European solar PV market faces instability for next five years as PV policy outlook tightens

LONDON, UK: The pace of the European solar photovoltaic (PV) market in the first half of 2010 was dominated by the impending mid-year incentive tariff reductions in Germany and conditioned by the lower module pricing that emerged through 2009, according to the latest from Solarbuzz in Europe PV Markets 2010.

“Despite the strength of end-market demand, which was one-third higher in Germany in the first half of 2010 than in the second half of 2009, the first PV module price increases of 2010 only emerged in June,” noted Alan Turner, Vice President of European Market Research for Solarbuzz.

“Even then, the increases in euro terms only partially compensated for the deteriorating price picture in dollar terms caused by the euro’s dramatic decline against the dollar. Such is the strength of supply growth in the PV industry.”

German PV market reaches 3.87GW, up 109 percent Y/Y
Looking back at 2009, the German PV market reached 3.87 GW, growth of 109 percent. The growth would have been even larger if not for a shortage of inverters that has curbed the market since September 2009.

The largest customer segments in 2009 were Investor Groups (42 percent of the on-grid market), Agricultural (18 percent) and Commercial (14 percent), with Utility and Government customers playing a smaller role. Private residential PV systems accounted for 13 percent of the market.

With 770 MW newly installed capacity, Italy became the world’s second largest PV market. The Czech Republic, France and Belgium combined to add 933 MW of newly installed capacity in 2009.

Growth of the total European market was just 16 percent in 2009, while growth excluding Spain was a remarkable 126 percent. This highlights the vulnerability of the overall market to policy review in the larger markets balanced against the growth of emerging markets.

The PV industry has gone from boom to bust and back to boom within a cycle of less than two years from the downturn in Spain late in 2008 to the current surge in Germany. On that basis, few would project stability over the next five years. The fundamental problem is the continued dependence of the industry on market incentives. Increasingly, their cost is becoming a “political hot potato” when programs overshoot their planned scale.

PV policy outlook is tightening
The specter of further cutbacks in incentive levels in major markets now hangs over the PV industry some 21 months on from the start of the debacle that has turned the Spanish market from leader to laggard. The macro economic climate has also changed markedly over that period. The banking crisis that coincided with the Spanish PV market downturn has turned into a broader economic malaise.

Current forecasts indicate the new mechanism of tariff adjustment in Germany will be effective over the 2011-2012 period in subduing the German market. Despite this there remains upside potential in 2011, especially in the most aggressive pricing environment of the Solarbuzz Production-Led scenario.

The European outlook of tightening policy as governments seek to reduce the economic burden of their national incentive programs will sustain pressure for continued price reduction beyond the short-term tightening around mid-2010.

Turner added: “Exposure to individual country markets remains a high risk strategy. The policy risks are simply too great and downstream solar companies need to look for a geographical portfolio that balances materiality and growth to secure their long-term position.”

Fig. 1: 2009 Europe PV Market Size by Region (MW)Source: Solarbuzz Europe PV Markets 2010.