The European Photovoltaic Industry Association has forecast its market outlook until 2016, reports Reuters. With 2012’s capacity estimated to be between 90 and 110GW, the EPIA is predicting a 200-400% growth over the next five years. If the EPIA’s calls to the European Union to improve its solar policy falls on deaf ears, governmental support in countries like China and India will overtake Europe’s dominance, which is cutting back solar incentive schemes and imposing moratoriums.

In 2011, Europe accounted for 75% of new PV installations with global capacity nearly doubling to 29.7GW on the back of generous production incentives. Germany is expected to see a slower but still steady annual capacity growth in the next five years with a total installed capacity rising to between 39.7GW and 5 2.7GW in 2016, while Italy is seen reaching a total of 23-30.8 GW in 2016, the EPIA told Reuters.

Global installed PV capacity is expected to rise to between 207.9GW and 342.8GW in 2016, depending on the level of political support, from 69.7GW in 2011. EPIA's secretary general Reinhold Buttgereit said, "The growth will depend on the support of politicians. It's not only about money, it's also about reducing bureaucracy.”

China is expected to add between 3-5GW this year with new annual capacity rising to 4.5-10GW in 2016. Last week, the Coalition for American Solar Manufacturing released an analysis on China’s policy proposals for the solar industry. The report called for more support in industry, financial and tax policy and more aid with development and production of equipment for polysilicon silicon ingots, wafers, cells and panels within the crystalline-silicon solar industry.

With initiatives coming into play in the US, the EPIA states its total capacity could reach 37.1GW in 2016. However, with presidential elections imminent, the future of the US remains uncertain at present.

Despite robust global capacity growth forecasts, European manufacturers of solar power equipment are likely to continue to see margins squeezed by plunging component prices due to oversupply, growing competition from the lower cost Asian rivals and cuts in government support.

Prices along the entire supply chain are expected to fall by 10-15% this year after about 60% year-on-year falls registered in the first quarter of 2012, with a wave of bankruptcies in the US and Germany.

The report insinuates this could trigger a wave of mergers among small and mid-size companies willing to keep afloat.

Depending on the policy support, global PV capacity may add between 20.6GW and 41.4GW in 2013 and keep rising by between 38.8GW and 77.3GW in 2016.