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!

Grid Parity: Will We Run to the Shop?

Pat: “Did you hear the news today?”
 
Pete: “What news? You mean the neighbours' dog's pregnant?”
 
Pat: “No, darling, the news said grid parity's been reached.”
 
Pete: “Grid what? You mean they finally fixed the grid and got everybody connected? It's about time. I don't even know who lives at the end of our street. But on the other hand, having seen some of them, I don't even want to be connected.”
 
Pat: “No, darling. Maybe it's time you got connected to some of the new developments going on in the world instead of just watching football. For instance, I have my own followers now.”
 
Pete: “You mean that Scarface from across the street is chasing you again? Let's send our crazy cat to his garden!”
 
Pat: “No, honey, followers on Twitter. But that's something else. I'd better not even try to explain to you about people sending me messages... What I mean is new developments in the area of renewable energy. Particularly solar energy.”
 
Pete: “Solar energy in our country? You must be kidding! Every time I go to the football stadium I'm in my raincoat. And on top of getting soaking wet, most of the games are terrible anyway. And they invested all these sunny oil dollars in our team.”
 
Pat: “Honey, what I mean with grid parity is that the cost of solar energy is the same as we pay for our electricity right now.”
 
Pete: “Invest in solar? You must be kidding. I'd rather start with an investment for a bigger fridge, so we can cool more beers if my friends come over.”
 
Pat: “Darling, I think it's a great idea to produce green electricity from our own roof and still not pay more than the neighbours.”
 
Pete: “Yes, sure - fun! And every cloud will cut off the electricity so I miss the replay of the best goals - although lately those are the opponents' anyway, with all those well-overpaid foreign defenders from sunny countries...”
 
Pat: “Darling, really, you should follow the news some more. A grid-connected system means you won’t even notice where the electricity is coming from - the roof or the grid.”
 
Pete: “Great, so we invest and don’t even notice the difference?”
 
Pat: “Yes, but it will be green electricity. I think we should contribute to making the world a little greener.”
 
Pete: “Greener? I already agreed to eat a green salad with you every week. My lads say my hair's looking more green than grey. And you want to invest our little savings in this solar energy thing?”
 
Pat: “Yes, for only €5000 we can produce almost all our energy from the sun. And if you started by watching less football matches on TV - the ones you've already seen in the stadium anyway - we might even manage to produce our entire electricity consumption from our own roof.”
 
Pete: “And then save what?”
 
Pat: “Well, nothing at the beginning. But with electricity prices going up, we'll be saving money in a few years.” 

Pete: “Who says electricity prices will go up? Politicians? Huh, they promise too much anyway... So, to show you I'm not as negative as you think I am, let me try to understand you... You are intending to mount some ugly green energy panels on our precious nice grey roof to produce solar electricity, and in the next 15 years we might be able to save €30 per year if this solar stuff is €0,01 cheaper per kilowatt-something than what we currently pay to these utility thieves? And for this great news we only have to pay €5000...? We'd be better off growing green salad on our roof to save money! I should have known this green salad would affect your brain...”
 
Pat: “Darling, now you're exaggerating a little. We can contribute to a better world and save some money in the next 15 years. Don’t you think that's a nice thought?”
 
Pete: “Let’s keep it as a thought. I think we'd better wait till we can actually make some real money with these green hobbies of yours...”

The solar energy bubble is good for everybody

Solar module prices have dropped an astonishing 40% in 2011 alone. This is the result of an exploded solar industry where oversupply is now leading to a consolidation phase, including strong competition. This enormous growth of mainly the Chinese PV industry is a result of generous feed-in tariffs for market development in mainly European countries.
On the other side, grants and other incentives for industrial development in China, the USA and Europe contributed to this as well. Both are now leading to what seems to be a solar industry bubble. Bad news never comes alone... In addition to an oversupply, the leading markets are currently facing financial headwinds as well. This means less money available for incentives and project financing. Where and how to sell your products? It all leads to rapidly declining module and system prices.

That sounds like great news, because the sooner we reach grid parity and get rid of subsidies, the sooner we can start exploring the infinite market potential of competitive solar energy. Next year, the solar energy produced by households will be cheaper than electricity from the grid in the world’s biggest markets, Germany and Italy. With solar energy expected to get cheaper, and dirty grid electricity more expensive, the future for solar energy indeed looks bright.

Nevertheless, not everybody seems happy with the current situation. Claiming unfair competition, some industries and politicians are urging for barriers to be imposed on imports of cheap (Chinese) modules, and extra incentives for domestic products.
But, shouldn’t we be happy that Chinese manufacturers are producing such cheap modules? After all, isn’t this what we want? Wasn’t this the original plan and goal: to make solar PV competitive, so that financial (government) support for market development would no longer be needed?

Indeed, Europe has heavily sponsored market development, which has enabled foreign manufacturers to emerge and grow. And, yes, (Chinese) companies have benefited from tax holidays, free land and free infrastructure development, investment subsidies, cheap loans and cheap energy. As such, they have been able to produce at lower cost. Seems unfair? Europe and the USA have seen local industry development stimulated, too. Not surprisingly, most German manufacturing is taking place within the former Eastern German territory. Grants and capital incentives have been made available to build industries and create jobs.
If the Chinese local and central government had not financially supported solar industry development, today's solar modules would have been more expensive. Subsequently, yearly market demand would have been much smaller and grid parity further away. Thus, incentives would have been needed for a longer period.

But this is not the case, because the world is flat – as Thomas Friedman wrote in his book. You can’t stop industrial development in Asia. Because we want everything to be cheap – not only solar modules. From socks, to kitchen equipment, from chemicals, to cars. All US Walmart and European stores are fully packed with products manufactured in China. I bet even a lot of politicians shouting about local solar industry protection are using an iPhone produced in China and watching an Asian flat-screen television at home – and might even be wearing European-labelled underwear produced in China.... Why should solar modules be the exception?

Isn’t it great that the Chinese central and local governments supported the development of their solar industry? Europe and the USA subsidised the market, China subsidised the industry – and in the end we are both benefiting. China has invested a lot of money to build an enormous solar industry. Western solar equipment manufacturers benefited greatly. And Western investors supported the stock-listed Chinese solar manufacturers in New York. Lots of US and European capital is used to build the Chinese module giants, and dividends are flowing back to Western investors.

Now we are facing a solar industry bubble. And in this consolidation phase, only the strongest companies will survive: manufacturers able to cope with reduced feed-in tariffs and able to emerge in markets without any incentives; the strong ones, highly automated with Western equipment, able to produce at the lowest costs, with thin profit margins. Good news for customers and politicians longing for cheap solar energy and market development without costly incentives....

The low costs upstream, with the Chinese solar products (from silicon to modules), mean that Europe and all other markets will be able to achieve grid parity sooner – giving us a future with an abundance of downstream solar business opportunities in local markets, and room for new business models invented by local financial engineers; new local building products with cheap solar cells integrated, and lots of installation work for local electrical installers. We are almost at the point we want to be: low-cost solar energy and a sustainable infinite market. We all want and need cheap (solar) energy – and the sooner, the better. The world is flat. Solar modules are flat. But we don’t want a flat market.