Over recent years, the solar energy industry has grown from a niche market to an astonishing 100 billion dollar industry. In this article, I give an extensive overview of the state of the Global PV market. I will discuss in detail the many trends and the different emerging technologies that are shaping the solar industry. I will also discuss some of the challenges the PV market faces.
Across the globe, government subsidies have been an important drive behind the advancement of the industry, as they have made the purchase of solar panels economically attractive. The subsidies have fuelled further investments in the industry which have led to price reducing- and efficiency enhancing innovations (refer to figure 1). After large-scale Chinese manufacturers had joined in, manufacturing capacity skyrocketed. As a result of the consistent and increasing demand, global production has rapidly increased in 2013, eventually leading to an oversupply of PV.
Figure 1 - Price development. Source: McKinsey (2012)
Despite the drying up of government subsidies after Q4 of 2014, analysts have projected the prices to fall further with 10% annually until 2020, reaching grid parity at a global scale at the earliest at around 2017 (DB 2014, McKinsey, 2012). Grid parity is reached when the levelized price of an electricity source, in this case solar energy, is less or equal to the price of electricity from the grid.
With varying prices for PV worldwide the competitiveness of solar energy is highly regionally dependent. While grid parity of solar energy has already been reached in 19 markets globally, and in more than 10 states in the USA, in markets with less sun abundance and oil abundance, or absence of governmental stimulation programs for solar energy, PV remains relatively expensive. As PV prices are expected to continue to decrease, more markets will reach grid parity in the next years.
Figure 2 – Levelized cost of solar energy and Grid parity.
Besides differences in PV potential based on price, the actual installed capacity varies across countries as well. In the USA 4.2 GW’s are installed currently and Germany, the world’s largest maker of PV’s, has installed 3.3 GW’s. China currently has the highest number installed, namely 12 GW’s, and has thereby notably tripled its production compared to 2012.
The glorious upraise of the PV sector has challenged the means of established energy companies. Since PV prices among other distributed energy sources are soon competitive, the traditional monopoly of energy supply has come in jeopardy. The energy company lobby in the United States has even convinced some states to levy a small tax of around 5$ a month per system to PV-rooftop owners. As a result of the expected changes from centralised energy production to distributed production, the regulated utility industry, for instance in the USA, has been taking positions in renewables thereby limiting their dependence.
PV reaching maturity
Now that PV has become more standardised and commoditised, competition has become fiercer and is expected to intensify. This increases room for further cost reductions and shifts demand to big technology companies that step in. Cost reductions up to 40% until 2015 may be realised, resulting from efficiency enhancing changes in procurement, supply-chain management, and manufacturing (refer to figure 1). As a result of cost reductions of on average 10% per year, manufacturing capacity may double over the next two years (Mckinsey, 2012). Big technology companies such as Samsung and GE, and large local players such as TSMC from Taiwan and Hanwha from Korea, have recently announced to step in for the production of PV panels. The majority of PV is manufactured in China. However, supply is expected to tighten since working capital will probably become limited.
As a result of increasing competition, margins have become smaller. The uncertainty about government subsidies has led manufacturers to decrease investments with 14% in 2013 compared to 2012. However, with more than 25 percent additional output, a record 39 MW worldwide has realised. The cutbacks on subsidies are starting end of 2014 (Deutsche Bank, 2014). However, it is expected that cost reductions will offset the subsidy dependency. While an increasing number of markets are already reaching grid parity, there are only 3-5 years to go before PV is completely competitive with conventional energy sources worldwide.
On the demand side, the factor that inhibits further growth of the sector is the access to financing of PV systems. The US business model to solar systems is a leasing structure that has proven to be successful in the US, and has recently been introduced in Europe. Furthermore, in Europe it has enhanced demand significantly. An example of such financing in the US is Clean Power Finance (CPF), a company from San Francisco that arranges financing of residential solar in particular. They offer a solar leasing program for homeowners. The renowned Solar City has also worked with this type of structure, and has built a fully-owned ecosystem of solar panels across the United States, a model fruitful to expose to Europe.
Distributed storage systems
A well-known backdrop of PV energy is the inability to store energy generated by the panels in the absence of efficient local systems. Electric car manufacturer Tesla in conjunction with Solar City Corp. have often been cited as players in this by treating the car as storing unit for solar energy during the day. Comparable energy storage technologies have been developed and are increasingly being adopted despite their high cost. These energy storage systems are basically batteries that can be quickly ramped up and down. Intelligent battery management systems are emerging, which can manage supply and demand across homes and cities: a distributed storage system. Customers that live miles away and experience low yield weather may then receive excess electricity produced in regions where sunshine is abundant at that time. The system may generate a more stable network where supply and demand are matched. Solar City Corp. is among the first companies to have developed such a network, which is called DemandLogic. Further companies that may be consulted on this are Edison International, PSEG Long Island, and Clean Power Finance and RWE.
Another trend that deserves attention is that of clean web technologies. The aforementioned distributed storage system is an example of a business model that is enabled and reliant on internet-based, perhaps cloud-based technologies that are growing fast. Clean web initiatives for new applications of existing technology are being developed in a network of HAT collaborating members. Clean web technologies are currently attracting funds and barriers to entry are still low. An example is Honestbuildings in the USA, which is a technology for electricity usage of home appliances. Furthermore, Lyft, Sidecar, Wegowise and Mosaic are emerging technologies that may be interesting to take notice of.
The PV sector has developed at a high pace, as shown by the enormous rise in production of PV panels and the increasing cost efficiency of the panels. Although governments are expected to cut back on subsidies in the next few years, thanks to the PV sector reaching maturity prices are expected to lower sufficiently to continue its pace of gradual growth. Financing models such as the lease structures described are among the challenges to make this transition from government subsidies happen, since purchasing costs are still too high to reach mass market. Emerging technologies that may be interesting to investors include companies’ distributed energy storage systems and emerging clean-tech webs that are developing promising technologies. These technologies are expected to offer higher margins than is the standard for PV manufacturers and downstream distributors.
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Hein-Willem Blokland is an Msc. Graduate in International Business and Marketing. He has a specific interest for clean-tech and entrepreneurship and has been investing in his spare time for 10+ years. At Foresight he aims to provide valuable insights on clean-tech related topics.