Historically, a few countries have provided large subsidies to drive the growth of the Solar PV industry: Japan in the 1990s, which provided 50% capital subsidies for residential installations, and Germany and Spain in the late 1990s and early 2000s respectively. Riding on attractive tariffs (about 0.45 €/KWh) in Germany and Spain, the global annual capacity addition quadrupled from 1.5 GW in 2005 to 6 GW in 2008. This period also saw entry of many new players across the Solar PV value chain.
Though the current economic crisis has arrested the growth of Solar PV installations, its effect has been temporary. Slowing demand from Germany and Spain is being replaced with emerging demand mainly from the US, India, and China. Considering announced plans, Solar PV installations are expected to cross 135 GW by 2020 from a current installed base of 15 GW.
Economics is playing an increasingly important role for this renewed interest, in addition to environmental benefits. Electricity from Solar PV panels, which costs about 25 to 30 cents/KWh is currently expected to reach close to grid parity between 2015 – 2020.
Cost reductions across the Solar PV value chain and carbon emission costs would be the factors contributing to this trend. Multiple factors will contribute to cost reductions across the Solar PV value chain.
Improving technology and processes
Polysilicon supply is no longer a constraint for crystalline silicon based panel technology because of a better supply situation. After a steep rally in polysilicon prices until 2008, a drop in semiconductor demand led to a sharp drop in its prices.
Cost savings in thin film technology are likely to come from reduction in capital equipment prices as equipment manufacturers compete for more share of the growing thin film panel manufacturing market.
Improvement in conversion efficiency and advancement in manufacturing processes will also help to drive lower cost. Other factors include relocating panel manufacturers to low cost locations and developments in other parts of the manufacturing value chain, viz., balance of systems and parts of the service value chain like modular EPC, faster farm installations, etc.
Increased competition and downward margin will lead to vertical integration across the value chain. The integration strategy would depend upon the nature of subsidy regime. Economies with investment based subsidies would see equipment manufacturers forward integrate into system integration, EPC, and operations; whereas economies with competitively derived feed-in tariffs would see generation companies backward integrate into EPC and system integration.
The rapidly evolving solar industry will create significant opportunities both in power generation and PV value chain. But a phase of rapid growth is preceded by a highly uncertain environment. Current and new entrants need to answer key strategic questions related to technology choice, value chain partnership, and project viability to be successful in the industry.
Author: Girish Shirodkar
Girish Shirodkar heads the Energy and Resources practice at SDG Asia Pacific and has over 12 years of strategy consulting experience across energy and infrastructure. Peter Hopper heads the Hi-tech practice at SDG Asia Pacific and has over 25 years of strategy, operations and business experience in the Hi-Tech space.
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