; loosening of the government and the energy utility – the Dutch hunger for independence and freedom. Thirdly, you are no longer alone. Joining a campaign along with thousands of other green enthusiasts helps a lot. We may well have a heroic history at sea, but a lot of fear of the unknown has yet to be conquered with regard to our roofs. An Initiative started by the largest national association of homeowners feels safe and secure. They must have figured out all details in the right way. And if so many are doing the same thing, the system offer must be cheap and of good quality. The massive collective purchasing initiatives offer a form of ‘collective trust’.

Ain’t no stopping us now...
Neither the government nor utility can stop the market now – unless they take unpopular measures such as introducing additional taxes on solar energy. Although politicians have demonstrated their incompetence before, it seems that the market is now free. Creativity rules, new business models and new companies are emerging. It seems that the Dutch have reached the tipping point for grid parity. And more stakeholders will become inspired, based on all the initiatives currently up and running. This will further boost the market.
My prediction is continued growth of at least 50% in 2013. Holland is growing towards the first 100 MW market without any subsidies. We can now become a frontrunner grid parity laboratory for other markets in which incentives will also disappear in the near future...

GUEST BLOG: FIT and 20-GW National Solar Mission lose value in India

by Bhupesh Trivedi

Here is another game-changer in India. Feed-in-tariffs and the ambitious government-sponsored 20-GW National Solar Mission (NSM) have lost value in India.

Across the country, the existing conventional power cost ranges from Rs 7 to Rs 12 per unit for industrial and commercial users, against the new solar power benchmark price of Rs 7-7.50 per unit at which companies won bid under different government policies in the recent months.

It is obvious that a solar power project developer in India is losing money by selling power to the government at prices of Rs 7-7.50 per unit through a power purchase agreement (PPA) that is mutually obligatory for a period of 25 years.

Instead, it makes a lot more sense for an investor or a project developer to shun 25-year-long (PPAs) with governments and use the ‘Open Access’ system to sell power to industrial and commercial users directly. Such users are paying more than Rs 7.00 per unit for existing erratic power supply and will be keen to pay more for reliable supply. Developers can exercise an option too to raise the cost of power supplied at regular intervals over the supposed lifespan of 25 years of the power project.

That surely raises questions on the significance and value of various state governments’ policies as well as the ambitious National Solar Mission of the central (federal) government of India. If the state governments’ policies and the NSM have to remain significant, the price offered by the government to solar power project developers will have to be become variable over the entire duration of the PPA. If not, it would surely be a losing proposition for a solar power project developer/investor to commit power at such low rates for the next 25 years.

The ‘Open Access’ system enables any power producer to sell power to any user across the country through the national grid, by bearing costs of transmission and distribution losses as well as wheeling and banking charges. These costs may weigh on the profitability of the power project for now. But, committed higher billings over the next few years could provide much higher returns, compared to fixed rates provided under the PPAs with different governments.

The success of the ‘Open Access’ system will also depend on the condition of “minimum committed load” that makes an industrial user to pay a minimum bill amount every month to the local distribution company, irrespective of how much of conventional power was consumed.

But, different regulations in the country have already cleared the way for other precedents where large industrial units set up gas or coal-based captive power plants. A similar arrangement for solar power will ensure that the end consumers and solar power project developers will be able to build mutually-profitable relationships.
At the other end, while the state government policies were expected to boost the solar power sector in the country, the captive or end-user segment offers a much larger market of at least 25,000 MW over the next 5-7 years.

Even if the benchmark solar PV power project cost falls from the current Rs 9 crore to Rs 7 crore, it promises to be a market with a value of Rs 175,000 crore (about US$ 35 billion).

The rules of the game in India have surprisingly changed even though the total installed solar power generation capacity in the country has not crossed 1,000 MW, against state and national governments’ targeted capacities exceeding 30,000 MW over the next decade.

If all solar power project developers were to go for the ‘Open Access’ system, one would wonder about the fate of different state governments’ policies and the national government’s National Solar Mission.

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Bhupesh Trivedi is the CEO of Mumbai-based boutique solar energy consulting company REECODE Energy Solutions. He has assisted his clients with setting up MW-size solar power plants as well as solar engineering companies to dovetail their products and services for the growing market in India. He has spoken at various national and international events and writes regularly for various media. He can be reached through bhupesh@reecode.in and +91-9324246639      .

