MERCOM REPORT: Global Solar Forecast: Solar Installations to Reach 57.4 GW Globally
- Mercom is expecting a strong year for solar installations and we are revising our global forecast to about 57.4 GW due to some positive developments since our latest update
- Mercom expects China, Japan and the U.S. to account for approximately 60 percent of global solar installations this year
- China’s National Energy Administration (NEA) revised its 15 GW target to 17.8 GW since our last forecast article. Mercom is updating its China demand forecast to 17 GW.
- Japan is estimated to have installed approximately 9.5 GW of solar in 2014, and Mercom forecasts 2015 installations to be approximately 10 GW
- Solar PV installations in Germany continue on a downward trend with only 400 MW installed in the first four months of 2015 compared to 622 MW installed during the same time last year. We are reducing the demand forecast for Germany to approximately 1,300 MW for 2015
- The U.S. is expected to install approximately 9 GW of solar in 2015 as projects ramp up to beat the December 31, 2016 federal Investment Tax Credit expiration
- We have raised our solar demand forecast for India to about 2.2 GW as a result of PPA’s signed by the state of Tamil Nadu in the last month
The global solar industry remains dynamic as ever with constant changes in policies, incentives and goals in different markets. Mercom is expecting a strong year for solar installations and we are revising our global forecast to about 57.4 GW due to some positive developments since our latest update. Trade skirmishes are now a familiar part of solar sector.
The European Union (EU) announced that it opened investigations into imports from Taiwan and Malaysia. EU is following the US/China template where antidumping duties were imposed on Chinese manufacturers followed by another case against circumvention. The EU recently imposed tariffs on three solar companies for violating the minimum tariff agreement between China and the EU. The EU is also reviewing the current minimum import price agreement which is due to expire in December of this year. It is a well-known fact that higher panel prices have been detrimental to solar installations in the EU, especially Germany.
Hindered by higher panel prices, the region that once led the world in solar installations was surpassed last year by individual countries like China and Japan, which installed more solar each than all of the EU countries combined.
Mercom expects China, Japan and the U.S. to account for approximately 60 percent of global solar installations this year. Since our previous forecast three months ago, China revised its solar installation target yet again by 20 percent to almost 18 GW for 2015. This is a steep target considering 2014 installations came in at 10.6 GW, but compared to last year, this target looks achievable in part due to the specific steps taken by the NEA and the 5 GW that was installed in the first quarter of this year. China’s solar installation goals were revised numerous times last year, and a similar trend can be expected this year if there are implementation issues on the ground.
The Japanese solar market is set to peak this year following a strong 2014. Utility curtailment, further review of tariff levels and costs to the government and consumers from overly generous feed-in tariffs are all expected to contribute to the declining Japanese market beyond 2015. The U.S. solar market continues to advance steadily with its two best years forecasted in 2015 and 2016 prior to the Investment Tax Credit expiration deadline. We are forecasting India to install more than 2 GW and have its best year to date.
CHINA: China’s National Energy Administration (NEA) revised its 15 GW target to 17.8 GW since our last forecast article. Mercom is updating its China demand forecast to 17 GW based on a number of factors. With 10.6 GW of solar installed in 2014, China missed its set target of 13 GW by about 22 percent. The installation target was initially set at 12 GW then lowered to 10 GW. After which it was revised up to 14 GW before settling on a final target of 13 GW. We believe a somewhat similar pattern might unfold for this year’s set target. However, there are a few indications the revised 17.8 GW target is reachable this year. First quarter installations totaled 5.04 GW, a very strong number considering only 3.3 GW of solar was installed in the first half of 2014. Yet, at least half of the installations could be attributed to 2014 projects that did not complete on time. Global Solar Forecast: Solar Installations to Reach 57.4 GW Globally Hindered by higher panel prices, the region that once led the world in solar installations was surpassed last year by individual countries like China and Japan, which installed more solar each than all of the EU countries combined.
The NEA laid out some policy proposals to help reach the 17.8 GW goal. Notable is the omission of a specific installation target set for distributed vs. utility scale projects which contributed to missing the 2014 goal. This is a more practical approach until distributed solar is ready for primetime. Of the 2.8 GW upward target revision over last year, Hebei, Anhui, Ningxia, Gansu and Qinghai account for 1.5 GW of solar projects allotted towards poverty alleviation program.
Three provinces (Anhui, Sichuan and Hebei) account for 1 GW and other regions account for the remaining 0.3 GW of the upward revision. The NEA has set an April deadline for provincial governments to submit detailed project plans, and any plans submitted without allocating a provincial target to specific projects will be handed to other provinces. The NEA says it will monitor installations on a quarterly basis, and it will consider the progress made in each province before allocating 2016 quotas. The final review in October will consider installations vs. targets, and provinces that have achieved less than half of its targets may end up with smaller project quotas next year.
The NEA is also encouraging competitive bidding for project allocations. With these detailed proposals put forward by the NEA and the 5 GWs installed in the first quarter, 17.8 GW is a more achievable target this year. China’s continued strong commitment towards reducing carbon emissions, controlling air pollution; and its pledge to reach an “emissions peak” around 2030 with non-fossil fuels making up 20 percent of the energy generation mix bodes strongly for the solar sector.
JAPAN: Japan is estimated to have installed approximately 9.5 GW of solar in 2014, and Mercom forecasts 2015 installations to be approximately 10 GW. The Ministry of Economy, Trade and Commerce (METI) announced feed-in tariff cuts in March.
