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Solar Photovoltaic Market Grows as Prices Fall
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Solar photovoltaic system
A new report projects strong growth for solar photovoltaic systems in Asia and emerging markets as system costs decline, making them a cost-effective solution in areas with high electricity costs.

A new report projects strong growth for solar photovoltaic systems in Asia and emerging markets as system costs decline, making them a cost-effective solution in areas with high electricity costs.

July 30, 2013—Experts project that the world market for solar photovoltaic (PV) systems will grow to more than $134 billion by 2020 in response to a wide range of factors, including ambitious installation targets established by the Chinese government, the solar lease model in the United States, feed-in tariffs in Europe, and the increasing use of the systems in such emerging markets as Chile, South Africa, and Saudi Arabia.

“The markets for solar PV are broadening geographically. Costs are continuing to decline. The industry has delivered—and even exceeded—cost reduction targets,” says Dexter Gauntlett, a research analyst with Navigant Research, which is headquartered in Boulder, Colorado. Gauntlett is the author of a new report, Solar PV Market Forecasts.

The report examines smaller, distributed solar PV systems (defined as having a capacity less than 1 MW), which are typically appropriate for residential and commercial applications, as well as larger, nondistributed systems (with capacity greater than 1 MW), which typically find use in large commercial, industrial, and utility settings.

Prices for solar PV modules have decreased sharply in the past three years as the bulk of manufacturing has shifted from Europe to China, according to the report. With strong support from the government, Chinese manufacturers ramped up production capacity at an unsustainable level and created an oversupply of modules in the market as production significantly outpaced demand. As panel prices fell, the sector consolidated, with many manufacturers forced into bankruptcy.

“Supply and demand have been severely out of balance,” Gauntlett says. “We have seen some pretty dramatic price declines around the world. We are going to continue to see the price declines going forward but at a much more gradual rate.”

The report notes that the market for solar PV systems is highly dependent on a mix of regional factors, including government incentives, the local cost of electricity, and government targets for the installation of systems that draw on renewable energy sources. China, for example, has set ambitious goals for deploying PV systems.

“There are [several] trends driving this in China,” Gauntlett says. “Solar PV manufacturing has been selected by the government as a strategic growth sector and source of jobs for its citizens. Two, there is increased demand for electricity from all sources. And there is a lot of public backlash against the really astounding air pollution that we are seeing in a lot of major cities in China. Solar PV and other renewables are popular among the public, an important factor as well.”

In many developing countries in Africa, the lack of a reliable national power grid, coupled with abundant solar resources, makes solar PV an attractive alternative to the expensive diesel generators that are common. “Africa has huge demand for electricity, and a large percentage of their population is not electrified in general,” Gauntlett says. “South Africa has really taken a leadership role. And that will continue to spread as more markets develop and the demand for electricity grows.”

The emerging markets in which the Navigant report projects strong growth “typically have a high cost of electricity and a large percentage of the population that [is] not electrified,” Gauntlett says. “It’s cost effective because it’s competing against more expensive electricity a lot of the time. And typically individual homes demand a lot less [electricity] compared to the U.S. and Western markets, so systems can be proportionally smaller in scale.”

The solar PV market in the United States, although buoyed recently by tax incentives, is still hampered by an assortment of inconsistent permitting requirements that adds to the cost of the systems and the time it takes to put one in place.

“In the U.S. there is a patchwork of incentives,” Gauntlett says. “Sometimes there are city incentives, state incentives, and federal incentives, all overlapping. Different jurisdictions have different permitting requirements. There is a patchwork of rules and regulations that is adding to the overly burdensome process.” This may change, however. As Gauntlett sees it, “The industry is really pushing toward a standardization of codes.”

In countries in which the path to solar power is less encumbered, ancillary costs sometimes drive the market. “In Germany, the most mature solar PV market, they are installing [distributed] systems for half the cost,” Gauntlett says. “The technology costs are more or less the same. It really comes down to the customer acquisition costs and the permitting costs. [Germany has] been able to make those decline. And that’s why we are optimistic in the U.S. market that we can continue to drive down those things as well.”

Industry analysts see 2017 as a key date in the U.S. solar PV market, for that is when the federal solar investment tax credit will be reduced from 30 percent to 10 percent. The key question is whether price declines by then will offset the loss of that incentive. With the prices of the panels themselves down, the report suggests that future cost reductions for solar PV systems will derive largely from other elements, including such equipment as the inverters, racking, and cabling that accompany the systems. But there will also need to be significant cost reductions in attracting new customers, carrying out inspections, obtaining permits, and connecting the systems to the grids.

Gauntlett anticipates a pause in the market, along with a short-lived drop in installations, when the investment tax credit expires, but he also expects that the market will quickly rebound and continue its strong growth to 2020.


 

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