TODAY’S STUDY: EUROPE’S PV TO 2016
Global Market Outlook for Photovoltaics Until 2016
May 2012 (European Photovoltaic Industry Association
Solar photovoltaic (PV) electricity continued its remarkable growth trend in 2011, even in the midst of a financial and economic crisis and even as the PV industry was enduring a period of consolidation. As they have for the past decade, PV markets again grew faster than anyone had expected both in Europe and around the world. Such a rapid growth rate cannot be expected to last forever, however, and the industry is now weathering a period of uncertainty in the short-term. But over the medium- and long-terms the 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.
This report assesses the European and global markets for PV in 2011, and makes forecasts for the next five years. It is based on an internal analysis of data from industry members, national associations, government agencies and electric utilities. The figures presented were discussed and analysed by key players from the PV industry at our 7th EPIA Market Workshop in Brussels in March 2012. A note on the methodology used in this report: EPIA bases its analysis on PV systems that have been connected to the grid; the implications of this choice for how market growth is assessed and the differences between installations and connections are discussed in the Methodology section.
Our major findings for 2011 include:
• 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 in 2011, 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 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
An industry at the crossroads
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.
Many existing markets – in particular China, the USA and Japan, but also India – have addressed only a very small part of their enormous potential for PV development. Moreover, several countries from large sunbelt regions like Africa, 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. As a whole, the global PV market will grow more sustainably, driven by the competitiveness of PV solutions rather than mainly by financial support schemes. But this Paradigm Shift will not happen overnight.
Lessons from key markets
The specific situations in some countries are worth examining for what they can teach us about how PV markets evolve. It is important, for example, to consider whether the factors that drove the strong growth numbers in some markets are sustainable over a longer period. In Italy, the Feed-in Tariff (FiT) was high – resulting in a high rate of return – and was not adapted sufficiently to cope with the price decrease; moreover, the country’s “Salva Alcoa” legislation resulted in many installations from 2010 being connected in 2011 and receiving the 2010 FiT level.
In Germany, the situation was different. The annual update of the FiT did not come in time to offset the system price decrease. The resulting attractiveness of the return drew investors and there was a market boom before the January 2012 FiT decrease took effect.
Again the message is clear: A corridor concept is good if it can adapt the FiT with regular, measured updates; otherwise it could trigger boom-and-bust cycles. There were peculiarities in other countries as well. France’s 2011 result was strong, but it included connections of installations done in 2010 and does not reflect the real market situation in the country. The UK market faced a situation similar to that of Germany: Investors were attracted by high FiT income and acted quickly after support cuts had been announced but before they took effect.
If any general lesson can be drawn from the various market analyses, 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.
Where will new growth occur?
With the boom-and-bust cycles that have destroyed the Czech market and hindered the Spanish one, there are not many contenders to replace Germany and Italy as the two leading European markets. Germany, Belgium, Greece, Italy and the UK will, to varying extents, continue to draw investors. In all, there is a potential for around 20 to 25 GW in Europe in the coming years with the right policies in place. Otherwise, the market will collapse to possibly less than 10 GW a year. The effects of this will be felt globally: low demand, companies suffering from low prices, a negative effect on the global industry.
Outside Europe, however, the PV market is expanding quickly – with more than 100% growth in 2011. Another sign of important change in the PV market is the fact that China was, for the first time, the top non-European PV market. 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.
PV in the electricity mix
PV is now a significant part of Europe’s electricity mix, producing 2% of the demand in the EU and roughly 4% of peak demand. In Italy, PV covers 5% of the electricity demand, and more than 10% of peak demand. In Bavaria, a federal state in southern Germany, the PV installed capacity amounts to 600 W per habitant. This is roughly three panels per capita – an astounding figure. Policy support has been crucial to getting PV to this place in its development – just as it was crucial to helping develop all other energy sources (fossil and fissile) in the past. But now PV needs to demonstrate that it is a mature industry, ready for the next stage of its development. The industry does not expect nor want FiTs to last forever. But for PV to realise its full potential, the PV sector needs them (and, eventually, other forms of policy support) to finish closing the competitiveness gap.
The record market growth of PV in 2011 in Europe and around the world was driven by several factors, including:
• Renewable energy has continued to prove itself to be a mainstream energy source and a significant contributor to achieving energy, environmental and economic goals
• Some countries (especially Germany and Italy) have increased their focus on RES in the wake of the Fukushima nuclear disaster, requiring them to consider new policies that move the market in this direction
• PV modules have undergone significant price decreases, further increasing their attractiveness to investors and accelerating the technology’s drive toward competitiveness with conventional electricity sources
• In some countries, questions about the future of support-scheme levels has produced boom-and-bust cycles
Europe once again was the global leader in PV market growth, with 75% of all newly connected capacity in 2011 and about 75% of global installed capacity. But non-European markets are showing signs that they may soon shift this balance in their favour. China, a production giant that has long had a relatively minuscule market, is fast becoming a source of increasing demand. The USA and Japan are also gaining momentum. Other countries, especially in the Sunbelt region, have enormous potential for solar development that has only just begun to be tapped.
This is significant, because if PV is to continue growing the balance of development will have to shift to new markets – both inside and outside of Europe. A situation in which Germany and Italy account for nearly 60% of global market growth is unsustainable.
While those markets will continue to be important (also as exemplars of how government policy can condition proper growth), other countries will have to supply more of the growth. In other words, the recent deployment rates can no longer be taken for granted. Keeping and increasing the momentum of PV development will require smart, measured policy support that moves beyond FiTs and toward other incentives, such as removal of administrative barriers.
The challenge may seem daunting. But the fact that the global market for PV has continued to grow even in times of economic crisis shows there is a demand that can withstand a difficult period. With proper policy support, balanced market development, and continued industry innovation, the world’s most promising source of electricity can continue its remarkable growth rate over the short-, medium- and long-term, and even beyond.