Like in the classic Tale of Two Cities, the world of solar energy today seems filled with the excitement of seeing its revolutionary potential realized by rapid growth, while fearful that falling prices, changing feed in tariff subsidies and looming government deficits will overwhelm it first.
There is no denying solar energy’s promise and potential. Its rapid growth is a worldwide phenomenon. Lately I have been catching up on the news reports and changing solar situation in Europe. A recent report prepared by Ernst & Young for UK’s Solar Trade Association confirmed what we already knew that solar PV prices are falling so fast that by 2013 they will be half of what they cost in 2009. But keep in mind for for on-grid applications, conventional power sources fueled by shale gas in particular are improving too.
New EU Realities
The EU’s big aspirations for a clean energy, low emissions future had run up against government budget deficits. Consequently, the mother’s milk of feed-in-tariffs for qualifying renewables is vulnerable to rapid modification.
Across the EU countries, feed-in-tariffs are being reduced or at least re-evaluated for affordability about every six months. France is the latest country to announce changes in its feed-in-tariff regime. The UK is scheduled to follow suit slashing its feed in tariff rates in August 2011.
So while the FiT has been seen as the most efficient tool for renewable financial support, it also accelerates the boom and bust nature of energy markets forcing producers to rush projects to market to take advantage of the current FiT subsidy rate for fear it will fall in the next round of review. Spain, Germany, France, Italy, UK have all seen their FiT subsidies cut. The Czech Government has gone so far as to impose a tariff to tax solar installations in an effort to slow the bubble.
But solar energy is facing more disruptive risk realities ahead. Most of the countries using the FiT hoped to create a sustainable local production capability for solar panels and used the FiT in an effort to create jobs as they ‘greened’ their environment.
Good concept, bad policy execution. Falling solar PV prices from China undercut local producers, suctioned up the FiT subsidy revenue and sent it back to China leaving local manufacturers stuck holding overpriced inventory. When the inevitable happened and those domestic manufacturers ‘dumped’ PV panels on the market at fire sale prices they cratered the global PV panel market for months. The EU governments responded by slashing FiT subsidies using the convenient excuse that China was abusing the tariff when, in truth, the governments could no longer afford the subsidies as the economy weakened.
Industrial Policy Failure: Picking ‘Winners’
All the social engineering and industrial policy in the EU and the US of picking energy winners and losers has failed.
Markets will not be denied and the process of rationalization underway cannot be stopped. Fast forward to 2011, feed in tariffs are now routinely reviewed every six months and adjusted leaving producers uncertain about what the future subsidy level will be. Prices are falling fast but are not yet at grid parity levels where no subsidy is needed to make solar energy profitable. Compound those market realities with the resurgence of interest in wind energy particularly large scale off shore wind across the EU and so the solar lobby boom and bust cycle continues.
Solar energy sees the holy grail of global market share within its reach, but it has become so dependent upon government subsidies that its core competency focus has been hijacked from driving up the efficiency of its products while driving down their cost to reach grid parity prices and instead is focused on lobbying politicians and begging for FiT subsidies.
The days of tougher love are here.
Related solar commentary by Mr. Hunt includes: