International Market Entry in the Photovoltaic Industry Strategies to Enter the U.S. Market Table of Contents Abstract 04 Introduction 05 Shifting Importance of European Markets 06 Growth of U.S. Market 08 Attractiveness of Downstream Segment 10 Advantages of European Firms in U.S. Markets 12 Key Considerations for Succeeding in the U.S. Market 13 Recommendations 15 International Market Entry in the Photovoltaic Industry 3 1. Abstract Capgemini expects Since 2001, Europe has been for several unique features of the European PV project a hotbed of photovoltaic (PV) U.S. market. Unlike Europe, with developers to be able to development, thanks to a its predictable feed-in tariff regimes, combination of generous and the U.S. has a patchwork of highly capitalize on their stable government incentives, rapid complex, intermittently funded extensive experience as economic expansion, affordable incentive schemes, which vary widely they seek new growth financing for PV installations and from state to state and year to year. opportunities in the widespread public interest in Developers also need to be prepared sustainability. The recent economic to deal with a handful of investment United States downturn, however, has led to the banks in order to secure tax equity reduction of government incentives financing and take advantage of all and the tightening of credit in the available incentives. Suitable sites for EU. PV industry insiders now see PV development have been getting the United States as the next market more expensive, and environmental for growth. impact mitigation costs have been on the rise. Firms must also plan The U.S. project development on how to handle the competition, space is particularly attractive. High as bidding for Power Purchase volatility in PV manufacturing, due Agreements has become increasingly to recent policy decisions, combined aggressive. Furthermore, any player with artificially high demand for in the U.S. PV industry must have renewable energy, fostered by contingency plans for a number of renewable portfolio standards, has industry-changing scenarios, from put project development in a sweet import tariffs on Chinese PV modules spot. Capgemini expects European to a regime change on Capitol Hill. PV project developers to be able to capitalize on their extensive Success depends on entering with the experience as they seek new growth right business model and the right opportunities in the United States. strategy. An experienced partner can help firms navigate this unique However, companies looking to landscape and find success in the PV make the move need to be prepared industry’s next growth market. 4 2. Introduction This Capgemini point of view U.S. PV industry. These players analyzes historical growth trends can utilize their past European in the global photovoltaic industry development experience as a and assesses the opportunity for strategic advantage in entering international market entry into the the fragmented U.S. development United States. Due to industry market. We also identify several expansion and regulatory shifts, challenges that European developers we believe that European project are likely to face as they launch development companies are operations in America. uniquely positioned to enter the International Market Entry in the Photovoltaic Industry 5 3. European markets have driven rapid PV growth, and incentive changes are expected to create a market shift Europe accounts for 74% Globally, the PV industry has grown As a comparison, PV electricity of the current total at the remarkable average annual generation in Europe accounts for installed capacity growth rate of 53% from 2005- 1.15% of Europe’s total electricity 2011.1 More than 27 gigawatts demand while PV electricity worldwide, while the U.S. (GW) of PV capacity was installed generation in the US accounts for represents a little more in 2011 alone, with the total market less than 0.1%.5,6 Germany, Italy, than 7%. Although small now representing $93 billion in and other European market leaders 2 relative to the global global revenues. Europe accounts have historically benefitted from for 74% of the current total installed favorable government incentives market, the US PV market capacity worldwide, while the supporting PV development has grown rapidly over the U.S. represents a little more than and installations. However, last 10 years. 7%.3 Although small relative to the incumbent market incentives in global market, the US PV market the two countries have become has grown rapidly over the last 10 less attractive in recent years. In years. This rapid growth is largely 2010 and 2011, Germany and Italy attributed to the continued decline significantly cut feed-in-tariff (FIT) in cost per watt installed, increasing rates, a change expected to result the attractiveness of PV projects as in an overall market decline of investment options (see Figure 1). 