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BUILDING ON THE PV EXPERIENCE OF EUROPEAN MARKETS
- 1. BUILDING ON THE EXPERIENCE OF EUROPEAN MARKETS … to successfully develop PV markets in the long term Marie Latour, National Policy Advisor 22 September 2011
- 2. Content PV MarketStatus in 2010 and prospects for 2011 Market Outlook until 2015 Policy recommendations to sustainablydevelop a market PV on the road to competitiveness
- 4. More than 240 members
- 5. Represents the whole value chain from Silicon feedstock to system developers, equipment suppliers, utilities, research centers, etc.
- 6. More than 26 years experience (created in 1985)
- 8. Whatis PV…
- 9. Evolution of the Global PV Market 2000 - 2010 +132% +17% +145% +59%
- 10. The PV market in 2010
- 11. The PV market in 2010 – Europe and the rest of the World Europe: 81 % Rest of the World: 19 %
- 12. EU: PV installations Compared to other technologies
- 13. Market in 2010 in Europe (EU27 + CH, NO…) Germany: 7.4 GW Italy: 2.3 GW Rest of Europe: 98 MW Bulgaria: 11 MW CzechRep: 1.5 GW France: 0.7 GW Portugal: 16 MW Belgium: 424 MW UK: 45 MW Spain: 369 MW Austria: 50 MW Greece: 150 MW Slovakia: 145 MW
- 14. Cumulative installed capacity in EU: leading countries In W / habitant: Germany leads (210), CZ (191), Spain (80), Italy (60), France (15)
- 16. Global Cumulatedinstalledcapacityuntil 2010 39.6 GW
- 18. The global top 10 in 2009 and 2010 (MW installed)
- 19. 2011 SO FAR… (in MW) India (600-800) Thailand (100?) Israel (100?) Canada… UK (300-400) Greece (300) Solvakia (350) Austria (100) … 25 GW produces 35 TWh (world) 35 TWh relates to five 1000 MW Nuclearreactors. EU: 15-17 GW World: 22-25 GW
- 21. Two short term scenarios A Moderate scenario (“Business-as-usual” market ) no major reinforcement of existing support mechanisms, reasonable continuation of current FiTs aligned with PV systems prices. Policy-Driven scenario: continuation or introduction of support mechanisms, namely FiTs, strong political will to consider PV as a major power source in the coming years. removal of non-necessary administrative barriers and the streamlining of grid connection procedures.
- 24. Unlocking new markets, stabilizingothers In Europe: Need to consolidate/furtherexpandexistingmarkets Germany, Italy, France, Belgium, Spain, Greece, Portugal, UK, Bulgaria Need to unlock/develop medium size markets Hungary, Romania, Turkey, Poland? WeKeepfaith: Grid parityiswithinreach (2013-2020)
- 25. PHOtovoltaic observatory Policy Recommendations Ensuring a long term development of national markets
- 27. Promote market transparency and PV deployment in the energy sector across Europe
- 28. Advisenational decision makers on the successful implementation oftheir support policies
- 30. Pilar 1: Implementingsustainable support mechanisms Use Feed-in Tariffs or similar mechanisms Ensure transparent electricity costs for consumers Encourage the development of a sustainable market Guarantee a gradual market development with the corridor concept Develop a national roadmap to PV competitiveness
- 33. Exclude non yetcostcompetitive technologies803 66 1 1.953 1,025 145 103 0 3,784 1 3,494 130 18 206 AND 2010
- 34. Implementingsustainable support mechanisms2. Ensure transparent electricity costs for consumers PV and all RES cost is fully transparent (Levy on electricity bills) Conventional electricity cost are not as transparent (Benefit from public support through state budget, collected via taxes, not reflected in electricity bills) Unfair competition between energy sources
- 36. FiT structure and level
- 37. Other incentives: Tax rebates, investment subsidies
- 38. PV system prices
- 40. IRR of PV investment should represent a reasonable incentive compared with IRR of investments with similar risk level
- 41. Higher IRR may lead to unsustainable growth, lower to market stand still
- 43. Czech Case 10!
- 44. Slovak case
- 45. German case
- 47. Market < lower limit, degression rate
- 48. Transparent control and predictable market
- 49. Ensures sustainable growth of market“Corridor” market cap rationale MarketGWp Upper limit reached -> degression increase Lower limit reached -> degression decrease
- 53. A competitive solution before 2020
- 56. This will continue thanks to further technological improvements and economies of scale.
- 57. A 36-51% decrease could be achieved on average by 2020.Market anomalies will disappear as the market matures > 50% Evolution of the PV system price in Europe
- 60. residential rooftop (3 kW),
- 61. commercial rooftop (100 kW),
- 62. industrial rooftop (500 kW),
- 64. Crystalline Silicon and Thin Film technologies- 50 % PV’sgenerationcostcould go down by 50% duringthisdecade
- 66. A competitive solution before 2020
- 68. WHAT IS DYNAMIC GRID PARITY? Electricity consumer point of view Prosumer Usual consumer Self-consumptionassumptions: 30-75% Electricity bill Cost of PV electricity Trend > Reduced bill Electricity bill Trend Trend Trend Sales of excesselectricity Additional revenue
- 69. DYNAMIC GRID PARITY: THE 3 ROOFTOP SEGMENTS Based on the averageirradiance per country.
- 70. DIFFUSION OF DYNAMIC GRID PARITY ACROSS THE POPULATION Residential segment 2018 2019 2020 2015 2016 2017 100% 0% 0% 0% 0% 46% 100% 100% 0% 6% 48% 85% 38% 46% 85% 100% 100% 42% 58% 100% 100% 51% 0% 26% 82% 89% Real irradiancelevelscan change time whencompetitivenessisreached.
