WHERE IN EUROPE WILL SUN NEXT SHINE?

European governments continue to struggle to get the balance right: Solar industry accelerator mechanisms (subsidies and incentives) must be potent enough to drive production and create the economies-of-scale that will bring the cost of solar energy-generated electricity down. Built into the accelerator mechanisms, however, there must be some corollary that will retard the inflationary trends those mechanisms inevitably cause.

While the governments struggle to create the right balance, European solar industry markets fluctuate precipitously.

Germany, the world leader in solar energy generating capacity, has built a degression rate into its feed-in tariff that will slow growth in 2009 to just 150 megawatts. Spain, which set its 2008 subsidy far too high, will drop 700 megawatts in new production next year due to the adjustment it made. Italy, just initiating its subsidy, will grow another 450 megawatts next year – or maybe it will boom. France, only just getting into the race, may grow its solar capacity ten times over, to 500 megawatts of new capacity.

Italy, insiders say, is the country to watch. Its subsidy is capped at a whopping 1200 megawatts and it could see a boom. But installers say the infamous Italian bureaucratic complications will impede progress. Other solar industry professionals expect Italy's solar capacity growth in 2009 to be the whole 1200 megawatts.

The best news coming through the chaos of these fluctuating markets is that the hoped-for economies-of-scale are in fact emerging. A significant part of the growth in markets where subsidies and incentives are fading will come because producers can and are turning to cheaper, Chinese-produced panels and less-expensive thin-film materials.

Example: Suntech is China’s biggest panel maker. Last year's boom in Spain absorbed 40% of Suntech's 2008 output. The company could not meet the demand for orders from Germany because of its attention to Spain.

Example: First Solar is the world’s biggest thin-film manufacturer. Most of its growth has come from supplying Germany in 2007 and 2008. It is now looking at the Italian market.

Example: SunPower, one of the leading U.S. panel manufacturers, has established an Italian presence and already matched its 2008 Spanish orders with 2009 orders in Italy.

The pie will be sliced differently next year. (click to enlarge)

Solar power companies face end of Spanish subsidies
September 3, 2008 (Reuters via International Herald Tribune)

WHO
Gerardo Montanino, operations director, Gestore dei Servizi Elettrici; Angelo Nogara, managing director, Solkraft Italia and international affairs officer, Assosolare; David Wortmann, head of renewable energy, German government investment agency; Steve Chan, chief strategy officer, Suntech Power Holdings "That sort of growth you could almost say it's compensating entirely for the slowdown in sales into Spain…"
- Thomas Werner, CEO, SunPower: "We are able to replicate our entire Spanish business in Italy, year-on-year…We have a presence in Italy already."

WHAT
Feed-in tariffs (FiTs), fixed rates paid over a prolonged period of year for electricity generated from New Energy, are intended to stimulate production and create the economies of scale that bring costs down. European governments are struggling to balance the havoc FiTs cause to free market competition with the need to stimulate the development of New Energy capacity.

Germany's degression rate could become a model for the world or a wrench in the works. (click to enlarge)

WHEN
- 2004: Germany’s FiT was readjusted to include a degression rate.
- 2006: France introduced its subsidy program.
- 2007: Spain’s overly generous subsidy was introduced, driving its unsustainable 2008 boom.
- September 2008: Current Spanish subsidies expire.
- 2009: Spanish government expected to subsidize no more than 300 megawatts of new solar capacity.
- 2009: Italy expected to install no more than 450 megawatts of new solar power
- 2008: German degression rate begins taking growth down.
- 2009 & 2010: French growth expected to increase significantly.

WHERE
- European solar energy production expected to decrease over the next foreseeable years.
- Italy and France expected to grow but not as much as Germany and Spain are expected to slow.

WHY
- Gestore dei Servizi Elettrici oversees Italian grid rates.
- Gestore dei Servizi Elettrici’s Montanino expects modest growth in Italian solar capacity despite new subsidies.
- Italian manufacturers say bureaucratic hurdles slow growth: (Ex. 1) Some Italian solar projects have waited a year after completion for grid connection. (Ex. 2) A solar project which creates no noise was not given a permit until it did an acoustic impact study.
- Subsidies have made Spain the world's 2nd biggest market. Spain will install 1,000+ megawatts of new solar capacity this year.
- Germany, the world's biggest market, expects to install 1,350 megawatts of new solar capacity this year.
- France is expected to add 500 megawatts of new capacity both next year and the year after.

France's growth may surprise a lot of solar industry watchers. (click to enlarge)

QUOTES
- Angelo Nogara, managing director, Solkraft Italia and international affairs officer, Assosolare: "I hope we can have 1,000 MW, but I am not sure because of bureaucratic problems…"
- David Wortmann, head of renewable energy, German government investment agency: "It is adventurous to make predictions, but we could say around 1,500 MW next year…"
- Report, banking firm, Piper Jaffray: "'We believe France should be a key driver for solar together with Italy during 2009-2010…"
- Steve Chan, chief strategy officer, Suntech Power Holdings "That sort of growth you could almost say it's compensating entirely for the slowdown in sales into Spain…"
- Thomas Werner, CEO, SunPower: "We are able to replicate our entire Spanish business in Italy, year-on-year…We have a presence in Italy already."