EU Solar Market Catching Fire

EU Solar Market Catching Fire

Location: New York
Author: Ken Silverstein, EnergyBiz Insider, Editor-in-Chief
Date: Monday, August 11, 2008

Europe's solar energy market may catch fire. Government subsidies there are playing a big part, all in an effort to help the continent reach its goal of increasing its renewable generation mix from 8 percent today to 20 percent by 2020.

The ultimate aim is to reduce greenhouse gas emissions tied to global warming. The European Union (EU) is a global leader and as such the member nations enacted incentive programs to achieve their desired results. It all bodes well for solar power. Growing demand, in fact, has helped reduce production costs through the advancement of solar-cell designs and manufacturing processes.

According to consulting firm Emerging Energy Research, Germany now accounts for roughly half of all the installed solar capacity in the world. Within the EU, it is followed by Spain. The countries make up 92 percent of the continent's installed photovoltaic (PV) solar capacity of about 1,500 megawatts. Italy, Greece, France and Portugal are expected to produce the lion's share of PV projects in the coming years. But the establishment of subsidized programs in other markets that include the Czech Republic, Bulgaria and Switzerland has set off a off a wave of PV expansion.

"The European solar PV market is becoming increasingly fragmented across the value chain from manufacturers to project owners with installers and developers operating in the continuum" says the firm's senior analyst Reese Tisdale. Emerging PV-based power producers range from renewable energy utilities to specialized solar PV plant owners looking to gain market share. They include German developers Conergy, City Solar and Phoenix Solar as well as such as utilities as Electricite de France, Iberdrola, Electrabel and Enel.

"Given their existing contacts with commercial and industrial clients, and a proven appetite for renewables, European utilities are well-positioned to enter the PV generation market as the sector transitions toward rooftop installations," says Tisdale.

One of the keys to this growth is "feed-in tariffs." Such government incentives guarantee each plant operator a fixed tariff for electricity generated that is channeled into the grid. Each grid system operator is obliged to pay the statutory fee, which is dependent on the technology used and the year of installation. Ultimately, though, the cost of solar must drop at least 50 percent to compete with other alternatives -- something that investment banking firm Morgan Stanley says is possible within five years.

The rapid growth of the solar sector, however, is a double-edge sword. That's because the supply side has not been able to keep up with demand, forcing industry players to seek cheaper but less efficient solar cells. Silicon is prevalent today but "thin film" is giving it a run for the money. To survive, Tisdale says that the players will have to demonstrate that they are nimble and can adapt to readily changing market conditions.

Global Model

PV is a type of technology that converts sunlight directly into electricity. It is the fastest growing energy technology in the world, increasing at an average annual rate of 48 percent since 2002. While Europe's PV market is 1,500 megawatts, the U.S. solar PV market is roughly 500 megawatts -- a figure induced, in large part, by existing tax credits. By nearly all estimates, solar energy use globally will continue upward.

Without question, Germany remains the world leader. U.S. utilities have thus set out to learn from the German experience. At a recent fact-finding mission, those companies learned about feed-in tariffs, solar technologies and grid-integration processes. Toward that end, they discovered that even with solar penetration rates of 20-30 percent, grid integration issues are not a problem for German power producers.

"Germany has established a national renewable program that has achieved impressive results in terms of the large amounts of solar deployed and innovative developments in solar technology," says Roy Kuga, vice president of energy supply for Pacific Gas & Electric and a member of the delegation. "The technology innovations are directly transferable to the U.S. and will facilitate the scalability and competitiveness of solar."

Utilities in this country are seeking to diversify their fuel supplies to meet clean air requirements and certain renewable portfolio standards. Europe is propelled by similar rules, although member states are signatories to the Kyoto Protocol that obligates them to reduce their heating trapping emissions.

Fostering the increased use of solar energy is therefore an absolute necessity in Europe. While expensive and time-consuming, some scientists said just recently that a relatively small amount of sunlight from Southern Africa and the Middle East could one day meet all of the continent's energy needs. The never-ending sun in those places helps defuse the argument that renewable power is intermittent.

Those scientists, from European Commission's Joint Research Centre, say that it would take billions of dollars and another four decades to achieve such ambitious results. Along those lines, the EU must not only build huge solar farms but it must also construct a "supergrid" to carry the electricity over long distances and high voltage lines.

"For the EU to reduce its greenhouse gas emissions by 20 percent by 2020, many of the required technologies have already been made available while others are in the final stages of development," says Giovanni de Santi and Magda Moner, of the research group. "PV technology is one important element of this technology portfolio." The investment should also include cleaner coal and second generation bio-fuels, they say.

Europe's strategy to bolster its solar supplies could become a global model. It's a pursuit centered on providing incentives and enforcing environmental mandates, all to attract savvy participants, improve technologies and bring down costs.