- 71. GENERATION VALUE COMPETITIVENESS PV vs Gas CCGT Based on the averageirradiance per country.
- 73. Market anomalies(eg. admin. costs)
- 75. e.g. BIPV on existing buildings is more expensive
- 76. Investors requesting a “green premium” above real investor’s risk
- 77. An unexpected surge in fossil fuel prices
- 78. Any scheme rewarding higher electricity injected to the grid (self-consumption or net-metering)
- 79. Specific applications:e.g. BIPV on new or renovated roofs The generation cost (LCOE). The one used is achievable (based on real data) but local administrative costs still keep the prices artificially high in some countries. An unexpected surge in fossil fuel prices could lead to a rapid increase of electricity prices. Whatcouldaccelerate Whatcoulddelay The self-consumption case used for “prosumers” is rather conservative. All other net-metering schemes or systems that would pay a higher price for electricity injected in the grid or that could allow for a partial refund of grid costs (as it exists today in Italy) would increase the revenues from PV. Specific applications such as BIPV on existing buildings could be more expensive and delay the parity moment. Some investors are today asking for a “green premium” above the real investor’s risk. This could delay parity by, on average, one year in most market segments. BIPV applications on new or renovated roofs can reduce the price of systems. Competitivenesscanhappenevenquicker!
- 81. A competitive solution before 2020
- 83. This market development must occurin all countries and all market segments.
- 84. Support schemes (including FiTs) need to be adapted on a regular basis to avoid market disturbance.
- 85. Administrative barriers must be removed and procedures streamlined so that additional costs do not increase the total price of a PV system.
- 86. Grid connections must be simple and easily authorised, and priority access to the grid for PV electricity should be ensured.
- 87. Political commitment to continuous research and development must be assured, so that PV technology continues to develop.
- 90. Dedicated support mechanisms could be required on a temporary basis for more specific technologies, such as residential and commercial BIPV, or innovative current and upcoming technologies such as concentrated solar PV, organic PV or dyesensitised solar cells.
- 92. Marie Latour National Policy Advisor m.latour@epia.org
Hinweis der Redaktion
- CZ and RO have already published at the end of last week their NRAPSEE: estonia
- Whereis PV capacityinstalledworldwide? 43% in Germany10% in Spain9% in Italy9% in Japan6% in the US5% in Czechrepublic
- To come to a forecastyoumay use the scenario technique, for a betteroverview and understanding of different solutions
- Observing PV policies in EuropeClimate change and the perspective of fossil fuel scarcity have strengthened the need to promote renewable energies. The deployment of solar photovoltaic electricity (PV) is playing a crucial role in helping the EU meet its commitment in fighting climate change and ensure security of supply, reducing Europe’s dependency on energy imports. Further to this, the global economic situation requires ensuring the best use of financial incentives, even if they are not directly paid by taxpayers. To help tackle these important issues, the European Photovoltaic Industry Association (EPIA) advocates sustainable policies in order to keep the PV industry and market on a sustainable yet accelerated growth path.In the context of the fast evolution of the European PV market in recent years, the need to permanently monitor market dynamics has led to the creation of the Photovoltaic Observatory. The Photovoltaic Observatory identifies recommended conditions for market development and best practices for the sustainable development of PV by basing its analysis on examining existing policies of several key countries. The Photovoltaic Observatory also focuses on relevant regulatory issues, financial incentives, administrative barriers and grid connection procedures.
- Key Recommendation 1: Use Feed-in Tariffs or similar mechanismsFeed-in Tariff (FiT) : obligation for utilities to conclude purchase agreements for the solar electricity generated by PV systems. Cost of solar electricity purchased is passed on through the electricity bill to the consumer does not negatively affect government finances. FiTs have proven their ability to develop a sustainable PV industry (where introduced as reliable and predictable market mechanisms) that in return has progressively reduced costs towards grid parity. To be sustainable, it is critical that FiTs are guaranteed for a significant period of time (at least 20 years), without retroactivityFeed-in Premium (FiP) is a new support mechanism that may prove to be a viable alternative to FiTs. However, the FiP concept is new and is yet to be proved. It should carefully be considered and worked out in more detail before it is tested on the market. Under the FiP, utilities pay a premium on top of the price of electricity while the invoice of the consumer is reduced by the amount of PV electricity produced. If electricity produced by PV exceeds consumption, the difference should be eligible for a Feed-in Tariff. With the growing penetration of PV in many countries, support policies can be fine-tuned in order to drive the development of a specific market segment where this is relevant. Direct consumption premiums, additional incentives for Building Integrated PV (BIPV), compensation for regional irradiation variations, orientation premiums such as East or West-oriented PV systems as well as storage premiums are all examples of possible additional provisions.Key Recommendation 2: Ensure transparent electricity costs for consumersAs the cost of renewable energy sources such as PV is very transparent to the consumer through the FiT component on the electricity bill, the same transparency should exist for the cost of electricity from other conventional sources. These typically benefit from significant government support schemes that are not always reflected in the electricity price but are financed through other public means; in particular taxes paid by the same consumers but not accounted for on their electricity bill. On average, estimates suggest that conventional sources of electricity generation benefit from seven-times as much support as renewable energy sources. In addition the lack of transparent carbon costs indirectly supports non renewable energies.The increased mix of energy from renewable sources such as PV has raised a greater awareness among consumers about the need to increase the efficiency of their electricity consumption. So while the FiT has a visible impact on the electricity bill, it is at least partially compensated by the decrease of electricity demand. In addition, marginal cost of electricity produced from PV systems after the expiration of the FiT period is close to zero; therefore electricity prices will benefit in