Solar juggernaut marches on as costs continue to fall

The global solar market looks set to continue on its trajectory of extraordinary growth, driven by further reductions in the costs of the technology, and a possible post-Trump “gold rush” that is brewing in the US.

The onward march of the solar juggernaut has been predicted by global investment group Deutsche Bank, whose latest report bumped up its 2017 estimate for total demand to 82GW, from a previous forecast of 74GW.

This has certainly been the pattern of recent decades, with dramatic growth rates of PV consistently beating – and sometimes smashing – analyst predictions. And while Deutsche Bank and other analysts continue to flag a slow-down in the market’s near future, it is not expected to happen this year, mainly due to stronger growth forecast for China.

“We are raising our 2017 global demand estimate from 74GW to 82GW, mainly due to expectations of stronger growth in China (from 17GW to 25GW),” the Deutsche Bank report says.

A similar adjustment was made earlier this month by US-based GTM Research, which replaced a projected -7 per cent global PV market contraction with a forecast of 9.4 per cent growth in its latest quarterly report, the Global Solar Demand Monitor.

GTM Research now projects that the annual global solar market’s size will reach 85 GW in 2017, slightly higher than Deutsche’s forecast – and more than double the installed capacity in 2014.

As Deutsche notes in its quarterly report, published on Friday, a good deal of this market momentum is being fuelled by falling PV technology costs, with some developers asking for less than 30c/W for solar modules in India in 2H17 and mid 20c/W in 2018.

Deutsche says this puts solar “at grid parity”, and while such low prices are not yet being offered by tier 1 Chinese suppliers, it believes a near 20 per cent reduction in poly-silicon prices will act as a catalyst for further price cuts for modules.

“Poly prices (down 17 per cent in the past seven weeks) have been declining faster than module prices as the supply chain in China has been focused on working down excess inventory,” the report says.

“We expect poly prices to approach $10-12/kg and module prices to decline to low 30c/W in 2H timeframe.”

Even in Australia, which gets no special mention in Deutsche Bank’s report, the cost of building large scale solar farms is falling to a fraction of the cost of new coal or gas plants. Indeed, according to the former head of Victoria’s Hazelwood brown coal generator, Tony Cancannon – who now heads up Reach Energy – the cost of large scale solar and storage is already competitive with gas-fired generation, and within a few years will be well below $100/MWh.

All the same, Deutsche still expects global solar demand to be “flattish” in 2018, but notes this could be countered by a final “gold rush” in the US – also driven by falling costs, from $60c/W to low $30c/W between Q3’16 and Q4’17.

“We expect solar economics in several US markets to improve significantly over the next 12-18 months,” the Deutsch report says.

“Our analysis suggests that project returns in the US could likely exceed the returns solar developers achieved in other markets during prior cycle peaks and these returns are unlikely to improve as incentives gradually decline or net metering phases out.

“As such, we expect the final “gold rush” in the US market to drive strong growth in US demand from 2018,” it says.

And as the table below illustrates, this view is supported by the strong pipeline of North American utility-scale solar projects, with roughly 8GW under development in Texas alone, and 31GW in the entire US.

But Deutsche also warns of possible speed-humps looming for global solar, such as a slow-down of growth in markets like India.

“Although declining solar module and system costs are driving significant improvement in downstream project economics in India, the pace of new solar project auctions has slowed down significantly,” the Deutsche report says.

According to the Bank’s data, project allocations in India have declined by 67 per cent to 2.9GW in FY17, while the SECI (Solar Energy Corporation of India) has also recently reduced a rooftop solar
tender from 1GW to 0.5GW.

The report puts the slow-down to difficulty securing PPAs in India, limited interest from developers, and tax increases.

“Beyond 2017, we expect overall growth in China to slow down and expect other emerging markets as well as the US to be the primary growth drivers,” the report says. “Our current estimates call for flattish demand in 2018.”