2012: The transition year for solar energy

Photovoltaic solar energy is at a turning point in its young history.
It will be the year in which:
- China will grow into a global leading top 3 PV market.
- The German market will continue to grow and prosper despite strong FiT decreases.
- The Belgian people will discover that it is still very attractive to invest in PV despite the reduction in certificate price and disappearance of the tax advantage.
- The Dutch market will start a strong growth because there are no incentives available and the government has no role to play anymore.
- A sunny climate and growing economy (India, China, Chile, Brazil, Turkey, etc.) will be more important than incentives in terms of market growth.
- ‘Diesel parity’ (solar + storage is cheaper than diesel-generated power) has been reached in major markets such as India.
- Spain will reach grid parity for residential PV systems – and this without any incentives, as the government will increase energy prices.
- Italy reached grid parity for residential applications because energy prices are already high, there is an abundance of sunshine and the business infrastructure is in place.
- Solar energy storage will become a serious topic since solar energy is too cheap to simply supply back to the grid at the time of production.
- In India, more projects will be developed for other reasons than being stimulated by the National Solar Mission.
- Japan is closing down nuclear plants and is ready to invest in renewables and massive solar application.
- Investors discover that, by replacing modules after 25 years, a solar power plant is the best and most secure investment, generating increasing cash flows for more than 50 years.
- Middle East countries find out that it makes more sense to use solar PV for domestic electricity production and sell the expensive oil.
- Europe will build more new solar power capacity than any other electricity generation technology.
- South Africa will set the trend as the gateway for solar application on the African continent.
- The development of the world’s first 1000 MW single PV project will kick off.
- The market will change for residential customers from ‘Solar is interesting from an investment perspective benefiting from incentives’ to ‘Solar is interesting as it saves money on your energy bill.’
- Not only will modules become cheaper once again, but inverters as well due to industry developments and competition from China.

Furthermore, the industry will discover that future market development is not dependent on new technology developments, but on the transition towards new and smart business models. Indeed, the "winner" in terms of the Internet was not the inventor of the technical Internet technology, but the smart guys from Google who used that technology to offer new services based on it. In 2012, don’t look for the new solar module types and technology improvements – but rather  watch the companies that offer you free solar modules on your roof and energy at a price below current grid prices.

Driving in India requires a good horn, good brakes and good luck...

Driving in India is a challenge. A taxi driver once answered a question about the traffic regulations with, "You need a good horn, good brakes and good luck!"

As for the development of the PV market in India and Rajasthan, the opposite seems to be the case. Without making too much noise about it, the market in India is booming. Numerous new players have entered the market. Brakes are not required since India is in need of new power and at the same time needs to rapidly support its economic growth. And further development is not a matter of luck. Rather, it seems to be an inevitable natural fact. Even today, PV in India is already a competitor to diesel-fuelled power generators. Up until now, the focus has been on the large PV power plant projects under the National Solar Mission Government Programme. Diesel replacement will definitely become a major market segment. Think just in terms of the thousands of new telecom towers that will be necessary to support the tremendous growth of cell phone usage in India. The hotel manager in Jaipur, where we hosted the Solar Future Conference, stated, “We don’t know much about solar and maybe should attend your conference, as we did not know that solar PV is cheaper than our diesel generator.”

The PV market in the super-sunny State of Rajasthan alone is expected to grow to at least to 1 GW by 2013 and to 3 GW by 2017. But, as often before, this estimate by government officials may very well be too pessimistic and only based on the large power plant projects. Rajasthan offers 320 days of sunshine a year, growing needs for power and a government trying to get PV project development and industrial development of the ground. So, what is missing in order to fire-up this market? The answer: Cheap and easy financing. It is kind of the "chicken and egg" problem: the banks still view solar more as a risk rather than an opportunity. They claim that there is a lack of reliable data on PV power plants currently in operation. But this data will not become available if new PV projects are not financed - unless new projects are built with much cheaper financing from Chinese developers, supplying modules or even turnkey projects.

The government is trying to support local industrial PV development, with local content requirements for the NSM projects. But for a state PV program, for example in Rajasthan, this is not required - and the same goes for private PPA PV projects developed for private companies, or PV plants replacing diesel power. Once good returns are being made on PV-powered telecom towers, foreign money will find its way.
The price of diesel will continue to rise in India, simply because the government will reduce related subsidies. At the same time, PV will become cheaper due to economies of scale in the manufacturing industry. Furthermore, solar PV power with storage will be available at a lower price fixed for 20 years. It is not hard to imagine a very profitable business model for this situation...
Soon, foreign and Indian entrepreneurs will discover these opportunities. If they are unable to obtain financing from local banks, but can obtain much cheaper financing from Chinese PV module and system suppliers, guess what will happen...

In a country where both chicken and eggs are eaten frequently, this "chicken and egg" financing problem should be easy to resolve. Indian bankers should drive off-road more often; PV financing is not about tooting horns and warning about the risks involved. The bankers should take their feet off the brakes. There is no luck involved. Financing PV systems is not so much a risk, but rather a very secure asset providing fixed returns. Solar energy in India is the safe (high)way to travel!