the long term. Most importantly, and in view of continued foreseeable reduction of FiTs over time, the PV industry is committed to significantly reducing the cost of PV systems to make it an affordable, mainstream source of power. Key Recommendation 3: Encourage the development of a sustainable market by assessing profitability on a regular basis and adapting support levels accordinglySustainable market growth allows the industry to develop and creates added value for the society and the economy as a whole. A critical aspect of sustainable development is ensuring adequate levels of profitability that in turn ensures the availability of capital for investments while avoiding speculative markets. Consequently, investments in PV projects need to be at par with other investments of equivalent risk levels. The figure 1 illustrates market developments under different support strategies. The green line represents a sustainable market growth. The red line shows a rapid and uncontrolled market peak, followed by a collapse due to sudden policy adjustment, while the blue line illustrates a stagnating market due to an incentive deemed insufficient.Assessing the profitability through IRR calculationsAll available support scheme components (including FiT, tax rebates and investment subsidies) must be taken into account when calculating the Internal Rate of Return (IRR) of a PV investment. Its sustainability must be assessed by considering all local factors that impact the relative profitability of a PV investment. Table 1 presents an estimate of average sustainable IRR levels in a standard European country. Those percentages need to be adapted depending on local market conditions. Key Recommendation 4: Guarantee a gradual market development with the corridor conceptAn uncontrolled market evolution tends to create “stop-and-go” policies that risk undermining stakeholders’ confidence and investor appetite for PV. In that respect, there is a need for a flexible market mechanism that is able to take more rapid cost digressions in the market into account and to adapt support schemes in order to ensure a sustainable growth path. The market corridor – as introduced in Germany for example - regulates the FiT based on market development over the preceding period (i.e. quarter, semester or year), thus allowing FiTs to be adapted so as to maintain growth within predefined boundaries. The FiT level is decreased on a regular basis in relation to the cumulated market level over a period passing below or above a set of predefined thresholds (quarterly or semi-annual revisions). The review periods should typically be set once a year to keep the administrative burden manageable for governments and to remain compatible with the visibility needed for investment cycles. Key Recommendation 5: Develop a national roadmap to PV competitivenessWith the ongoing decrease in installed PV system costs and the increase in conventional electricity prices, the use of financial incentives will progressively be phased out, as competitiveness is reached. A realistic roadmap to grid parity should be defined for every country along with concepts for market mechanisms that treat all electricity sources equally
- Key Recommendation 1: Use Feed-in Tariffs or similar mechanismsFeed-in Tariff (FiT) : obligation for utilities to conclude purchase agreements for the solar electricity generated by PV systems. Cost of solar electricity purchased is passed on through the electricity bill to the consumer does not negatively affect government finances. FiTs have proven their ability to develop a sustainable PV industry (where introduced as reliable and predictable market mechanisms) that in return has progressively reduced costs towards grid parity. To be sustainable, it is critical that FiTs are guaranteed for a significant period of time (at least 20 years), without retroactivityFeed-in Premium (FiP) is a new support mechanism that may prove to be a viable alternative to FiTs. However, the FiP concept is new and is yet to be proved. It should carefully be considered and worked out in more detail before it is tested on the market. Under the FiP, utilities pay a premium on top of the price of electricity while the invoice of the consumer is reduced by the amount of PV electricity produced. If electricity produced by PV exceeds consumption, the difference should be eligible for a Feed-in Tariff. With the growing penetration of PV in many countries, support policies can be fine-tuned in order to drive the development of a specific market segment where this is relevant. Direct consumption premiums, additional incentives for Building Integrated PV (BIPV), compensation for regional irradiation variations, orientation premiums such as East or West-oriented PV systems as well as storage premiums are all examples of possible additional provisions.Key Recommendation 2: Ensure transparent electricity costs for consumersAs the cost of renewable energy sources such as PV is very transparent to the consumer through the FiT component on the electricity bill, the same transparency should exist for the cost of electricity from other conventional sources. These typically benefit from significant government support schemes that are not always reflected in the electricity price but are financed through other public means; in particular taxes paid by the same consumers but not accounted for on their electricity bill. On average, estimates suggest that conventional sources of electricity generation benefit from seven-times as much support as renewable energy sources. In addition the lack of transparent carbon costs indirectly supports non renewable energies.The increased mix of energy from renewable sources such as PV has raised a greater awareness among consumers about the need to increase the efficiency of their electricity consumption. So while the FiT has a visible impact on the electricity bill, it is at least partially compensated by the decrease of electricity demand. In addition, marginal cost of electricity produced from PV systems after the expiration of the FiT period is close to zero; therefore electricity prices will benefit in the long term. Most importantly, and in view of continued foreseeable reduction of FiTs over time, the PV industry is committed to significantly reducing the cost of PV systems to make it an affordable, mainstream source of power. Key Recommendation 3: Encourage the development of a sustainable market by assessing profitability on a regular basis and adapting support levels accordinglySustainable market growth allows the industry to develop and creates added value for the society and the economy as a whole. A critical aspect of sustainable development is ensuring adequate levels of profitability that in turn ensures the availability of capital for investments while avoiding speculative markets. Consequently, investments in PV projects need to be at par with other investments of equivalent risk levels. The figure 1 illustrates market developments