New world order for solar emerges as mini-gold rush heads east

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Amid a mini gold rush for solar, a new world order is emerging as the industry's centre of gravity shifts away from Europe and disperses more evenly around the world and emerging markets eclipse the US – that was the message from the GTM Solar Summit last month.

Shayle Kann, vice president of research at GTM Research, identified major global trends for delegates at the summit in Phoenix, Arizona, and said that the solar shakeout will peak this year and level off in 2014.

“We think 2013 is going to be the biggest year for consolidation,” he said. “We're in April now and already this appears to be panning out. We're forecasting the loss of 100 module manufacturers over the course of this year. The biggest questions here are when do module manufacturers stop operating and what happens when a bankrupt company [ie, Suntech and LDK] continues to churn out panels …

“We expect 2013 to be the last really bad year of this shakeout. After that, we'll move into a more stable market landscape.”

By 2016, GTM forecasts that there will be just 93 module manufacturers serving a 50+GW global market after a major correction to a “misalignment” that saw 357 companies manufacturing modules for an 18GW market in 2010.

“That is a big difference and the mark of a more stable long-term industry,” said Kann.

Despite the upstream suffering, 2013 would overall be a good year for the market with 34GW global installations forecast, he said.

“The global solar industry has been a series of gold rushes for years that have differed in their magnitude and their length,” he said. “But what's been going on at the beginning of 2013 is another mini gold rush, primarily in China and Japan. A lot of module manufacturers have sold out albeit temporarily and module prices stabilised and ticked up.” Techtonic

However, GTM is forecasting an incremental reduction of module prices this year and incremental demand-driven increases next year.

“This is definitely not a consensus view,” admitted Kann. “That said, it's going to be a new world order module prices will stabilise and start to tick down incrementally largely as a function of cost reductions as opposed to drastic oversupply.”

GTM also forecasts a reduction in module costs from 63 cents a watt in 2012 to 47 cents a watt in 2016. That would be a 25% reduction in module prices but only an 8% system price reduction. A further 33% reduction could come from “innovation outside the module” to trim costs of components, design and installation in the balance of systems, according to GTM.

A shift in geography for global demand is another major trend, with the centre of gravity of the global landscape where three-quarters of PV systems were installed in Europe in 2011, slipping to just a quarter in 2016. Asia's share of the market, primarily driven by China and Japan, would increase from 17% to 44% in the same time period, GTM forecasts.

Meanwhile, the US industry continues to play a long, steady game. The US market installed 3.3GW in 2012, up 76% from 2011 and GTM forecasts that its global market share will increase from 8% in 2011 to 17% in 2016.

“That may not seem like a huge difference,” he said. “We benefit from the fact that we are not seeing a highly volatile market overall. We see growth every year, it doesn't explode every single year but it continues to grow and build momentum.”

But dominance of ground-mounted systems in the US would slip as residential distributed generation (DG) installations increased.

“The US and the rest of the world are heading in opposite directions when it comes to market segmentation,” he said. “The global market is shifting towards Asia where ground mount dominates. Meanwhile in the US, though we have a lot of utility-scale capacity with power purchase agreements that will be coming online over the next couple of years, the trendline to 2016 should be towards distributed generation.”

However, Kann warned that the current battles over net energy metering (NEM) and rate design may not “just be bottlenecks, but barriers on any DG market in the US”.

“Assuming that doesn't totally cripple the market, the US should be heading more towards rooftop than ground mount and the global market should be heading in the opposite direction.”

Looking ahead to 2016, GTM forecasts 9GW installed capacity in the US. But that forecast may be revised up dramatically if the Investment Tax Credit is extended beyond 2016 at the 30% rate.

“For years, people have had unrealistic expectations for how much solar is going to get installed in the US but if you set your expectations right, this forecast should be good.

“If the ITC does not get changed or extended we're going to revise the 2016 forecast up a lot – there's going to be so much demand pull into 2016 ahead of an ITC expiration that we could easily see something in the double-digit gigawatts installed in 2016.

“What happens in 2017 is a bigger question, but the economics of a project look something like 2014 depending on how far system prices drop. That tells us that 2014 will be rough but the market will not disappear if we get rid of the ITC.”

Headwinds might stiffen against good gigawatt installation figures if utilities start to gain ground in the row over NEM and rate design, he warned.

“There are NEM and rate design debates going on in at least five or six states now and it's going to bleed out into every major solar market. It's also going to become a bigger and bigger issue to the extent that commercial and residential installations start to go in outside of any state programme.”

Thanks to dramatic cost reductions, gone are the days when states or utilities could directly adjust the levers of solar growth within their borders or territories.

“They could artificially constrain the size of a residential or commercial market by offering a fixed amount of incentives,” said Kann. “That basically placed a cap on the market because when the incentives ran out, the demand ran out.

“If that's no longer the case, they have no way to constrain the market themselves. They start seeing much higher levels of DG penetration, that scares them and they try to do things about NEM and rate design.”

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