Solar PV at the Crossroads: Europe Leads, China, US, Emerging Markets Need to Pick Up the Ball

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The solar photovoltaic (PV) industry continued upwards along its surprisingly rapid growth path in Europe and around the world in 2011 in spite of ructions caused by a combination of a glut in the supply of solar PV cells and panels, a precipitous drop in sales prices, and the phasing out or elimination of government support. That’s the recent past. With the near-term outlook gloomy and the medium- and long-term outlooks uncertain, the European Photovoltaic Industry Association (EPIA) has issued its “Global Market Outlook for Photovoltaics until 2016” report.

Conducting an in-depth, comprehensive study of solar PV markets, industry value chains, electricity markets and government policies across Europe, EPIA found that while the industry now finds itself weathering a storm, the medium- and long-term prospects “for continued robust growth are good.”

“The results of 2011 — and indeed the outlook for the next several years — show that under the right policy conditions PV can continue its progress towards competitiveness in key electricity markets and become a mainstream energy source,” according to the EPIA’s analysis.

Looking at the European solar PV experience in 2011, EPIA noted that:

  • 29.7 GW of PV systems were connected to the grid in 2011, up from 16.8 GW in 2010; PV is now, after hydro and wind power, the third most important renewable energy source in terms of globally installed capacity;
  • 21.9 GW were connected in Europe, compared to 13.4 GW in 2010; Europe still accounts for the predominant share of the global PV market, with 75% of all new capacity in 2011;
  • Italy was the top market for the year, with 9.3 GW connected, followed by Germany with 7.5 GW; Italy and Germany accounted for nearly 60% of global market growth during the past year;
  • China was the top non-European PV market in 2011, with 2.2 GW installed, followed by the USA with 1.9 GW;
  • The number of markets achieving more than 1 GW of additional PV capacity during 2011 rose from three to six: Italy, Germany, France, China, Japan, USA.

Europe has paved the way forward when it comes to installing solar PV and making the transition to “green” economies powered and fueled by clean, renewable energy resources. Along the way, European demand has spurred the emergence of a globalized solar PV value and supply chain, which, along with supportive government policies and innovative market-based pricing mechanisms, such as solar Feed-in Tariffs (FiT), has seen the cost of solar approach and even reach parity with conventional electricity sources.

Other findings from the report highlight the progress that’s been made both EU-wide and local:

  • Solar PV now meets 2% of EU electricity demand and roughly 4% of peak demand
  • Solar PV meets 5% of Italy’s overall electricity demand and 10% of peak demand
  • Installed solar PV capacity in the southern German state of Bavaria averages 600 W per resident, roughly three panels per capita

Picking Up the Solar PV-Grid Parity Torch

Solar PV’s drive to grid parity has been extraordinarily rapid, but it remains unfinished, the EPIA notes. EU nations’ pioneering introduction of solar FiTs has been a significant learning experience that solar PV industry participants and energy policy makers in countries outside the EU are going to school for and benefiting from.

Just as a confluence of factors led to stellar growth of solar PV in Europe in recent years, a confluence of factors now threatens ongoing progress. The effects are rippling out globally.

The EU’s facing historically severe fiscal, sovereign debt and unemployment problems that has the region facing its second recession in four years. The massive increase of supply, driven by heavily subsidized solar PV exports from China, has driven sales prices down to the point where pioneering, major solar PV manufacturers are shuttering plants and laying off workers, if not declaring bankruptcy. Thus far focused on enacting austerity measures to counter its socio-economic problems, EU governments are scrambling to cut back spending, including reducing solar FiT rates.

Changing conditions in Europe are ushering in a period of “rebalancing” in the solar PV market, the EPIA concludes. “European markets where PV has developed vigorously in recent years have reached, at least for the time being, a level that will be difficult to maintain in the two coming years.

“The market slowdown in Europe will not immediately be offset by market growth elsewhere in the world, but a rebalancing has begun. New markets around the world will have to be opened up to drive PV development in the coming decade just as Europe accounted for it until now,” the EPIA report authors state.

The EPIA study singles out China, the USA, Japan, and India, as having “addressed only a small part of their enormous potential for PV development. “Moreover, the Middle East, South East Asia and South America are on the brink of starting their development, pushed by an increasing awareness of solar PV potential.”

High Solar PV Potential Worldwide

Despite the challenges, the EPIA believes Europe has the potential to install some 20-25 GW of additional solar PV capacity in coming years “with the right policies in place.” What’s really needed is for other countries to pick up the solar PV torch, however.

Worldwide, solar PV capacity increased more than 100% in 2011, with China adding more than any other country outside the EU region. Moreover, the EPIA notes, “the US market doubled, and Japan is also making significant progress.

“The potential for future growth outside Europe is tremendous and PV will soon expand in dozens of countries thanks to its competitiveness. This non-European market could top between 38 and 77 GW in 2016, with the right policies in place everywhere.”

Analyzing Europe’s experience and emergence as the global leader in solar PV, the EPIA found that strong, clear and consistent government policies are essential to sustainable industry and market development and growth. “Consistent” is an especially important operative word, as is the need for policy makers to take “measured and balanced” approaches to making policy alterations based on market developments.

“If any general lesson can be drawn from the various market analysis, it is this: Sudden, stop-and-start policies (making harsh and/or frequent changes in the FiTs, for example) can threaten PV’s growth momentum by destroying investor confidence.

“What is needed is a more measured response to market developments. This balanced approach will lead PV gradually out of the Feed-in Tariff era and into one in which the technology is competitive against all electricity sources and in which governments continue to support market development in other ways — for example, by removing bureaucratic barriers, encouraging innovation, and ensuring grid access.”

Sound advice the US and other fast-growing solar PV markets can benefit from, especially at a time when existing government subsidies, incentives and investment hang in the balance.

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