under different support strategies. The green line represents a sustainable market growth. The red line shows a rapid and uncontrolled market peak, followed by a collapse due to sudden policy adjustment, while the blue line illustrates a stagnating market due to an incentive deemed insufficient.Assessing the profitability through IRR calculationsAll available support scheme components (including FiT, tax rebates and investment subsidies) must be taken into account when calculating the Internal Rate of Return (IRR) of a PV investment. Its sustainability must be assessed by considering all local factors that impact the relative profitability of a PV investment. Table 1 presents an estimate of average sustainable IRR levels in a standard European country. Those percentages need to be adapted depending on local market conditions. Key Recommendation 4: Guarantee a gradual market development with the corridor conceptAn uncontrolled market evolution tends to create “stop-and-go” policies that risk undermining stakeholders’ confidence and investor appetite for PV. In that respect, there is a need for a flexible market mechanism that is able to take more rapid cost digressions in the market into account and to adapt support schemes in order to ensure a sustainable growth path. The market corridor – as introduced in Germany for example - regulates the FiT based on market development over the preceding period (i.e. quarter, semester or year), thus allowing FiTs to be adapted so as to maintain growth within predefined boundaries. The FiT level is decreased on a regular basis in relation to the cumulated market level over a period passing below or above a set of predefined thresholds (quarterly or semi-annual revisions). The review periods should typically be set once a year to keep the administrative burden manageable for governments and to remain compatible with the visibility needed for investment cycles. Key Recommendation 5: Develop a national roadmap to PV competitivenessWith the ongoing decrease in installed PV system costs and the increase in conventional electricity prices, the use of financial incentives will progressively be phased out, as competitiveness is reached. A realistic roadmap to grid parity should be defined for every country along with concepts for market mechanisms that treat all electricity sources equally
- Key Recommendation 1: Use Feed-in Tariffs or similar mechanismsFeed-in Tariff (FiT) : obligation for utilities to conclude purchase agreements for the solar electricity generated by PV systems. Cost of solar electricity purchased is passed on through the electricity bill to the consumer does not negatively affect government finances. FiTs have proven their ability to develop a sustainable PV industry (where introduced as reliable and predictable market mechanisms) that in return has progressively reduced costs towards grid parity. To be sustainable, it is critical that FiTs are guaranteed for a significant period of time (at least 20 years), without retroactivityFeed-in Premium (FiP) is a new support mechanism that may prove to be a viable alternative to FiTs. However, the FiP concept is new and is yet to be proved. It should carefully be considered and worked out in more detail before it is tested on the market. Under the FiP, utilities pay a premium on top of the price of electricity while the invoice of the consumer is reduced by the amount of PV electricity produced. If electricity produced by PV exceeds consumption, the difference should be eligible for a Feed-in Tariff. With the growing penetration of PV in many countries, support policies can be fine-tuned in order to drive the development of a specific market segment where this is relevant. Direct consumption premiums, additional incentives for Building Integrated PV (BIPV), compensation for regional irradiation variations, orientation premiums such as East or West-oriented PV systems as well as storage premiums are all examples of possible additional provisions.Key Recommendation 2: Ensure transparent electricity costs for consumersAs the cost of renewable energy sources such as PV is very transparent to the consumer through the FiT component on the electricity bill, the same transparency should exist for the cost of electricity from other conventional sources. These typically benefit from significant government support schemes that are not always reflected in the electricity price but are financed through other public means; in particular taxes paid by the same consumers but not accounted for on their electricity bill. On average, estimates suggest that conventional sources of electricity generation benefit from seven-times as much support as renewable energy sources. In addition the lack of transparent carbon costs indirectly supports non renewable energies.The increased mix of energy from renewable sources such as PV has raised a greater awareness among consumers about the need to increase the efficiency of their electricity consumption. So while the FiT has a visible impact on the electricity bill, it is at least partially compensated by the decrease of electricity demand. In addition, marginal cost of electricity produced from PV systems after the expiration of the FiT period is close to zero; therefore electricity prices will benefit in the long term. Most importantly, and in view of continued foreseeable reduction of FiTs over time, the PV industry is committed to significantly reducing the cost of PV systems to make it an affordable, mainstream source of power. Key Recommendation 3: Encourage the development of a sustainable market by assessing profitability on a regular basis and adapting support levels accordinglySustainable market growth allows the industry to develop and creates added value for the society and the economy as a whole. A critical aspect of sustainable development is ensuring adequate levels of profitability that in turn ensures the availability of capital for investments while avoiding speculative markets. Consequently, investments in PV projects need to be at par with other investments of equivalent risk levels. The figure 1 illustrates market developments under different support strategies. The green line represents a sustainable market growth. The red line shows a rapid and uncontrolled market peak, followed by a collapse due to sudden policy adjustment, while the blue line illustrates a stagnating market due to an incentive deemed insufficient.Assessing the profitability through IRR calculationsAll available support scheme components (including FiT, tax rebates and investment subsidies) must be taken into account when calculating the Internal Rate of Return (IRR) of a PV investment. Its sustainability must be assessed by considering all local factors that impact the relative profitability of a PV investment. Table 1 presents an estimate of average sustainable IRR levels in a standard European country. Those percentages need to be adapted depending on local market conditions. Key Recommendation 4: Guarantee a gradual market development with the corridor conceptAn uncontrolled market evolution tends to create “stop-and-go” policies that risk undermining stakeholders’ confidence and investor appetite for PV. In that respect, there is a need for a flexible market mechanism that is able to take more rapid cost digressions in the market into account and to adapt support schemes in order to ensure a sustainable growth path. The market corridor – as introduced in Germany for example - regulates the FiT based on market development over the preceding period (i.e. quarter, semester or year), thus allowing FiTs to be adapted so as to maintain growth within predefined boundaries. The FiT level is decreased on a regular basis in relation to the cumulated market level over a period passing below or above a set of predefined thresholds (quarterly or semi-annual revisions). The review periods should typically be set once a year to keep the administrative burden manageable for governments and to remain compatible with the visibility needed for investment cycles. Key Recommendation 5: Develop a national roadmap to PV competitivenessWith the ongoing decrease in installed PV system costs and the increase in conventional electricity prices, the use of financial incentives will progressively be phased out, as competitiveness is reached. A realistic roadmap to grid parity should be defined for every country along with concepts for market mechanisms that treat all electricity sources equally
- Key Recommendation 1: Use Feed-in Tariffs or similar mechanismsFeed-in Tariff (FiT) : obligation for utilities to conclude purchase agreements for the solar electricity generated by PV systems. Cost of solar electricity purchased is passed on through the electricity bill to the consumer does not negatively affect government finances. FiTs have proven their ability to develop a sustainable PV industry (where introduced as reliable and predictable market mechanisms) that in return has progressively reduced costs towards grid parity. To be sustainable, it is critical that FiTs are guaranteed for a significant period of time (at least 20 years), without retroactivityFeed-in Premium (FiP) is a new support mechanism that may prove to be a viable alternative to FiTs. However, the FiP concept is new and is yet to be proved. It should carefully be considered and worked out in more detail before it is tested on the market. Under the FiP, utilities pay a premium on top of the price of electricity while the invoice of the consumer is reduced by the amount of PV electricity produced. If electricity produced by PV exceeds consumption, the difference should be eligible for a Feed-in Tariff. With the growing penetration of PV in many countries, support policies can be fine-tuned in order to drive the development of a specific market segment where this is relevant. Direct consumption premiums, additional incentives for Building Integrated PV (BIPV), compensation for regional irradiation variations, orientation premiums such as East or West-oriented PV systems as well as storage premiums are all examples of possible additional provisions.Key Recommendation 2: Ensure transparent electricity costs for consumersAs the cost of renewable energy sources such as PV is very transparent to the consumer through the FiT component on the electricity bill, the same transparency should exist for the cost of electricity from other conventional sources. These typically benefit from significant government support schemes that are not always reflected in the electricity price but are financed through other public means; in particular taxes paid by the same consumers but not accounted for on their electricity bill. On average, estimates suggest that conventional sources of electricity generation benefit from seven-times as much support as renewable energy sources. In addition the lack of transparent carbon costs indirectly supports non renewable energies.The increased mix of energy from renewable sources such as PV has raised a greater awareness among consumers about the need to increase the efficiency of their electricity consumption. So while the FiT has a visible impact on the electricity bill, it is at least partially compensated by the decrease of electricity demand. In addition, marginal cost of electricity produced from PV systems after the expiration of the FiT period is close to zero; therefore electricity prices will benefit in the long term. Most importantly, and in view of continued foreseeable reduction of FiTs over time, the PV industry is committed to significantly reducing the cost of PV systems to make it an affordable, mainstream source of power. Key Recommendation 3: Encourage the development of a sustainable market by assessing profitability on a regular basis and adapting support levels accordinglySustainable market growth allows the industry to develop and creates added value for the society and the economy as a whole. A critical aspect of sustainable development is ensuring adequate levels of profitability that in turn ensures the availability of capital for investments while avoiding speculative markets. Consequently, investments in PV projects need to be at par with other investments of equivalent risk levels. The figure 1 illustrates market developments under different support strategies. The green line represents a sustainable market growth. The red line shows a rapid and uncontrolled market peak, followed by a collapse due to sudden policy adjustment, while the blue line illustrates a stagnating market due to an incentive deemed insufficient.Assessing the profitability through IRR calculationsAll available support scheme components (including FiT, tax rebates and investment subsidies) must be taken into account when calculating the Internal Rate of Return (IRR) of a PV investment. Its sustainability must be assessed by considering all local factors that impact the relative profitability of a PV investment. Table 1 presents an estimate of average sustainable IRR levels in a standard European country. Those percentages need to be adapted depending on local market conditions. Key Recommendation 4: Guarantee a gradual market development with the corridor conceptAn uncontrolled market evolution tends to create “stop-and-go” policies that risk undermining stakeholders’ confidence and investor appetite for PV. In that respect, there is a need for a flexible market mechanism that is able to take more rapid cost digressions in the market into account and to adapt support schemes in order to ensure a sustainable growth path. The market corridor – as introduced in Germany for example - regulates the FiT based on market development over the preceding period (i.e. quarter, semester or year), thus allowing FiTs to be adapted so as to maintain growth within predefined boundaries. The FiT level is decreased on a regular basis in relation to the cumulated market level over a period passing below or above a set of predefined thresholds (quarterly or semi-annual revisions). The review periods should typically be set once a year to keep the administrative burden manageable for governments and to remain compatible with the visibility needed for investment cycles. Key Recommendation 5: Develop a national roadmap to PV competitivenessWith the ongoing decrease in installed PV system costs and the increase in conventional electricity prices, the use of financial incentives will progressively be phased out, as competitiveness is reached. A realistic roadmap to grid parity should be defined for every country along with concepts for market mechanisms that treat all electricity sources equally
