How Viable Is Solar Power?

June / July 2011 By: Georgina Benedetti Volume 9 Number 3

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Solar photovoltaic systems have, over the last 50 years, evolved into a mature, sustainable and adaptive technology. PV technology is improving as the efficiency of solar cells increases and the modules are designed with a more aesthetically pleasing appearance. As a result, solar power is gaining more acceptances and is becoming an increasingly cost-effective and clean alternative to conventional energy sources.

During the next decade, adoption of solar technologies for power generation is likely to gain momentum as solar helps mitigate the harmful effects of global warming. Since countries around the world are keen to achieve self-sufficiency in energy supply and reduce emissions, renewable energy technologies including PV solar are likely to receive more government support in the form of policies, subsidies and adoption incentives.

By the end of 2010, there was about 38,948 megawatts of solar PV energy installed capacity in the world. The majority of the solar capacity is located in Europe and Asia/Pacific. In 2010, the global solar power industry faced important challenges such as component low cost of PV modules, high electricity prices and shortage of PV panels.

• Low Cost Of PV Module. PV module prices experienced a sharp decline in 2009 and 2010 due to lower demand, increased manufacturing capacity and higher silicon supply.
Another important factor that contributed to the drop in solar panel prices was the emergence of Chinese PV cell manufacturers that could produce solar cells at a lower cost than American and European companies.  Lower PV module demand and increased competition from Chinese manufacturers has forced some European solar panel manufacturers to reduce prices, squeezing margins.  European and American companies producing good quality, high-efficiency solar panels are likely to be in a better position to compete on market share with Chinese panel manufacturers.

• High Electricity Prices. Despite their higher capital cost, solar power plants must compete with the wholesale prices for electricity generated by conventional power plants. Government incentives are necessary for renewable energy technologies to compete with grid electricity in terms of price. Even though solar plants have high initial costs, the variable operation and maintenance costs are small and predictable because, after the plant capital costs are amortized, fuel for solar power generation is free.

• Shortage of Solar Panels. Primary solar panel manufacturers won’t be able to meet 2011 demand for solar panels. The main reasons for the scarcity of solar components are decreased solar panel prices in 2009, favorable incentives established by European governments, such as feed-in tariff, and incentives and subsidies provided by the North American governments. Further, strong demand from Europe spurred U.S panel manufacturers to ship overseas.

These challenges are expected to reduce their impact during the forecast period, as government incentive and rebate programs are reducing the generation costs, making solar power cost competitive with conventional sources of electricity generation. In addition, the solar panel shortage is expected to ease in the mid-term of the forecast period, as panel manufacturers expand production capacity. Silicon supply is projected to continue increasing and likely will meet solar panel manufacturers’ demand during the forecast period.

Despite the reduction in the price of solar panels, the revenues of the global solar power market are expected to rise at a compound annual growth rate (CAGR) of 5.5 percent, with installation expected to increase at a CAGR of 28.6 percent from 2010 to 2017.

Explosive Demand for Renewable Energy Is Expected to Boost Solar Power Installations in all the Regions

• North America. The North American solar power market has experienced tremendous growth during the last three years as a consequence of the increasing government concerns about energy security and independence. Additionally, the rising energy prices, volatility of fuel costs, and state and federal government incentives and subsidies, such as the production tax credit and the renewable portfolio standards, have contributed to the acceleration of solar power deployment in the region.
In 2010, in terms of PV installations, 1,121MW of solar PV power was added to the energy system, contributing to 2,923MW of cumulative installed capacity. More than 90 percent of the total installations in the region are in the U.S., particularly in California.
 
• Europe. The European solar power market has been facing some challenges during the last years, such as the German government decision to adjust feed-in tariff rates in accordance with annual installed capacity and the Spanish cap to solar installations. The industry has stridden through these challenges, relying on strong market fundamentals. The region had continued to experience steady growth in 2010, when total solar installations reached 28,243 MW.

The European solar power market has been driven by the strong policy support both at the European Union and the national level. These incorporate a range of financial incentives, including investment grants and premium tariffs. The EU directive on renewable energy adopted in December 2009 is the single, most important driver for EU members, forcing them to review their energy portfolios and develop a strategy for achieving those targets efficiently. The directive requires 20 percent of energy to be generated from renewable sources by 2020, and it sets a specific target for each European country.

• Asia-Pacific. Asia Pacific had 5,843MW of PV cumulative installed capacity in 2010. The country with the highest installed capacity was Japan. Japan has been supporting its solar photovoltaic projects by means of several financing vehicles, such as utility mandates, subsidy programs  and Japan’s Ministry of Economy, Trade and Industry action plan, which set targets to increase solar installations by a factor of 10 by 2020 and by a factor of 40 by 2030.  China is the largest manufacturing base for solar cells in the world. Solar energy in China is primarily used for rural electrification. Building integrated photovoltaic applications in the country has recently accelerated due to subsidies.

• Rest of the World.  PV solar installations are also expected to show strong growth from 2010 to 2017 driven mainly by feed-in-tariff policies and demand for rural electrification in developing countries. In 2010, the rest of the world had 1,939MW of the total installed PV capacity. However, the PV solar power market in these regions is facing significant challenges, such as the lack of adequate financial incentives, policies to encourage the use of solar energy and political instability.

The global PV solar power market was dominated by Europe, specifically by Germany and Spain. However, these countries’ dominance has started to weaken as the German and Spanish governments have reduced feed-in tariffs and PV markets in other countries have been building momentum. The U.S. is increasing its dominance and is likely to perform strongly in the near future, mainly due to the incentives and subsidies provided by the federal government and its immense solar potential.

Georgina Benedetti is a senior energy and power systems analyst for Frost & Sullivan, the international consulting firm.