A comprehensive forecast of the global solar industry from BloombergNEF (BNEF) has identified that in addition to the immediate challenges that the industry faces currently, there are many positive opportunities for future growth as a result of the changes that the solar industry will see over the next five years. As noted in the report, the dramatic increase in supply from China and other manufacturers has created an incredibly high level of overcapacity in the global solar manufacturing market (particularly with regard to photovoltaic (PV) modules), resulting in unprecedented low prices for PV modules and squeezing margins across the entire value chain. Consequently, this environment has catalyzed consolidation within the industry and forced companies to invest in technology development and vertical integration to differentiate themselves from competitors. In addition, as the solar industry has matured globally, the policy environment for solar has quickly become very complicated; for example, the recent introduction of the U.S. "Foreign Entity of Concern" (FEOC) rules has created a significant increase in regulatory compliance uncertainty for foreign manufacturers of solar products. Similarly, the expiration of the 30% federal tax credit for residential solar systems signifies a strong trend toward protectionism and the slow phase-out of federal subsidy programs in developed economies. Finally, the rising costs of numerous balance-of-systems and raw materials (e.g., silver) continue to impose additional financial pressure on both developers and manufacturers of solar power.
Solar-Plus-Storage: The New Baseline for Projects
The combination of solar and energy storage EVOLVED from being an option in niche or leisure usage over time, into being a core of the value proposition of the solar sector. According to BNEF, solar+storage is now seen as an economic necessity in many places in order to remain competitive with other energy generation sources. The storage systems provide the solar system with the ability to mitigate the intermittent nature of solar energy, allowing users to dispatch the energy whenever they need it and to take advantage of high wholesale prices during peak demand periods, ultimately resulting in increased grid reliability.
"The business case for standalone solar is being recalibrated," the report suggests. "Co-locating storage is becoming critical for winning power purchase agreements (PPAs), especially in markets with high renewable penetration where curtailment risks are rising." This trend is particularly evident in the United States, where the Investment Tax Credit (ITC) for standalone storage has bolstered project economics, and in sun-rich regions like the Middle East and Australia, where hybrids are set to dominate new tender announcements.
Emerging Markets Step into the Spotlight
While many of the more traditional solar markets continue to grow at a much slower pace, due to changes in government policies and the saturation of local power grids and markets, a large and diverse set of emerging solar markets are now coming into focus. Southeast Asia, Latin America, and specific areas of the Middle East and Africa are identified by BNEF as emerging as the next major growth areas for the solar sector. The growth in these countries is primarily driven by their ambitious goals for the adoption of clean energy sources, coupled with competitive auction programs.
While these new markets present significant untapped opportunities for solar developers, there are also a number of unique challenges posed by each of the regions, including changing regulatory structures, exchange rate risks, and inadequate electric grid infrastructure. The success of solar developers in these regions will be determined by the ability of developers to manage and comply with local content regulations, obtain the required financing, and form strategic alliances. The growth narrative is decentralizing," the report notes. "The next wave of gigawatt-scale installations will be more geographically dispersed, powered by localized policy support and the relentless global decline in solar levelized cost of energy (LCOE)."
India's Unmatched Scale and Ambition
As an independent, solitary entity, India is a major contributing factor in the Business Network for Energy Futures (BNEF) report. India will be the second largest solar market in the world by 2030. India's 500 gigawatts (GW) renewable energy capacity target for 2030, along with its implementation of the Production Linked Incentives (PLI) incentive program by the government for the purpose of increasing India's domestic manufacturing of solar cells/modules to decrease its dependency on imports as well as to develop a reliable supply chain, is a pivotal step toward accomplishing this goal.
Even with a positive forecast, the roadmap for India is not without its challenges according to the report. The paper states that India's ambition to be a global leader in renewable energy is evident and transformative. The challenge will be to implement reforms addressing the logistical and financial barriers to ensure that the ambitious goals lead to a consistently strong pipeline of bankable projects.
Conclusion: Resilience Through Adaptation
Despite numerous challenges, the renewable energy industry currently faces significant pressure due to excess supply, fragmentation in supply chains due to globalization and increased competition, and many companies continuing to see an increase in price declines and/or increased costs due to political issues. However, these same issues can provide new opportunities for creative solutions that improve the overall quality of renewable energy systems. Innovative product and technology development that are made available quickly to all industries will be important for companies to be successful in their new facilities. The opportunities for rapid growth can also provide significant opportunities for companies that successfully deliver on growth and new markets in real time.
The drivers of the market- the drive towards security of energy in all nations; the international imperative to reduce greenhouse gas emissions; and the unmatched economic viability of solar energy-are alive and healthy. Also as the solar marketplace consolidates, Solar-plus-storage will be an increasingly powerful force; where in developing countries will move towards substantial growth; and in India the national Mission will create new growth opportunities for the business in all areas of solar-related goods and services.
About BloombergNEF (BNEF)
BloombergNEF (BNEF) is a strategic research provider covering global commodity markets and the disruptive technologies driving the transition to a low-carbon economy.
