The recent slew of quarterly reports from the world’s major solar PV manufacturers have delivered some encouraging news: surplus capacity is being removed, manufacturing costs continue to fall, selling prices have stabilised and margins are improving. Some solar manufacturers may even post a profit later this year or in 2014.
But by far the most impressive piece of information was the extent to which the industry is growing in new markets. The influence of Europe, which kicked off the solar PV boom nearly a decade ago with its feed-in tariffs, is fading. China, Japan and the US will compete for domination in the coming years, but strong markets in the rest of Asia, Africa and South America are also emerging.
“The global PV market is becoming more diversified,” says Liangshing Miao, the chairman and CEO of Yingli Solar, the world’s biggest manufacturer of solar PV. “China, the US, Japan and other new and emerging markets, will become the main drivers of demand in the second half of this year. (We are witnessing) the globalization of the PV industry.”
This is a recurring theme in the industry. Last month, Deutsche Bank published an analysis which talked of a major “inflection point” in the global PV industry. Analyst Vishal Shah said that three-quarters of the world’s market will be “sustainable” for solar within 18 months, meaning there is an economic case to install solar PV with little or no subsidy.
More recently, Deutsche Bank noted that the US – the world’s biggest electricity market – was rapidly approaching the point where more than half of its states were at “grid parity”, also meaning that no additional subsidies are required for solar PV. It predicted the US market would reach annual installations of 16GW by 2016, and have total installed capacity of 50GW.
But it’s not jut the big four markets that are offering huge opportunities for solar PV. In another report, Deutsche said Chile could become the first subsidy-free market in the world, explaining why it had more than 3,500MW of projects in the pipeline.
Robert Petrina, Yingli’s head in the Americas, says sales in Latin America have surged 1,700 per cent over the last year, utility-scale projects are popping up everywhere and distributed generation is very strong.
He cited Chile, Mexico, Ecuador and Brazil (Yingli is a sponsor of the FIFA World Cup in 2014) as being among the strongest markets in Latin America. It now operates in 18 countries there. “The signals overwhelmingly point to continued development in accelerated PV adoption,” Petrina says. “We are seeing new markets open up and project sizes increasing in those regions.”
Yingli published this graph in relation to its 2nd quarter results to illustrate how demand is moving away from Europe. The most interesting parts are the first and third columns, because they highlight how Europe has shrunk from more than 50 per cent of demand to just over one quarter.
Yingli’s Miao says the company is already redeploying staff and resources to other emerging markets in Africa and Asia.
In South Africa, the government has already signed contracts for 1GW of solar PV and is currently holding an auction for another 400MW of PV capacity. The provincial government of Gauteng announced earlier this month it would spend $1 billion installing 300MW of solar on the rooftops of all state-owned buildings.
In Zimbabwe, solar developer Twalumba has reportedly signed an MoU with British company Thompson Cole to develop eight solar farms totaling 600MW over the next 15 months, with the help of Chinese and British financing. Saudi Arabia is gearing up to make a massive investment in solar PV, along with other Gulf and north African countries. On a smaller level, Ethiopia is half way through a World Bank-sponsored program to bring distributed solar to 25,000 households not connected to the grid. Private companies offer similar programs in Africa and Asia to some of the 1.6 billion people who don’t have electricity.
In Asia, India is working its way through its ambitious program to have 20GW of solar PV by 2022, Pakistan has just announced plans for 700MW of solar capacity in Punjab province, Bangladesh already has installed a million off-grid solar systems, and has announced plans for another 500MW deployment.
Thailand and Malaysia are emerging as strong markets, and a new source of manufacturing. Even Brunei is looking at introducing a feed-in tariff for solar, albeit to help the oil-rich sultanate reach an incredibly modest renewables target of just 10 per cent by 2035. Russia is also holding a tender for 700MW of solar projects.
The predictions of Deutsche Bank, other investment banks, and individual analysts such as Tony Seba, are based on the premise that fossil fuel prices will continue to rise, while solar PV costs will continue to fall. This last assumption is contested by many in the traditional utilities business, but these two graphs below tell us much about the changing dynamics of the industry, and puncture holes in the views of some that the price falls in solar PV modules are unsustainable.
The first graph on the left (from Yingli’s 2nd quarter accounts) shows that in just the past year, the non-silicon cost of PV modules has fallen by 18 per cent. And on the right, we see that because prices have stabilised, or even risen in some markets, the gross margins of the company have rebounded. The fall in costs are consistent with a recent study by the National Renewable Energy Laboratory and the Massachusetts Institute of Technology that suggests production scale, rather than low labour costs, has driven China’s boom in manufacturing PV modules, and delivered its cost superiority of other manufacturers.
Intriguingly, Yingli chief strategy officer Yiyu Wang said that project costs for its current pipeline of 130MW in utility-scale solar projects in China are about $1.03-$1.05 a watt. That is less than half the cost of smaller projects in Australia, such as those to be built under the ACT Big Solar program, and one-third of the cost of AGL Energy’s 155MW solar plant proposed for Broken Hill and Nyngan in NSW. Wang suggested that Yingli would generate a return in the “higher mid teens” for these projects.
