Solar industry re-assessing prospects for 2012 European PV market following strong finish for 2011

SAN FRANCISCO, USA: A 23 percent Q/Q rise in the Q4’11 European photovoltaic market has created short-term optimism in the industry, which has been amplified by the slowdown in module price decline over the past month. However, the Q4’11 demand boom will accelerate the tightening of PV incentive policies that is gripping Europe, most notably in the key German market and most recently in Spain with announcement of a moratorium on new renewable energy plants, according to the latest European PV Markets Quarterly report from NPD Solarbuzz.

Q1’12 European demand is forecast to show an increase of 10 percent Y/Y. Belgium, France, Spain, and Greece will have their highest quarterly shares, and the United Kingdom could accelerate into a short-term boom in Q1’12 depending on the legal ruling on incentive tariffs.

Major cuts in solar incentives and a weak project financing environment were offset by collapsing module prices, leading the European market to grow 18 percent Y/Y in 2011. The fact that factory gate prices fell continuously through 2011 caused developers to install as late as possible (and before the announced tariff reductions in 2012, particularly in Germany). In addition, funding scheme control mechanisms failed to react in time in major markets such as Germany, Italy, and France. Furthermore, the unusually mild autumn and early winter, especially in Germany, meant that market activity was hardly constrained by weather conditions toward year-end.

German PV market grows 63 percent Q/Q in Q4’11; PV markets in UK and Belgium experience strong rise
Germany exceeded all expectations by surging 63 percent Q/Q in Q4’11, but the UK and Belgium also contributed over 370 MW of growth in the quarter. However, Italy and France dropped Q/Q due to scheme installation deadlines and flexible tariff cuts implemented throughout the year. Module prices fell 40 percent Y/Y at the distributor level in Q4’11, but have shown some evidence of stabilization in January 2012.

“Tier 1 Chinese module manufacturers are predicting module shortages by the end of Q1’12, but the evidence for this is not totally compelling. The path for module prices in 1H’12 will largely depend on the extent to which wholesalers are confident enough to build inventories in the face of continued policy uncertainty. Germany’s role will be critical, especially because its demand profile will be significantly smoothed by its proposed change to monthly rather than biennial tariff adjustments,” noted Dr. Alan Turner, VP of NPD Solarbuzz Europe.

Ground mounted installations, while down 13 percent in 2011, had a 35 percent share of the European market in 2H’11. Non-residential building mounted systems had a 55 percent share in 2011, while residential share rose slightly to 16 percent.Source: NPD Solarbuzz, USA.

Downstream companies will need to develop flexible market strategies
Two of the key markets in Europe, Germany and Italy, face a marked decline in 2012, with a reduction of 37 percent in their combined market size. The strongest growth in smaller markets over next one to two years, based on current incentive policies, will be in Austria, Bulgaria, Czech Republic, and Romania.

Two factors are triggering new growth. As incentive tariffs follow prices downward, less public funding is needed to build significant country markets. In addition, as PV becomes more competitive with retail electricity prices, investors become less dependent on public funding schemes for viable economics. As a result, new markets are emerging, particularly in East and Southeast Europe. Following two 100 MW PV plants built in Ukraine in 2011, Serbia is now planning the construction of two 150 MW plants, as well as a 1 GW project to be carried out between 2013 and 2015.

Prospects for the development of projects based on self-sustaining economics have been boosted in France, with a 60 MW project to be carried out by a major French developer based on a 30-year power purchase agreement with a local utility. Similar concepts are also being discussed in Greece at the government level. However, prospects for comparable projects in Spain have been dented by recent exposure of its very large electricity generating capacity overhang, which has reduced the impetus for capacity expansion of any sort and has culminated in a moratorium on any new renewable electricity plants.