- Key Recommendation 1: Use Feed-in Tariffs or similar mechanismsFeed-in Tariff (FiT) : obligation for utilities to conclude purchase agreements for the solar electricity generated by PV systems. Cost of solar electricity purchased is passed on through the electricity bill to the consumer does not negatively affect government finances. FiTs have proven their ability to develop a sustainable PV industry (where introduced as reliable and predictable market mechanisms) that in return has progressively reduced costs towards grid parity. To be sustainable, it is critical that FiTs are guaranteed for a significant period of time (at least 20 years), without retroactivityFeed-in Premium (FiP) is a new support mechanism that may prove to be a viable alternative to FiTs. However, the FiP concept is new and is yet to be proved. It should carefully be considered and worked out in more detail before it is tested on the market. Under the FiP, utilities pay a premium on top of the price of electricity while the invoice of the consumer is reduced by the amount of PV electricity produced. If electricity produced by PV exceeds consumption, the difference should be eligible for a Feed-in Tariff. With the growing penetration of PV in many countries, support policies can be fine-tuned in order to drive the development of a specific market segment where this is relevant. Direct consumption premiums, additional incentives for Building Integrated PV (BIPV), compensation for regional irradiation variations, orientation premiums such as East or West-oriented PV systems as well as storage premiums are all examples of possible additional provisions.Key Recommendation 2: Ensure transparent electricity costs for consumersAs the cost of renewable energy sources such as PV is very transparent to the consumer through the FiT component on the electricity bill, the same transparency should exist for the cost of electricity from other conventional sources. These typically benefit from significant government support schemes that are not always reflected in the electricity price but are financed through other public means; in particular taxes paid by the same consumers but not accounted for on their electricity bill. On average, estimates suggest that conventional sources of electricity generation benefit from seven-times as much support as renewable energy sources. In addition the lack of transparent carbon costs indirectly supports non renewable energies.The increased mix of energy from renewable sources such as PV has raised a greater awareness among consumers about the need to increase the efficiency of their electricity consumption. So while the FiT has a visible impact on the electricity bill, it is at least partially compensated by the decrease of electricity demand. In addition, marginal cost of electricity produced from PV systems after the expiration of the FiT period is close to zero; therefore electricity prices will benefit in the long term. Most importantly, and in view of continued foreseeable reduction of FiTs over time, the PV industry is committed to significantly reducing the cost of PV systems to make it an affordable, mainstream source of power. Key Recommendation 3: Encourage the development of a sustainable market by assessing profitability on a regular basis and adapting support levels accordinglySustainable market growth allows the industry to develop and creates added value for the society and the economy as a whole. A critical aspect of sustainable development is ensuring adequate levels of profitability that in turn ensures the availability of capital for investments while avoiding speculative markets. Consequently, investments in PV projects need to be at par with other investments of equivalent risk levels. The figure 1 illustrates market developments under different support strategies. The green line represents a sustainable market growth. The red line shows a rapid and uncontrolled market peak, followed by a collapse due to sudden policy adjustment, while the blue line illustrates a stagnating market due to an incentive deemed insufficient.Assessing the profitability through IRR calculationsAll available support scheme components (including FiT, tax rebates and investment subsidies) must be taken into account when calculating the Internal Rate of Return (IRR) of a PV investment. Its sustainability must be assessed by considering all local factors that impact the relative profitability of a PV investment. Table 1 presents an estimate of average sustainable IRR levels in a standard European country. Those percentages need to be adapted depending on local market conditions. Key Recommendation 4: Guarantee a gradual market development with the corridor conceptAn uncontrolled market evolution tends to create “stop-and-go” policies that risk undermining stakeholders’ confidence and investor appetite for PV. In that respect, there is a need for a flexible market mechanism that is able to take more rapid cost digressions in the market into account and to adapt support schemes in order to ensure a sustainable growth path. The market corridor – as introduced in Germany for example - regulates the FiT based on market development over the preceding period (i.e. quarter, semester or year), thus allowing FiTs to be adapted so as to maintain growth within predefined boundaries. The FiT level is decreased on a regular basis in relation to the cumulated market level over a period passing below or above a set of predefined thresholds (quarterly or semi-annual revisions). The review periods should typically be set once a year to keep the administrative burden manageable for governments and to remain compatible with the visibility needed for investment cycles. Key Recommendation 5: Develop a national roadmap to PV competitivenessWith the ongoing decrease in installed PV system costs and the increase in conventional electricity prices, the use of financial incentives will progressively be phased out, as competitiveness is reached. A realistic roadmap to grid parity should be defined for every country along with concepts for market mechanisms that treat all electricity sources equally
- The module price reflected around 45-60% of the total installed system price in 2010,depending on the segment and the technology. Therefore, it is still the most important cost driver.