Short thoughts on South Africa

South Africa: Any bad memories over a lost final at the Football World Championships were swiftly forgotten due to the friendly people in this country. If you can keep on smiling and see a sunny future after a shadowed history, you should be fine.

South Africa has one of the best irradiation levels in the world, a fine infrastructure, phenomenal landscapes, superb ostrich meat and wine – but above all, friendly people. "Welcome to my office" said the cleaner of the men's room. And why not? Isn't the office a place of sit-down meetings were shitty ideas are born and good stuff flushed away...?

The SA Government is serious. Energy utility ESKOM needs more power and is open for PPAs.

The country's growing economy needs fuel for growth, and electricity prices are expected to increase 25% during the coming two years. In addition to the 1450 MW the government will support in the three tender rounds, it has set a target of 8400 MW for 2030. The latter seems way too pessimistic when we look at the potential. With PV becoming competitive very soon, SA looks ready for a growth of at least 30% per year. It was no coincidence that two international experts are predicting an annual market of more than 5 GW by 2015 already. And, let's not forget, in the past such forecasts have turned out to have been on the pessimistic side.

As in any market, there are still a few hurdles to overcome. But we have seen these kinds of struggles in most successful markets. It takes three years to develop a market. South Africa is heading for an energetic and sunny future. I will be back!

62500 soccer fields' worth of Solar panels in Germany - and that’s just for starters

For all the football addicts out there: Don't worry about the PV industry stealing your treasured pitches. We are talking here about solar PV installed on mainly roofs and ground which would be useless as a soccer field anyway. This figure of 132 million square meters of solar panels is what Germany has installed by the end of 2011, raising its already impressive cumulative amount to more than 24 GW installed PV power.


110 GigaWatts of PV in 2022
This could grow to 290 million square meters by 2022 according to the Federal Network Agency BNA. Personally, I believe this 54 GW of cumulative installed solar power will be reached much earlier. Assuming that the German market only grows a modest 5% every year in the coming decade, more than 110 GW of cumulative PV power by 2022 seems more likely.

Your neighbours start worrying
2011 saw more than 1000 PV systems installed every single working day. You may well start asking yourself whether the German solar installers will soon become unemployed as there will be no more roofs left to cover. But this is not the case. There is potential for tens of years at this rate. There are still countries where one single PV system is breaking news - but in Germany it is more a case of your neighbours starting to worry about you because your roof is still empty...

Grid parity in practice
Won’t the German market shrink this year and the years ahead? From a macro level, it seems logic that when the government reduces the Feed-in Tariff even faster in 2012, market growth will slow down or even shrink. But, from a microeconomic level, things might look different. Why would a successful German installer force himself to decrease his flourishing PV business? Don’t we trust in the German innovative and creative spirit? Won’t these installers be clever enough to develop new business models to keep the PV business going? After all, the German FiT for residential customers will arrive below the price of grid electricity. Grid parity in practice.

Hitting the breaks won’t help
The FiT decrease has been tried during the last years as a break on market growth. It did not work that well, judging by the surprising results of growing sales and a further 7,5 GW of new PV power in 2011. The more the government tries to put on the breaks, the more PV systems are being sold. Psychologically, another FiT decrease will again spur people to visit their installer to get a PV system before another decrease occurs - fired-up and encouraged by all their neighbours who have been a little faster and smarter. After all, you don’t want to end up as the last one in your neighbourhood to earn the least FiT...

Ain’t no stopping us now
So why would thousands of solar entrepreneurs in Germany decrease their solar business because the FiT is decreased again? They have seen that story before. And, not one big module manufacturer will skip the world’s number 1 market because module prices are forced to go down. They will do everything within their power to help their existing and powerful successful sales channel.

New wall paper
110 GW of solar PV in Germany by 2022 represents over 620 million square meters of PV panels. This would mean that more than 12% of the electricity consumption in Germany is covered by solar PV. Or it would save the energy output of at least 15 large coal power plants. In this conservative scenario, Germany will have accomplished a solar revolution from 0% to 12% in only 20 years. Green energy at a stable fixed cost. And there is more good news: After 25 years, the modules can be replaced with newer, more efficient and much cheaper models. The rest of the infrastructure can remain in place - much like replacing the wallpaper and windows in a 25-year-old house. This renewed power solar power plant will produce even more, and much cheaper, green solar energy for another 25 to 30 years.

