No explosion in demand for solar when grid parity reached, warns iSuppli

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iSuppli Corp’s solar expert Dr. Henning Wicht believes that multi-holy grails of reaching grid parity for the solar sector in key regions such as North America, Germany and Italy will not trigger an explosion in demand for PV modules. Instead, growth will slow as markets mature, due to the continued requirement for upfront costs and the long-term return of investing in a rooftop systems.

Part of the problem for the PV industry, Wicht notes, is that there are many definitions of grid parity. The market research firm said that grid parity is reached:

‘When an investment in a rooftop solar system delivers a 100% return on investment in five years. Furthermore, debts incurred—i.e. negative cash balance in the investment in the system—must never exceed 25% of the total cost of the installation.’

“iSuppli doesn’t expect the arrival of grid parity to result in an abrupt increase in user demand for photovoltaic systems,” said Wicht, Senior Director and Principal Analyst for iSuppli. “The market is likely to make a smooth transition, with demand progressing through the arrival of grid parity in an evolutionary way. This is because users must still make an investment in advance and the wait for the return over a long period of time. A lot of this has to do with psychology. It takes a high level of commitment to invest in a solar system that is expected to operate during a period of 30 years.”

Wicht used the example of Italy, now touted as probably the first country to reach grid parity, citing high standard electricity costs and the country’s high solar radiation. However, the time to the cash break-even point is currently 14 years, he calculates and the debt for a system installed now will reach 35% of the net system price.

“As solar system prices continue to drop and public incentives will allow to obtain a return on investment of 5 to 10% over 20 years, solar penetration will rise like any other market, with early adopters and late adopters. The market is at an early stage in terms of penetration. Penetration of solar systems will progress like any other market,” commented Wicht.

iSuppli is expecting a significant decline in megawatt levels of installations in 2009, due in part to the big reduction in installations expected in Spain caused by changes in the feed-in-tariff.

However, growth returns strongly in 2010 and beyond, producing a compound annual growth rate (CAGR) of 72.4% from 2010 to 2013. During the period from 2010 to 2020, many leading regions will mature as grid parity looms, resulting in a CAGR of only 20%.

 

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