- The cost of an investment in a PV system is driven mostly by the initial up-front investment orcapital expenditure. Additional costs encountered during a system’s lifetime are comparativelylow. System prices have declined rapidly; during the last 5 years a price decrease of 50% has beenrealised in Europe. - Until the end of 2003: Prices were high because the technology was less advanced and the market was smaller. - Since 2004 the price started to increase until its reached its highest point in 2005 during the polysilicon shortage. - During 2009, the price dropped rapidly indeed because of a number of reasons:- Increased production capacity- Decreased subsidy or equivalent financial support- Slow market growth in comparison with 2008 (only 17.5% year on year growth)- During 2010, the price decrease was much smaller because of the following reasons:- Higher demand than expected- Bottleneck in the inverter supply (because of a shortage in a specific micro-electronic component needed for inverter production)- During the first half of 2011, the price has dropped tremendously because of:- Subsidy cuts- Slow market because of uncertainty on certain large markets- OvercapacitySo it is clear that prices do not decrease in a continuous way, but are subject to shocks in supply, demand, policies, technology evolution, exchange rate evolution, etc.However, for the period 2010-2020, the graph shows a continuous decrease. This must be considered as a trend more than a clear roadmap. Over the next 10 years, system prices could decline by about 0.83-1.59 €/Wp – a price decrease of 36-51%, depending on the segment. The study assumes competitive cross-European hardware prices (modules, inverters, structural components) as well as competitive development prices (including the marginsfor installers). The ranges in the following figures therefore reflects the system price under these mature market prices. Mature market conditions are the following:• Reduced margins• Experienced network of installers, developers and retailers• Fair competition between players• Transparent and efficient administrative rules and grid connection processesThe observed market prices in several countries contrast with the lowest prices in Germany, where the market is more mature. The lack of maturity of several PV markets in Europe has kept prices in most EU countrieshigher than in Germany. There is no single, easily remediable reason why PV system pricesare higher in some countries than in others; rather, there are many factors to explain thecurrent price variance. Labour cost is not sufficient to account for any major difference.However, smaller markets with a lack of competition, political choices that only favour themost expensive PV systems, as well as administrative rules and grid connection proceduresthat increase the time to market could impact the price level significantly. Moreover,unsustainable support schemes could also artificially slow down the price decrease.
- The graph shows that there is a huge potential for cost decline: around 50% until 2020. The graph indicates a wide range for PV’s generation cost in Europe. This widerange is due to the large set of differing parameters taken into account: • 2 different sets of technologies• National differences among the 5 countries studied with respect to irradiance levels, financial conditions (including VAT for the residential segment), total installed PV system prices and operation and maintenance costs• 4 different market segments: residential (3kWp rooftop), commercial (100kWp rooftop), industrial (500kWp rooftop) and ground-mounted (2.5MWp)However, the range in 2020 narrows to almost half of the range in 2010. The range below therefore reflects the generation cost assuming maturemarket prices. Accordingly, the average European LCOE for 2010 (0.239 €/kWh) andfor the first half of 2011 (0.203 €/kWh) is shown in the figure below. This calculationconsiders the real market volumes and market segmentation in Europe.
- Competitiveness is analysed by comparing PV’s generation cost with the PVrevenues (dynamic grid parity) and/or directly with the generation cost of otherelectricity sources (generation value competitiveness).Two specific situations should be considered:• DYNAMIC GRID PARITY refers to situation where at least part of the PV electricity is used for local consumption. When an electricity consumer invests in a PV system that will provide apart of his electricity needs at a competitive price, he goes from being a consumer to a “prosumer”. PV will reach dynamic grid parity when the electricity produced by the PV system throughout its lifetime is at least ascompetitive as the electricity bought from the grid – now and in the future.• GENERATION VALUE COMPETITIVENESS refers to PV electricity generation with the purpose to inject the electricity onto the grid.PV is increasingly being integrated into power generation portfolios of power utilities and independent power producers as a new source of electricityproduction.
- Fordynamicgridparity, we have to look through the eyes of an electricity consumer. Everyelectricity consumer has the choicebetweeneitherinvesting in a PV system or not. You canbe a pure consumer or a consumer and producerat the same time (prosumer). Dynamicgridparityisthenreachedwhenitbecomes more interesting to supply part of the electricityyourself and thus to become a prosumerratherthan a pure consumer. A normal consumer (one that has not invested in a PV system) pays his normal electricity bill. This bill consists of the followingelements: the cost of gridelectricity, the gridcosts and taxes. The gridcostsare meant to finance the operation, maintenance and development of the grid at both distribution and transmission levels. They consist of a variable and a fixed part. You pay a fixedamountjust for the convenience of beingconnected to the grid and a variable amount for using the network thatdepends on how muchelectricityyou consume. For an electricity consumer whoisat the same time the owner of a PV system, the electricity bill issignificantlylower. Part of the electricityyouneedwillbesupplied by the PV system and youwill not have to buyitfromyourelectricity provider; you have becomeyouown provider!Assumptions on self-consumption- A 30% self-consumption rate was chosen for residential applications (meaning30% of PV electricity production is immediately consumed locally while the remaining70% is injected on the network; the additional demand for electricity is of coursebought from the grid). Higher shares could be reached with phased consumption forinstance by using electric vehicles. - For commercial and industrial applications, a higher level of 75% of self-consumptionis considered. Commercial and industrial applications can deliver electricity during weekdays when there is increased consumption, which is less often the case with residential applications as homeowners are usually out of their houses during weekdays.Theelectricityfromyour PV system canthusbeused for yourownelectricityconsumption (up to a certain amount). The remainingelectricitythenwillbesold on the electricitymarket. The profit youcanmakefrom a PV system isthus a combination of:The savings on the electricity bill becauseyouproduce part of yourelectricityyourself.The money youearn by selling the excesselectricity on the market.Dynamicgridparityis possible because of the trends towardshigherelectricityprices and lower PV generationcosts.The study assumes that, in the case of self-consumption, the compensation of theelectricity bill will not include fixed grid costs. While the share of fixed grid costs remains quite low with regard to the total grid costs (5-10% nowadays), EPIA estimates this situation will change inthe future to compensate for the bi-directional use of the grid (when excess electricity is injected on the network) and the decrease of electricity consumption (due to self-consumption). This has not been considered here,since competitiveness could be reached in most major EU countries before this will havea significant financial impact on grid operators.A part of additionalgridcostswillbemutualisedsincetheyoriginate not onlyfrom PV systems but from all decentralisedenergy sources and from new load applications, such as electricvehicles, etc.
