Policy and Market Shift Lead to Changes in PV Development

Energy development, including solar PV, is closely linked to energy policies and international trades. Through the interactions among trading partners and policy transition, future solar trend can be forecasted as follow: manufacturers have to go global in a faster-pace; distributed PV systems will become the mainstream in the existing markets; and the emerging markets will be the new target for PV development.

Industry is closely linked to policies. (Photo Credit: DonkeyHotey via Flickr)

Policy and Industry

Financial incentives, such as feed-in tariffs (FiT), can boost demand to encourage manufacturers’ investment, and vice versa. For example, the solar installation in Germany has been increasing for years since the country issued high FiT in 2004. Nonetheless, installations dropped due to lower FiT and domestic financial difficulties (see 2012 and 2013). The similar situations also take place in Italy and Japan, proving that the changes in policy can lead to the market shift.

Trend of Germany's installation and FiT. Source: Federal Ministry for Economic Affairs and Energy (note: the average FiT is based on the average of each level of FiT in one year.)

In addition to financial incentives, a nation’s energy development policies, financing programs, business supports, and other industrial measures can transform an industry as well.

Incentives and Development – FiT and subsidy

Policy support is the most concrete way for renewable energy development as it can attract investment and boost the amount of installation. To deal with the climate change, many countries try to increase the use of renewable energy. The Chinese government, for instance, aims to install 100GW of solar systems by 2020, and this target has successfully stimulated both the growth of solar manufacturing capacity and the market demand. Likewise, Japan forced the “Act on Special Measures Concerning the Procurement of Renewable Electric Energy by Operators of Electric Utilities” (the “Act”) in July 2012 after suffering from the Fukujima nuclear disaster. The Act stipulates Japanese power companies to purchase all renewable generation according to the FiT schemes, leading to PV installation boom and turning Japan into one of the most important market in Asia.

FiT Policy

FiT is an incentive which can boost installations and a reflection of the future market trend. In recent years, many countries have lowered their FiT subsidies. The supply/demand equilibrium, national financial plan adjustment and limited loading of power grids are all the reasons of the FiT reduction. Following table shows some examples of the FiT cuts:

Country	Scale of Slashing	Description
Taiwan	-12.50%	1kW~10kW rooftop PV installations
Japan	-10%	> 10kW Non-residential PV systems
Germany	-3.50%	<50kW Solar systems
Austria	-8%	>200kW solar systems
Australia	(-100%)	Drafting to slash the FiT schemes completely
Switzerland	-23%	<30kW solar systems
U.K.	-3.50%	10kW~50kW solar systems
Greece	-30%	Rooftop systems

China is the only existing market that keeps investing a large amount of funds in solar segment. While most developed markets are slashing FiT subsidies, the emerging markets are introducing favorable incentives and will become the new investing target within the solar business.

Subsidy Difficulty

Led by Kyushu Electric Power Co., several Japanese power companies announced to suspend the grid connection of utility-scale solar projects (“megasolar” in Japanese) this September. According to the companies, the suspension occurred due to three main reasons: (1) the amount of installation is higher than the capacity of existing grids; (2) the grids might collapse if it’s connected to excessive renewable capacities; and (3) the power companies and the Japanese government have to pay the FiT subsidies once completed grid-connection, yet the government is confronted by financial difficulties. Besides, Japan’s METI also found that some PV manufacturers have postponed their project constructions for better profits. All these facts forced METI to review the Act and hoped to solve the predicament.

The gird-connection problem in Japan uncovers the predicament of utility-scale solar power plants. (Photo Credit: minoru karamatsu via Flickr)

The grid-connection problem in Japan shows the restriction of utility-scale solar plants and the limitation of FiT schemes. Furthermore, China’s FiT programs unveiled the truth that establishing a comprehensive measure is far more important than investing a large amount of money. This year, China’s National Energy Administration (NEA) targeted to add 8GW of distributed PV generation but the total installation turned out to be only around 1GW by August. Although there are incentives and FiT supports for DG systems, the installation was delayed because of unclear business models and difficulties to get financing or rooftop resources. NEA therefore issued a new policy specifically designed for DG systems and hoped to reach the target.

