Solar subsidies have been capped, cancelled, and cut over the past several years, but solar installations have continued to rise – driven primarily by increased demand from one market: Germany. However, as manufacturers approach near-term limits on cost reductions, German demand will begin to decline. As a result, demand will shift to Asia and North America and the solar market will grow in terms of megawatts installed, but revenues will stay flat as price declines outpace volume growth.
A new report from Lux Research finds that solar demand will shift to a broader range of markets over the next five years, based on analysis of levelized cost of electricity (LCOE) and internal rate of return (IRR) across 156 countries, states, and regions. Japan, China, and India will emerge to drive significant volumes, and the U.S. will come forth as a heavyweight given the government’s support of tax equity through 2016 and a myriad of state-level programs.
“The global solar market for grid-connected systems will grow from 15.8 GW in 2010 to 37.5 GW in 2016, a compound annual growth rate of 15.5%,” said Lux Research Analyst Matt Feinstein. “However, price declines will outpace volume increases, at least at first – the industry will actually shrink on a revenue basis from $64.4 billion (€45bn) in 2010 to $56.9 billion (€39bn) in 2012 before recovering to $65.4 billion in (€46bn) 2016.”
Among the report’s key findings:
• Leading IRR markets like New Jersey, Australia, and Greece attract attention in 2011. With subsidies, a surprising number of markets have IRRs worthy of investment by project developers today. Today, the most attractive markets for residential are Australia (52% subsidized IRR), Greece (32%) and Ontario (27%) while the most attractive commercial markets are New Jersey (42%), Portugal (37%) and Hawaii (34%). On the utility ground-mount side, Portugal (81%) tops the list, followed distantly by New Jersey (58%) and Cyprus (44%). By 2016, viable investment targets will increase dramatically, to encompass 45 residential markets, a whopping 88 commercial markets, and 85 utility markets.
• Subsidies and grid parity aren’t necessary to generate positive demand. An anticipated future increase in the cost of retail and wholesale power is all that’s necessary to generate positive demand – even in countries without subsidies. Brazil, for example, is projected to reach a 12% unlevered, unsubsidized IRR for commercial mc-Si systems at the end of 2016 – even though solar will not yet have reached grid parity. Indeed, of 55 geographies demonstrating unsubsidized IRRs above 10% at the end of 2016, only 10 will have reached grid parity.
• Commercial systems reach grid parity fastest, with ten geographies there by 2016. The number of commercial rooftop markets reaching parity will grow from one in 2010 to ten in 2016, including the Dominican Republic and Nicaragua. Hawaii will be the first to accomplish residential grid parity in 2011; by 2016, a total of seven other residential markets will follow, including Italy, Denmark, and Ukraine. For utility ground mount, the number remains small.