- The following table shows the results for whendynamicgridparitycanbereached in the different segments in the different countries. The dates are determinedusing the averageirradiance in each of the countries. Therefore, in some areas in each country, dynamicgridparitycanoccurearlier, whereas in other areas itwilloccurlater. Dynamic grid parity could occur at the earliest in Italy in 2013 in the commercial segment and then spread all across the continent in the different market segments by 2020. In the industrial segment, 2014 will be the starting year and for the smaller residential applications, dynamic grid parity can be reached from 2015 onwards. Moreover, the graph shows two specific points for 2010 and 2011. This is the average European generation cost for 2010 and for the first half of 2011 are shown for each of the segments in these figures.
- It wasclearfrom the previous graph thatdynamicgridparity in the residential segment couldbereachedas early as 2015 in Italyand before 2020 itcanbereached in all countries considered. However, this is based on the average irradiation values for each of the countries. This does not mean that the entire population is already affected by dynamic grid parity in that particular year.In most countries, the entire population will be able to benefit from PV electricity at a competitive price in a couple of years. The following graphs show the diffusion of dynamic grid parity for the residential segment. The percentages express the relative number of households affected by dynamic grid parity until that year (for residential systems).
- The following table shows the results for whengeneration value competitivenesscanbereached in the different segments in the different countries. The dates are determinedusing the averageirradiance in each of the countries. Therefore, in some areas in each country, dynamicgridparitycanoccurearlier, whereas in other areas itwilloccurlater. Generation value competitivenesscouldbereachedas early as 2014 in the ground-mounted segment in Italyand thenspread out in Europe to manyadditional countries by 2020. In the industrial segment, 2015 is the startingyear in Italy, France and Spain. The graph shows again two specific points for 2010 and 2011. This is the average European generation cost for 2010 and for the first half of 2011 are shown for each of the segments in these figures.
- The dynamic evolution of all parameters, from PV system prices to electricityprices, can vary greatly in the coming years, providing at the end some moving targetsfor competitiveness. This should not change the final conclusion but could providesurprises in some market segments. Moreover, there are a number of elementsthatcoulddelay or acceleratecompetitiveness.Market anomalies are deviations from the “mature market assumption” used in the study. Mature market conditions are the following:• Reduced margins• Experienced network of installers, developers and retailers• Fair competition between players• Transparent and efficient administrative rules and grid connection processes
- The decreases in system prices and accordingly in generation costs are feasible from acombined technological and market deployment point of view. But in some countriesmarket distortions keep PV system prices artificially high. In order to remove thosedistorting factors and achieve full PV competitiveness, and also to boost investors’confidence in PV technology, political commitment to the following priorities is essential:• The market must continue to grow in a sustainable way. Any hindrance of marketgrowth, both in and outside Europe, will slow the price decrease and delaycompetitiveness.• Market development must occur in all countries and all market segments. Thiswill trigger the development of a dense network of trained and certified installers whichwill decrease the cost of installation and construction, create sustainable andcompetitive margins for all players in the PV industry and accelerate cost decreasebecause of scaling and learning effects.• Support schemes (including FiTs) need to be adapted on a regular basis to avoidmarket disturbance. Profitability can be assessed on a regular basis and supportschemes adapted accordingly.• Administrative barriers must be removed and procedures streamlined so thatadditional costs do not increase total PV system prices.• Grid connections must be simple and easily authorised, and priority access to thegrid for PV electricity should be ensured.• Political commitment to continuous research and development must be assured,so that PV technology continues to develop. Innovation will lead to increased efficiencyand accelerate competitiveness.• PV should be considered a low-risk investment; therefore reasonable profitsshould be taken in line with that risk level. Investors should look at the real riskassociated with the installation and exploitation of PV systems to ensure easy accessto inexpensive financing.
- Smart deployment of support mechanisms, such as FiTs, has helped PV gain a marketfoothold in many countries of the world, compensating for the difference in costcompetitiveness between PV electricity and that of conventional sources. As thatcompetitiveness gap narrows for the PV sector, due to technology development andparallel decrease of generation cost, PV will be able to rely progressively less on dedicatedfinancial support, leading to the phasing out of such support schemes. But achieving competitiveness should not mean the end of all incentives; current support mechanismscould, depending on the segment considered, be replaced by more indirect and timelimitedincentives.This phasing out of support schemes will happen even quicker if internalisation of externaleffects is implemented for all technologies and subsidies to other energy sources are alsophased out, leading to a truly level playing field.Once such a framework is established, policymakers should consider the followingoptions in the residential, commercial and industrial segments (dynamic grid parity):• Put in place mechanisms that will help close the gap and cover the high up-frontinvestment: fiscal incentives such as tax rebates, reduced VAT and zero/low interestlong-term guaranteed loans might be relevant if tailored to national specificities. • Allow final customers to sell the electricity produced on the market: finalcustomers should have access to real-time production and consumption data. Thisinformation should be made available to a third party acting on their behalf in order todevelop the role of energy aggregators.• Maximise savings on the electricity bill: these will be directly linked to the avoidedcost of electricity by using the PV power produced on-site. Regulatory frameworksshould therefore promote net-metering and self-consumption schemes. In addition,electricity tariffs designed for time-dependent charges will play an important role,together with new technologies enabling more on-site consumption.In the utility-scale segment (generation value competitiveness), the framework market conditions will play a key role in drivinginvestments in PV. The goals should be to:• Facilitate access to capital by lowering the perceived risk.• Emphasise the long-term stability of policies and the availability of sizeableunconstrained volume for deployment combined with access to financial instrumentsand financing funds.