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2012: Disaster Movie or Will the Romance Continue?

By Bettina Weiss, Executive Director, PV Group

“2012” is a 2009 American disaster film starring John Cusack that depicts a series of catastrophic natural disasters stemming from a massive solar flare. Some analysts are beginning to talk about a real 2012 solar energy disaster, as German feed-in tariffs become further reduced or capped.

According to industry analysts EuPD Research, future German Renewable Energy Sources Act (EEG) revisions due in mid-2011 could lead to a market cap of only 3 GW* in 2012 in a “worst case scenario”, reducing world solar demand by a whopping 6.8 GWp, or 37% off anticipated 2011 levels. Such a market catastrophe would rival any nightmare scenario imagined by Hollywood, and underscores the risk associated with a global market so dependent on one nation’s political consensus.

(Figure: Adjusted)

The Nightmare Scenario

Speaking before the Solarpraxis Forum in Berlin in November, Markus Hoehner, president and CEO of EuPD Research, provided a landscape overview of the 2010 PV market, asking the question, “Is there really a ‘global’ PV market?” With Germany accounting for 7.2 GW (54%) of the world’s 13.4 GW of the 2010 PV market, the country dominates the world solar market with only Italy contributing over 1GW in 2010. For 2011, EuPD estimates the non-German solar market—led by Italy, Japan and the US—to grow from 6.2 GW to 8.6 GW, a robust 39%. This growth rate nearly assures a healthy solar market in 2011 regardless of the anticipated reductions in the German FIT. In 2012, however, all key market areas would have to grow at least 100% from 2010-2012 to sustain global market growth in the event of German market cap.

The possibility of a market cap in Germany in 2012 arises from the “Experience Report EEG”, scheduled for publication in mid-2011. Based upon market developments in 2010, it will contain recommendations for the EEG amendment which will come into affect on January 2012. According to Hoehner, “It has to be assumed that the strong market in 2010 and 2011 will lead to either a greater reduction in FIT or, even worse, a market cap.”

The 3 GW market cap scenario is derived from Germany’s National Renewable Energy Action Plan (NREAP) target volume for 2020 of 52 GW. According to EuPD Research, based on the expected volume in 2010 and 2011, cumulated market volume in Germany would be 25 GWp by 2011. For the period to 2020, annual installations of 3 GWp would be sufficient to meet the NREAP target of 52 GW.

Compensating for German Market Declines

Despite the current dominance of Germany, many analysts do believe that other markets will grow fast enough to offset expected declines in German solar demand. GTM Research believes that demand for PV will grow to 15 GW in 2011, 6% higher than 2010, stepping up into 17% to 19% from 2012. According to GTM analyst, Shyam Mehta, “large subsidy cuts in 2011 and 2012 will cause Germany to lose much of its luster as an attractive PV market, (but) Germany should still be a 5-GW-plus market in these years, and strong growth in the U.S., Italy, France, Canada, China, and Japan (as well as secondary markets such as Bulgaria and Belgium) will in part make up for this.”

On December 13, Barclays Capital US Clean Technology Report, stated “US solar market poised to overtake Germany from 2011.” Among their data points are financial projections by the top manufacturers: First Solar expects North America to be their largest market in 2011; SunPower expects 40% of their 2011 market volumes to be from the US; and Suntech expects volumes to double in North America in 2011.

Market research firm IMS Research expects moderate growth in 2011 and 2012 despite a decline in German PV installations. Ash Sharma, PV Research Director, IMS Research told PV-Tech, “Despite a projected fall of the German market, we are still very positive about the development of the PV market in 2011 and see the market growing to at least 19 GW. We see high demand from GW-sized markets such as Italy and USA continuing, as well as fresh demand from many emerging markets in Eastern Europe and Asia”.

IMS Research forecasts the German market share of the global PV to fall to 46% in 2010 and to less than 35% in 2011 with an expected decline thereafter. IMS Research said that it expects more than 100 GW of new PV capacity being added over the next four years.

Deutsche Bank also sees other countries compensating for German market adjustments. Their October Alternate Energy Report anticipates that “demand growth for global solar PV modules is likely to slow down in 2011E as demand from Germany may not be able to sustain after the significant growth in 2010E. However, we believe the demand pickup from countries (e.g., US and Japan) is likely to fill-in the gap. Much of the confidence in market growth, even in Germany, is based on likely cost and ASP reductions from leading China-based suppliers.

Morgan Stanley sees a significant correction in Germany in 2012, not 2011: “While we do realize that the current rate of installations is not sustainable in Germany and attractive FITs and low interest rates may have created bubble-like conditions, we suspect that the politicians and regulators may not disrupt the market in FY11, and let it correct significantly only in 2012.” (Morgan Stanley, November 15)

The Post-German PV Era

In response to certain declines in tariff incentives and possible caps on the German market, EuPD Research recommends the following actions by supply chain players:

 Decrease costs toward grid parity and full competiveness with current peak and base load energy sources  Increased internationalization and PV support activities  Increases innovation in the areas of storage, grid, and other complimentary technologies

Unfortunately, increased cost reduction by the supply chain and innovations on the grid will not be sufficient to maintain the PV market above 18-19 GW in 2012 amid radical changes in the German FIT system. As Markus Hoehner pointed out in his SolarPraxis presentation, there is yet no federal FIT legislation in the US, strict local content requirements remain in Japan, India and Canada, and at least de-facto caps exist in many key markets such as Italy, France, Spain and elsewhere. Significant declines in the German PV market over the next several years can only be offset by the following developments:

 China demand must significantly ramp and the country needs to become a leading consumer as well as supplier of solar energy.  Solar markets need to remain open and local content and other trade restrictions need to be reduced and averted  US policies at both the State and Federal levels need to evolve to enable the US market to reach demand levels commensurate with their economic and solar resources  The global PV supply chain must reach new levels of international collaboration to ensure cost reductions and policy effectiveness needed for long-term sustainable growth

PV Group stands ready to help its members navigate through these challenging waters. Let’s hope that healthy competition, continuous cost reduction and a level global playing field will diffuse the volatile outlook and avoid…“Disaster”.

* The originally stated figure of 2 GW was based on the 2020 target for PV power production. The 2020 target for installed capacity is 52 GWp, which would relate to annual installation volumes of 2.98 GWp. The underlying basis for both figures is the German “National Renewable Energy Action Plan”.

SEMI PV Group, The Grid – December 2010