In addition, German renewables once generated 74% of total power output at a mid-day in 2014. Nonetheless, not all these clean energy was used, stored or even transmitted. Such a waste of renewable electricity drove further demands to energy storage systems and smart grids, explaining that people cannot take financial incentives as the only solution to build a healthy solar industry. From national energy policy to residential energy storage, solar and all kinds of renewable energies need a more complete supporting measure for steady development.

The trade disputes occured between China and USA is the most imoortant event to solar industry in 2014. (Photo Credit: U.S. Department of Agriculture)

Domestic energy policies and international trade relations can change, or even transform an industry. This year, the second phase of the “anti-dumping and countervailing duties” (AD/CVD) dispute between USA, China and Taiwan is the most important event of the global solar industry. In mid-December, the U.S. Department of Commerce (DOC) announced the final ruling and decided to impose AD tariffs of 11.45%~27.55% on certain Taiwan-imported crystalline solar products and combined AD and CVD tariffs above 75% on China-made products. In regards to the three countries involved in the trade war, the possible impacts are:

To USA: costs of PV modules could increase due to the lack of cheaper Chinese solar products. The higher costs might reduce clients’ willingness to install solar systems consequently.
To China: Chinese manufacturers have to adjust their strategies. On one hand, they can sell solar cell produced in a third-party country to the U.S. by acquiring foreign companies or establishing manufacturing plants abroad. On the other hand, they can coordinate with Chinese government’s policies to develop domestic markets. Besides, they may stop ordering solar products from Taiwanese makers.
To Taiwan: Taiwanese manufacturers would loss a lot of Chinese orders due to the tariffs so they have to deploy solar cell and module lines in different regions/countries as well as to find new export markets.

Punitive tariffs have profound impact on the supply chains and the markets. Taiwanese companies, who were shocked by the unexpected high tariffs of 27.59%~44.18% announced in the preliminary ruling on July 26, used to export a significant amount of solar products to China, but now they have to develop new business strategies as soon as possible. Although the tariffs imposed on Taiwanese makers were lowered in the final ruling, solar cells’ spot prices have already dropped and the damages were irreversible -- and so did Chinese manufacturers. In other words, the global solar supply chains will be tremendously transformed.

Prices of multi-si solar cells rapidly dropped after the announcement of the preliminary ruling of AD tariffs. (Source: EnergyTrend's database)

The U.S. is not the only nation that launched the trade investigations. The results may not reverse the global demand, but will definitely lead to changes in suppliers’ developing roadmaps.

Initiator	Target(s)	Description
USA	China, Taiwan	Please visit our reports.
EU	China	EU ProSun accused that China violates the minimum price agreement made in 2013. Also, EU accused China of dumping solar-grade glasses.
EU	Taiwan, South Korea, Malaysia	EU ProSun accused these countries of helping China to circumvent the minimum price deal. (related post)
Australia	China	Accused China of dumping. (related post)
India	USA, China, Taiwan, Malaysia	Accused dumping. However, the Indian government decided not to impose AD tariffs on China and Taiwan on account of Modi’s new energy policies. (Related post)
Canada	China	Accused dumping and subsidizing. The Canada Border Services Agency has initiated investigations into the alleged injuries and will announce the preliminary determination or termination in next March. (related post)
China	EU	China decided to impose AD/CVD tariffs on solar-grade polysilicon imported from EU. (related post) Besides, the nation announced to suspend imports of processed polysilicon and this move was believed as a method to launch trade talks with USA. (related post)

Conclusion

As government policies support customers to adopt solar systems in the leading markets like Europe, North America and Japan, the PV supply and demand will further approach the equilibrium in the future. Distributed generation systems equipped with monitoring and energy storage devices will take over the mainstream market from large-scale power plants due to financial factors and limitations of electricity grids.

Meanwhile, the international trade disputes have been forcing manufacturers to rearrange their deployment and market strategies. Moreover, with the increased demands from the emerging markets, including South-east Asia, Latin American, Middle East and Africa, expanding business into the new markets will be the most important step for the solar manufacturers.