U.S. Solar Market Will Reign; Just Not This Year

Solarcompanies have pegged the United States as the market to conquerbecause of its size, but for 2009, it’s likely to be Germany that willhave the large appetite for the abundant supply of solar panels,analysts say.

The United States lags behind countries such as Germany, Spain andJapan in solar energy generation, but its size and an earnest push byfederal and some states to promote more installations has made the U.S.a promising market. But not this year.

The U.S. market is likely to shrink in 2009, thanks to the recessionand the time it takes for the federal government to start doling outthe grants and other incentives it promised earlier this year via thestimulus package.

The country saw 391.3 megawatts of solar panel-based energy systemsin 2008. But it’s likely to install 358.2 megawatt in 2009, said PaulaMints, principal analyst at Chicago-based Navigant Consulting, duringthe Photovoltaics Summit in San Francisco on Monday. In 2010, theUnited States could add 428.7 megawatts, she added.

That’s the most conservative estimate. If the credit market improvesand the government could act quicker to distribute the stimulus funds,then the U.S. market could see as much as 600.4 megawatts of newinstallations in 2009, Mints said.

"It’s hard to define the business in the United States – it’sfragmented and immature," Mints said. "In the future, we’ll have astrong market in the U.S."

The United States won’t see its 2009 installations surpass the 2008figure for several reasons. There are two main types of incentives: Taxcredit and rebates. Both require buyers – be there consumers,businesses or investors – to line up their own financing, which is hardto come by.

The federal government is supposed to provide developers with moneyto finance solar power projects if they would forgo the 30 percentinvestment tax credit. But it has yet to kickstart the program, whichis likely to be put in place later in the summer.

Consumers and power project developers in Europe also face financingissues. But many large markets in Europe provide incentives in the formof feed-in tariffs instead of rebates and tax credit. And that makesthe European market more attractive in the short term.

Feed-in tariff policy requires utilities to buy solar electricity ata premium over long-term contracts, which in effect provide aprofit-making opportunity for consumers and businesses.

Germany fell behind Spain to become the No. 2 market in 2008, butit’s poised to reclaim the top spot in 2009 and install more solar thanin 2008.

The country installed 1.35 gigawatts of solar energy systems in2008, and it could add an additional 1.5 gigawatts in 2009, saidDaniela Schreiber, head of research at EuPD Research in Germany, at thesame solar conference. Her forecast calls for 1.65 gigawatts of newinstallations in 2010 and about 1.73 gigawatts in 2011.

Germany isn’t the only country with feed-in tariffs. But it’s beenat it for many years, and it’s put in place mechanisms that better thedecline of the solar electricity rates. Those rates are supposed tofall over time because the costs of producing and installing solarenergy equipment are supposed to decline as the market grows.

The German program doesn’t have an annual, national cap for theamount of solar energy installations that could qualify for thetariffs. Instead, it sets a limit that, if exceeded, would lead to agreater decline of tariffs in the following year. If the limit weren’tmet, then the decline would be smaller.

Spain, on the other hand, puts a cap. Schreiber likens this approachto a gold-rush mentality and boom-bust cycle. For example, projectdevelopers rushed to complete projects in early 2008 knowing that thecap would be lowered for 2009. That pushed up panel prices and promptedthe government to investigate developers who claimed to have completedthe projects when they didn’t (see Spain, the Solar Frontier No More).

Germany also is able to run its feed-in tariff program without thekinds of bureaucracy that plagues countries such as Italy and Greece,Schreiber added.

"Germany is a good model for providing the right framework for a sustainable market," Schriber said.

Overall, companies worldwide are expected to ship about 5.5gigawatts of solar panels in 2009, even though they have 9.9 gigawattsof production capacities, Mints said. Those are conservative estimates,she said.  

"You are looking at a lot of expensive and unused equipment sitting there," she said.


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