IHS: Why 2014 PV installation forecasts are all likely to be wrong

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Each year forecasts for how much new PV capacity will be added around the world are released. These are subsequently revised, updated, defended and invariably increased. The forecasts for 2014 from various banks and research firms however are quite different. The difference between the high-end and the low-end of expectations is massive – potentially 15GW – or put another way nearly half the amount installed in total the previous year.

Which forecast turns out to be “correct” is almost irrelevant – in fact I can almost guarantee that all of them will be wrong – including ours. Of course, one forecast will be closest to the final amount installed (if we can ever agree on even historical installations!), but right for the wrong reasons. The reason is that a forecast is made at a certain point in time based on known data and assumptions for factors that will impact on how the market develops in future.

These data and assumptions must of course change as time goes on. Does anyone really know what incentives, targets or laws the Chinese government will introduce in six months’ time? Or what new trade cases will emerge and their outcome? Or if another natural disaster will cause a country to completely abandon its nuclear policy in favour of renewables? The answer of course to these questions is “no”. Which is why all of the forecasts will undoubtedly be wrong.

However, the best forecasters will be able to deal with the huge list of variables, be constantly collecting new data and have people on the ground in the key markets to really predict – in real time – how the PV market will develop.

This is why the forecasts and models we use at IHS to predict solar demand are considered “live” and constantly changing based on the vast amounts of data that they rely on. Most changes are relatively minor, but some, such as when China’s NEA increased its target from 12GW to 14GW for PV installations this year can make a major impact – not just on total installations, but on the entire supply-demand balance. This announcement which was made on 13 January – after the majority of the forecasts and predictions were made just illustrates why most market forecasters will all likely be wrong.

But given most forecasts for 2014 were made at roughly the same time, why do they vary so massively? Here’s a few of the reasons:

1. We’re measuring different things

In the 14 years I’ve been researching various markets, I’ve never come across another industry like PV where researchers can’t even broadly agree on what happened in the past. One of the reasons is that what they’re in fact measuring (whether they know it or not) is different. Many researchers rely on secondary data or government statistics and these tend to measure different metrics. For example, IHS uses DC capacity for PV systems installed in a given year, including off-grid systems. Government statistics and other researchers often use AC-output, grid-connections or approvals (rather than installations) and sometimes a mixture of all of these. Given this, it’s easy to see why market researchers rarely agree on the size of the PV industry.

2. China

China is one of the biggest variables in terms of both how many PV panels will get installed this year, but also what will happen to the entire supply chain as its Government chooses to continue or revoke support for many of its ailing suppliers. China is also where most researchers disagree and also one of the biggest variables in our forecast. It could install potentially as much as 14GW this year, or as “little” as 10GW. The recent NEA announcement to increase its target for ground-mount projects and slightly deemphasise the dependence on distributed PV has indeed caused IHS to raise its forecast for this country.

3. Other “upside” potential and risks

Other key markets could of course install more than IHS has predicted, but equally present inherent risk. Japan is a great example of this and in late 2012 we first warned of the potential of a boom-bust cycle happening here. Whilst we expect just over 7GW to be installed in Japan this year, we also recognise this could be as high as 9GW. Given that it will likely be the second largest market globally again this year, the risks presented in this country are somewhat worrying. Its residential FiT which is due to cease at the end of Q1 is unlikely to be renewed. This risk is further compounded by an on-going review of the “mega-solar” pipeline and possible cancellation of permits.

Other European markets also offer upside. The UK for example which is now rather driven by ground-mount projects installed under the ROC scheme has the potential to install more than 2GW in 2014. But despite strong government support for solar and renewables, the quest for cheap shale gas as enjoyed by the US, the escalating electricity prices suffered by consumers and industry and the recent elimination of the EU’s mandatory renewable energy targets creates further risk to Europe’s PV market. Even in Germany, the support for renewables continues to wane, as the government seeks to confine soaring electricity cost and the impact on the competitiveness of the German economy.

4. Emerging Markets

The pace at which emerging PV markets will develop is another topic that most researchers seem to constantly disagree on. The main reason is that some expect emerging markets to behave in a similar way to “established” markets that rely heavily on incentives and subsidies, like Germany or Japan. Instead of being fluid and rapid to expand soon after PV policy is announced and introduced, emerging markets develop in a much slower fashion.

The announcement of a multi-gigawatt pipeline does not mean we’ll see a new gigawatt-scale market emerge in a single year. Often these markets do not rely on a direct subsidy but instead are based on PPAs. You just need to look at Chile to understand this point. Chile’s multi-gigawatt PV pipeline has been publicised since 2012 with many of the projects approved by regulators. Despite this, little over 100MW had been installed in Chile by the end of 2013. The main reason behind this, is that despite the gigawatts of projects being “approved”, they lacked an off-taker of the power – no-one had agreed to buy the electricity these plants would produce. Most of these emerging markets that we track on a daily basis do not force utilities to purchase PV electricity at a fixed price, this is one key reason why they will develop differently to subsidised markets.

The markets also require PV to compete on a more or less level playing field with other sources and renewable energy technologies. Brazil is a great example. Whilst viewed very positively as most as a major PV market, not a single PV project was selected – as predicted by IHS – in the recent national bidding process due to extremely low prices that were achievable from equivalent wind projects. That’s not to say this won’t change, and indeed we expect hundreds of megawatts to be installed in Brazil, but it illustrates how an overly aggressive view on how quickly emerging markets will develop can impact the ability to forecast global demand accurately.

Adding all of these variables together its fairly easy to see why that whilst our December 2013 “base-case” scenario would see around 41GW installed in 2014, our “best-case” is more than 53GW. However, equally the risks to the PV market’s development remain clear and I’m certain that further factors will arise that mean that most forecasts and predictions will be revised as the year goes on. Being able to track all of these developments in real-time in dozens of markets globally whilst also assessing PV’s role in the wider energy mix, particularly in non-subsidised markets, will be key to being a successful forecaster for this industry, and of course much more valuable and important than being able to formulate the highest growth projection.

IHS 2014 PV market forecast highlighting upside and downside to forecast projections.
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