With the demand for solar installations set to decline in Germany, as manufacturers reach near-term limits on cost reductions, this will trigger a shift in demand to Asia and North America, but revenues will remain flat to 2016 due to falling prices, according to new analysis from Lux Research.
In a report released today, the Boston, Massachusetts, research and advisory firm said that while solar subsidies have been capped, cancelled and cut over the past several years, solar installations have continued to rise, driven primarily by increased demand from the German market. However, as manufacturers approach near-term limits on cost reductions, Lux anticipates that German demand will begin to decline.
As a result, it said demand for solar installations will shift to Asia and North America, with revenues staying flat as price declines outpace volume growth. Instead, Lux said the solar market will grow in terms of megawatts installed.
Shift in solar demand
In its report, Lux said solar demand will shift to a broader range of markets over the next five years, based on analysis of levelised cost of electricity (LCOE) and internal rate of return (IRR) across 156 countries, states and regions.
According to Lux, Japan, China and India will drive significant volumes, and the US will come forth as a big solar energy player due to the government’s support of tax equity through 2016 and state-level programmes.
“The global solar market for grid-connected systems will grow from 15.8GW in 2010 to 37.5GW in 2016, a compound annual growth rate of 15.5pc,” said Lux research analyst Matt Feinstein. “However, price declines will outpace volume increases, at least at first – the industry will actually shrink on a revenue basis from US$64.4bn in 2010 to US$56.9bn in 2012 before recovering to US$65.4bn in 2016.”
New Jersey, Australia and Greece – attracting attention
With subsidies, Lux said markets that have IRRs worthy of investment by project developers for residential markets in 2011 include Australia (52pc subsidised IRR), Greece (32pc) and Ontario (27pc).
It said the most attractive commercial markets are New Jersey (42pc), Portugal (37pc) and Hawaii (34pc).
On the utility ground-mount side, Portugal (81pc) tops the Lux list, followed by New Jersey (58pc) and Cyprus (44pc).
By 2016, Lux Research predicts viable investment targets will increase dramatically, to encompass 45 residential markets, 88 commercial markets, and 85 utility markets.
It said subsidies and grid parity aren’t necessary to generate positive demand. “An anticipated future increase in the cost of retail and wholesale power is all that’s necessary to generate positive demand – even in countries without subsidies.”
Grid parity
Lux forecasts that commercial systems will reach grid parity fastest, with 10 geographies there by 2016.
“The number of commercial rooftop markets reaching parity will grow from one in 2010 to 10 in 2016, including the Dominican Republic and Nicaragua. Hawaii will be the first to accomplish residential grid parity in 2011. By 2016, a total of seven other residential markets will follow, including Italy, Denmark and Ukraine,” said Lux.
