For decades, the photovoltaic (PV) industry has fought for its place among mainstream energy resources. Since 2004, the global PV market has been on a course of spectacular growth. In 2010,
PV worldwide installed capacity reached 40 gigawatts (GW). The European Union has 75% of the total capacity, or 30 GW. Germany installed 7.2 GW and Italy - 2.3 GW. The U.S. installed 820 megawatts. Germany's innovative feed-in-tariff policy and other subsidies help stimulate PV demand and the growth of the EU market.
However, analysts at EnergyTrend expect the European market to slowdown because some countries have revised the very policies that have been instrumental in driving the EU market. In March 2010, Germany cut its feed-in-tariff by 11 percent; France reduced solar subsidies by 24 percent in January 2010.
Even with the pace of PV installations expected to lose steam in countries like Italy and Germany -- due to FITs modifications, Europe continues to have a vibrant PV market. Analysts believe the EU will continue to install 5 GW per year over the next several years. Industry insiders see Asia and the United States absorbing any shortfall in demand.
Strengths of the U.S. Solar Marketplace
The American market in particular has several dynamics that make its solar industry poised for significant growth over the next few years. The country has an abundant of sunshine. The Midwest and Northeast regions of the country have an average daily solar radiation level of 3.5/kWh/m2/day. This equals or exceeds Germany's average daily solar radiation level. The Southwestern region of the country has an even higher solar radiation level with an average of 8.5/kWh/m2/day.
The U.S. also has plenty of land for huge utility-scale PV power system installations. Finally, the U.S. has a higher demand for electricity than any market in the world -- seven times Germany's usage and 15 times Spain's electricity market.
Growth of the U.S. PV Market
The United States solar industry grew by 61 percent in 2007. The following year, it expanded at an 84 percent pace. Due largely to the financial meltdown of the economy in late 2008, the market cooled down in 2009, with only a 41 percent growth rate, but still four times the total capacity installed for 2006.A combination of federal, state and local policies combined to accelerate PV installations in the United States.
Over the last several years, the U.S. has experienced steady growth in the PV market. In 2009, various government incentive programs and reduction in production costs helped stimulate the American market. In 2009, the market grew 30 percent over 2008 installations, according to the U.S. Energy Information Administrative (EIA) United States Department of Energy.
Even after strong growth over the two to three years, the installed the U.S. installed capacity represents 5 to 6% of the worldwide solar market by the end of 2010. Two states, California and New Jersey account for the bulk of PV installations.
Manufacturing Expansion
In 2008, there were about 66 firms actively engaged in photovoltaic manufacturing and/or importing segment. The number of entities involved in the industry increased by 53 percent to 101 companies. These companies were responsible for shipping 1,282,560 peak kilowatts of solar cells and panels; as the following list demonstrates, some firms function at multiple activities along the PV supply chain:
- Module and/or Cell Manufacturing - 42.6%
- Designed Modules or Systems - 48.5%
- Developed Prototype Modules - 33.7%
- Developed Prototype Systems - 25.7%
- Wholesale Distribution - 53.5%
- Retail Distribution - 22.8%
- Install PV Systems - 41.6%
Seventy firms received 90% of their revenues from the PV industry. Ten companies received 50 to 89 percent and eight companies received 10 to 49 percent. Thirteen firms received less than ten percent of receipts from the photovoltaic market. Employment in the solar sector increased from 11,245 “person years in 2008, to 14,443 person years in 2009. A 28 percent increase.
Policies Driving the U.S. Market
Unlike its EU counterparts, the United States solar industry does not depend on a national FIT. The U.S. depends on a collection of federal, state and local policies to promote the development of clean, sustainable and renewable solar energy. Some of the most common strategies include:
Renewable Portfolio Standards– Forty states have Renewable Portfolio Standards (RPS), which mandates retail suppliers to provide customers a minimum quantity of electricity from solar or other renewable energy sources. Generally, RPS, which has been around since 1983, creates a base level of demand. The rules require suppliers to meet anywhere from 4 to 30 percent of their electricity generation through three strategies:
- Ownership of a solar energy power plant and its power production
- Buy Renewable Energy Certificates (RECs)
- Purchase solar energy -generated electricity from a renewable plant - or “bundled renewable electricity”
Utilities must reach the state's standard by a certain year; some states periodically increase the requirements.
Solar Renewable Energy Certificates– States that have a RSP standard specific requirements for solar energy called “solar carve-out” or Solar Renewable Energy Credits (SRECs) SRECs provide the right to the credit holder to claim one megawatt (MW) of an environmental or other credit for using electricity produced from a solar energy plant. SREC owners trade credits on spot markets or arrange long-term sale agreements. Many residential and commercial property owners used SRECs to finance the purchase of their solar power system.
Feed-in-Tariffs– Feed-in-tariff refers to rates, established by a government agency, utility companies must pay for solar and other clean energy power for a specific period. The rule requires utilities to reach agreement with property owners. Most agreements run 15 to 20 years. Germany, Italy and Spain have used FITs for years. To date, Germany has enacted the most successful FIT policy.
Only a few states in the U.S. have FIT polices, including, Vermont, Wisconsin, California, and Hawaii. California refers its version of the FIT as a “next generation” policy. The Renewable Auction Mechanism (RAM) requires publicly owned utilities to buy electricity from solar and other renewable sources that generate 1.5 to 20 MW of power.
Other Market Drivers– Some other incentives used to entice developments includes the Investment Tax Credit (ITC), for up to 30 percent of the system’s cost, guarantee loan programs, Accelerated Deprecation, and a variety of state and local tax credits, grants and rebate
Summary
In early 2011, the SEIA named solar as the “fastest growing industry in the country.” Revenues for the solar industry soared by 67% -- from $3.6 billion in 2009 to $6 billion in 2010. So far, first quarter numbers show grid-connected PV installation grew at a 66 percent over the same quarter in 2010. According to the SEIA, not only has the price of solar systems continued to fall, but the expansion of cutting edge business models, such as the residential solar lease have helped fuel growth.
Residential solar leases enable homeowners to have a solar system installed without having to invest the up-front cost. The installer owns the equipment; homeowners sign a Power Purchase Agreement to buy electricity from the installer over a certain period. SEIA also attributes state incentives as a factor that fuels the expansion of the U.S. PV market over the coming years.