The new tariff for projects greater than 10 kW (mostly commercial) will be reduced in two phases; the tariff will be reduced to ¥29 (~$0.24)/kWh starting April 1 and will be reduced again July 1 to ¥27 (~$0.22)/kWh. The total reduction in tariff amounts to 15.6 percent year-over-year. The new tariff for projects less than 10 kW is set at ¥33 (~$0.27)/kWh for projects without curtailment compatible equipment installation obligation and ¥35 (~$0.28)/kWh for projects with curtailment compatible equipment installation obligation. The curtailment equipment obligation rates to the above mentioned provisions are specific to Hokkaido, Tohoku, Shikoku, Okinawa, Hokuriku, Chugoku and Kyushu Electric utilities. We are anticipating a mini-installation rush before the expected tariff reduction in March.
There was a domestic module shipment spike in the first quarter of calendar year (CY) 2015 with shipments totaling 2.8 GW a 15 percent growth quarter-over-quarter. Total PV module shipments into Japan in CY 2014 totaled 9.8 GW. Local Japanese media reported that METI will be reviewing the FiTs for renewable energy and is setting up a committee to review tariff levels and its impact on consumers. Reading between the lines – overly generous FiTs have become financially burdensome and like most countries Japan will likely curtail tariff levels. Utilities have already been pushing back with output curtailment (see our previous update for details) and the Japanese solar market beyond 2015 looks less than promising.
GERMANY: Solar PV installations in Germany continue on a downward trend with only 400 MW installed in the first four months of 2015 compared to 622 MW installed during the same time last year. We are reducing the demand forecast for Germany to approximately 1,300 MW for 2015. Since August of last year, solar projects greater than 500 kW received a ‘market premium’ instead of FiT which is on a degression scale every three months.
Projects below 500 kW will continue to receive the FiT until the end of 2015, and only projects below 100 kW will receive the FiT after 2015. By design, the current incentive scheme is not attractive for the market. When you add to it the EU anti-dumping policy, which has stalled the module prices at a set price, developers are taking a double hit in Germany. The first auction for large-scale PV projects was announced in April for 150 MW and was oversubscribed by four times. Under auction rules the lowest bid wins. Twenty-five bids for 157 MW were selected at an average bid of €9.17 ct/kWh (~$10.3 c/kWh) with a benchmark rate at €11.29 ct/kWh (~$12.7 c/kWh).
The winning average bid of €9.17 ct/kWh (~$10.3 c/kWh) was actually higher than the market premium of €9.02 ct/kWh (~10.2 c/kWh). Though this doesn’t seem like a big difference, considering these projects have two years to build at a set rate while the market premium rate is revised down every three months, this is a good deal for developers. The auction was implemented as a cheaper alternative to the FiT, but turned out to be a more expensive option. We will need to look at the second auction in August to see if this trend persists, and if it does, there is a good chance that this program will be scrapped or modified after this year. Auctions totaling 500 MW are scheduled to be held this year, 400 MW in 2016 and 300 MW in 2017.
UNITED STATES: The U.S. is expected to install approximately 9 GW of solar in 2015 as projects ramp up to beat the December 31, 2016 federal Investment Tax Credit expiration. Without congress intervention, the 30 percent ITC will expire in 2016 and drop to 10 percent. Solar module prices in the U.S. have remained steady the last 12 months due to the anti-dumping ruling while module prices in the China and Taiwan spot markets have fallen to about $0.55/W.
The market has instead focused on reducing costs in other areas like balance of systems and financing. The U.S. market has led in reducing financing costs by using innovative financing structures like securitization and Yieldcos. In the first half of this year, third-party solar finance companies have raised almost $3 billion dollars in lease and loan funds, on course to make this the best fundraising year for solar lease companies as the ITC expiration draws closer. We expect this activity to strengthen in 2016.
The third-party finance model has been a significant driver of residential solar installations in the U.S. Yieldcos, which are publicly traded companies created to own operating projects with predictable cash flows, are increasing in numbers with at least 15 currently in the pipeline. Yieldcos lower the cost of capital. The high dividend yield combined with stable predictable low risk cash flows over 20-25 years makes them attractive to large institutional investors, insurance companies and pension funds, unlocking billions of largely untapped sources of capital that has stayed away due to perceived risks.
UNITED KINGDOM: The U.K. is expected to have its best year for solar installations in 2015 with an expected rush before the expiration of Renewables Obligation Certificates (ROC) for projects larger than 5 MW after April 2015. The market going forward is expected to move towards smaller projects that are incentivized through the FiT program. The Contracts for Difference (CFD) auction mechanism will replace ROC for projects greater than 5 MW. In the first CFD auction held last month, solar won only five projects for a total of 72 MW, 32 MW of which is scheduled to be completed in 2015.
INDIA: We have raised our solar demand forecast for India to about 2.2 GW as a result of PPA’s signed by the state of Tamil Nadu in the last month. There were several important developments in the last three months, including a positive announcement by RBI to include renewable energy under priority lending, but with a cap. This will not affect large-scale projects a great deal, but it is an important first step none the less. Another welcome development was the passing of The Electricity Amendment Bill in Parliament which has the potential to exert a long-term positive effect on the renewable and power sector in general. The solar industry in India is still eagerly awaiting the implementation and execution of various solar programs announced over the last 12 months.
Republished with permission. Selected graphics included in this excerpt.
June 24, 2015