According to the new European PV Markets report by Solarbuzz, faltering prices during the first half of 2011 have led to the European PV market inability to find stable ground. June seemed to bring a glimmer of promise to the EU market, but after Germany announced its cancellation of the mid-year incentive tariff reduction, the market has been struggling to regain its ground.
Solarbuzz notes that as the major European markets continued to experience a recession in the first half of the year, module shipments from manufacturers were enduring ahead of end-market demand. What has since followed is an abundance in downstream inventories, which has affectively spread to upstream players as well.
Determined to see growth rates rise again, crystalline silicon module prices have been offered at record lows by manufactures, reaching €0.75/W to €1.00/W. In June, the average distributer prices for crystalline silicon modules from Chinese producers had plunged to an average of €1.28/W, 20% below the average distributer prices of €1.60/W at the end of 2010. European and Japanese manufactures witnessed prices begin to deteriorate in July 2010 and have not seen an end yet. Subsequently, price premium reductions of 20-25% for Q1 2010, to 10-15% for Q1 2011 have been experienced by both markets.
The report cites that in 2010, Europe’s market growth reached 169%, being led by Germany, Italy and the Czech Republic. Each of the three European markets had GW-scale markets and, together, embodied 89% of the continent’s demand. While Italy’s market share is still expected to mature from 32% in 2010 to 39% in 2015, becoming the largest market in Europe, the two largest markets, Italy and Germany, are anticipated to fall from 80% in 2010 to 71% in 2015.
“For the past decade, Europe has played a dominant role in creating the demand growth that has fueled global manufacturing capacity expansion,” noted Alan Turner, VP of European market research for Solarbuzz. “This was underpinned by aggressive, uncapped feed-in tariff (FiT) programs that are now being scaled back to reduce costs. Policy adjustments are becoming more frequent, creating uncertainty for investors in PV systems.”
Solarbuzz acknowledged that Italy’s market growth in 2010 occurred despite installed system prices that were up to 33% higher than Germany. However, the high prices still did not deter IRRs of up to 20% to be reached due to liberal incentive tariff rates and the possibility of future tariff reductions. As Italy continued to hold on as a major market in Europe, France, Spain, Belgium and Greece were considered strong second-tier markets in 2010 with a 100 to 1000MW size range.
While the second-tier markets IRRs are expected to meet or exceed customer expectations this year, 2012 will more than likely only see Greece reaping the same rewards for large ground-mounted installations. In terms of smaller markets offering growth potential, Solarbuzz turned to Slovakia, Bulgaria, Ukraine and the UK.
The market research organization maintains that over the next 18 months, incentive tariffs for residential systems will more than likely decrease by an average of 17%, while commercial roof-mounted systems of 100kW will fall by 23% and ground-mounted 1MW installations will shrink by 34%. However, Greece and the UK will potentially see the least amount of tariff reductions through 2012, when compared with other European markets, considering current policy plans. On the other hand, tariffs for large ground-mounted systems are projected to drop to the lowest levels in Belgium, Spain and France.
The report goes on to speculate that over the next five years, customer segmentation changes throughout the European continent will lead to the residential segment doubling its share while investor groups’ share’ s will be cut by almost half. Commercial, including agricultural, customers are anticipated to dominate the market segment.
Solarbuzz claims that as PV incentive policies in Europe get more restrictive, downstream companies have been the most affected with many companies dealing with over-valued inventories, weak sales and the prospect of cash flow problems. Solarbuzz assessed that sales channel positioning, geographical diversification and acquisition activity are strong influences for business model re-assessments, as are differentiation by larger wholesalers through their search for higher module quality.
The market analysis report concluded that long-term regulatory challenges would need to be overcome before grid parity can invigorate self-sustaining markets. The report asserts that German utilities are becoming increasingly concerned that PV generation capacity is leading to undesirable risks for the overall grid stability. This has forced utilities to focus on electricity storage and smart-metering technology, which ultimately leads to additional costs and issues that can delay a PV installation.
Turner added, “The uncertainty over the path of European incentives, industry pricing and regulatory constraints will ensure that this region is now entering a very challenging period. Business models that worked based on a limited number of high growth European markets together with high prices will be sorely tested as this region changes to a more fragmented market structure with considerably tighter downstream margins.”