Price of a beer
All German electricity consumers share the additional cost for these GWs of green solar power through a little surcharge on their energy bill. Around the price of a German beer per month. The government has not paid a single penny from their budgets for this extra green power. And this may well be important reason for success: No government budgets are involved - particularly important during these times when governments continue to lend money from future generations without any sustainable investments being made. The German population does not complain too much about paying this other ‘yellow energy boost'. The price of one more beer is no big deal. The interesting thought experiment is whether Germans would have been as willing to pay for this extra beer if the government had requested the surcharge for additional coal or nuclear plants...

Germans love soccer, beer and solar energy. There is no reason to be pessimistic about the solar future in Germany.

To conquer fear is the beginning of wisdom

This saying comes from the British philosopher Bertrand Russell who championed free trade. In the current market situation, the fear of unfair competition is one of the reasons behind for the call for import tax measures. But tax measures work counterproductively. Like in sports, implementing new rules doesn’t bring victory – you simply have to work harder and show better results.

The whole world using Japanese modules
In the year 2000 I organized a Dutch PV business mission to Japan. At that time, Japan was the world’s leading PV market and industry. After the trip to some impressive factories and projects, the participating Dutch Government executive concluded that it would not make sense to stimulate the development of the domestic PV industry in The Netherlands, since "The whole world will be using Japanese PV modules soon." Sharp was the world’s number one manufacturer.
A few years later, the government found out that the market was over-subsidized. Germany was then to take over when it introduced its Feed-in Tariff program. Everybody knows what happened next: from 2004, Germany is the world leader in PV market and industry development. Domestic manufacturing in former Eastern Germany was stimulated through attractive incentives. The FiT program did the rest. Germany started an impressive market and industry growth path. Many leading German and international PV companies such as Q-Cells, SolarWorld, Solon and First Solar benefited from attractive investment subsidies for new factories that helped them to produce cheaper solar cells and modules. It also led to the development of an innovative equipment manufacturer industry. All over the world, not least in China, German equipment contributed towards producing low-cost PV modules – and still is.

Without the unification of Eastern and Western Germany, incentives might never have been become available and who knows what the impact could have been on the development of the German PV industry. Of course, back in 2000, when the Japanese dominated the PV industry and market, no one could foresee a German unification. The future remains hard to predict...

Chinese dominance
Today, the Chinese have developed a huge PV industry, starting from scratch only 6 years ago. Who could have foreseen that? And remember that in 2008, the Spanish and German markets were hesitant and reluctant to accept cheaper Chinese modules. Quality was supposed to be less. While at the same time, German companies had rebranded modules produced in China. Nowadays, Chinese top brands are market leaders and fully accepted. After all, parts of these cells and modules are produced in fully automated processes using US and German manufacturing equipment.

Grow your market to grow your industry
So, what does this teach us? The best way to support domestic industry development is to create a domestic market – like Japan did in the early 2000s, Germany seven years ago and China is doing right now. China will sustain their industrial development and stimulate innovation, leading to further reduction of production costs. Cheap solar cells and modules will create new business and industrial opportunities in existing and new markets. Stimulating domestic market development could be a better way to create a flourishing domestic industry.
In a flourishing market, (foreign) manufacturers will likely start local production, because in the end it makes sense to reduce all costs, including shipment, transportation, financing, risk assurance and other costs related to producing goods far away from the market. In addition, most jobs in solar PV are created downstream in the supply chain and not in fully automated upstream production processes. The importation of cheap solar modules should be embraced as a stimulus for market and industry development.

Today China – tomorrow Korea?
No one can predict the future. One bursting real estate bubble in China could shake up the entire financial situation and PV business landscape. What the Chinese PV industry does today could be done tomorrow by India or Korea. Huge Korean industrial conglomerates have already made their first steps in the PV industry. LG, Samsung and Hyundai have serious ambitions and deep pockets. Their diverse activities and huge balance sheets could give them an interesting financial position which will enable them to survive the current consolidation phase in the solar industry. Although some competitors believe that Chinese PV manufacturers are being supported in an unfair manner, their loans from Chinese banks are at high interest rates, up to as much as 8%. Is that more unfair than a capital investment subsidy for production in some US State? Why are some US manufacturers producing in Asia or Germany?

The future: train harder and be innovative
Like in athletics, today’s winner could be tomorrow's number two. It does not make sense to cry over one lost game. Some time ago, Eastern German athletes won many gold medals at the Olympics. They were injected with steroids. It proved not to be a sustainable success model.
Don’t blame your competitors of unfair training practices. Instead, build the best facilities and invite the best competition into your country. Don’t fear them – rather get inspired. It is the best stimulus for new participants. And don’t blame the referee for unfair rules. Instead, improve your skills, exercise, train harder and be innovative. And be aware of your next competitors – they will very likely not be the ones you are competing with today!