37% in 2012.7 Germany recently accelerated the reduction of its The global PV industry has feed-in-tariffs, with cuts originally historically been driven by European scheduled for July 1st brought countries, in particular Germany forward to April 1st.8 These drastic and Italy; together, these two changes to government incentives countries currently account for 55% have led project developers to of the total global installed capacity.4 look outside the traditional PV Figure 1: US Installed Capacity vs. Cost per Watt Installed (2001-2010) 3000 12 30% > 2500 Decline 10 1 EPIA Global Market Outlook for 2000 8 Photovoltaics until 2016 42% 2 NPD Solarbuzz 2012 Marketbuzz 1500 CAGR 6 3 EPIA Global Market Outlook for Mega Watt 1000 4 Photovoltaics until 2016 $ per Watt Installed $ per Watt 4 EPIA Market Report - 2011 500 2 5 –Ibid. 0 0 6 EIA Electric Power Annual 2010 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 7 Solarbuzz Solar Industry Reassessing Prospects for 2012 Installed Capacity Cost per Watt Installed 8 “Germany Cuts Feed-In Tariff another 20-30%,” Sustainablebusiness.com News, Sources: The Open PV Project EPIA Global Market Outlook for Photovoltaics until 2015 February 23, 2012 6 strongholds of Western Europe in incentives have been instrumental pursuit of growth. in establishing PV markets by subsidizing the cost of delivery to Though technological advancements the end consumer. In the near-term, and falling PV module prices have government incentives will continue lowered the cost of delivering to have a strong influence on 9 IHS Emerging Energy Research “Global Solar solar energy to end-consumers, market development and shifts, but PV Supply Chain Strategies: 2010 – 2025” PV has not yet reached price in the medium to long term, solar 10 Deutsche Bank: “Solar Photovoltaic parity with other forms of energy.9 will be able to succeed without Industry 2010 Global Outlook: Deja Vu?” Therefore, attractive government government subsidies.10 International Market Entry in the Photovoltaic Industry 7 4. With the upcoming regulatory shift, the U.S. PV market will be especially attractive for entry As growth in European markets the 2009 Recovery Act stimulus slows, North America and Asia package. Of the $16.8 billion, Pacific are expected to drive future $50.67 million is expected to go to growth. Within these regions, the photovoltaic systems U.S., Japan, China, and India are development.16 The U.S. Business expected to lead PV demand.11 By Energy Investment Tax Credit 2025, the U.S. market is expected to (ITC) provides a 30% tax credit for account for 20% of the global market eligible solar energy investments.17 (up from roughly 7% today).12 There These incentives have helped solar are more than 18 GW of utility-scale approach grid parity with projects either under construction or conventional energy sources in a under development in the United number of markets in several States, representing a pipeline over states, including California, sixty times larger than the currently Arizona, New Mexico and Nevada. existing capacity.13 The following factors make the U.S. distinctively d) Established financial markets: attractive for companies looking to Well-established and functioning enter a high-growth market: financial markets support investment opportunities in the a) High solar resources: The high United States. As the global solar resources of the Southwest economy continues to recover and California have attracted from the 2008 financial crisis, significant attention from improving capital markets have developers and investors, and contributed to working capital and there is an increasing trend to bridge financing investments for leverage the availability of high- renewable energy projects. This 11 European Photovoltaic Industry Association quality solar resources to drive type of funding is critical to “Global Market Outlook for Photovoltaics demand. project developers for building up Until 2014” a project pipeline.18 12 IHS Emerging Energy Research “Global b) Price Parity in Sight: The U.S. Solar PV Supply Chain Strategies: 2010 consumes more electricity than e) Awareness of sustainability: – 2025” any other country in the world Recent studies show that U.S. 13 Solar Energy Industries Association (SEIA) and electricity rates are projected consumers associate renewable 14 U.S. Energy Information Administration – to remain relatively flat, even as energy with environmental Annual Energy Outlook 2012 with projections solar power generation costs benefits; in the study, the clear to 2035 continue a rapid decline.14 When majority (80%) indicated that they 15 Capgemini industry interview PV electricity reaches price parity care about the use of renewable with traditional energy sources, energy.19 With this view of 16 Office of Energy Efficiency & Renewable demand for solar in the U.S. renewable energy becoming more Energy: American Recovery and Reinvestment Act market is expected to rise and more prevalent in the U.S., the dramatically.15 PV industry is poised to see (http://www1.eere.energy.gov/recovery/) considerable gains. 17 Database of State Incentives for c) U.S. government support of Renewables & Efficiency (DSIRE); Capgemini renewable energies: The current f) High Prices for Solar Systems: Analysis U.S.