Solar Energy

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Photovoltaic on the Way from a Few Lead Markets to a World Market a report by

Winfried Hoffmann President, European Photovoltaic Industry Association (EPIA)

The global photovoltaic (PV) sector has been growing significantly for the past eight years at a rate, on average, of over 40%. In the 1960s and 1970s the market developed on niche segments such as space solar cells. In the 1980s and 1990s several national R&D programmes, mainly in Japan, Germany and US, allowed some market development for off-grid and consumer appliances. Since the 2000s the PV sector has entered a ‘transition phase’ towards competitiveness in all market segments and in particular grid-connected applications, thanks to the development of market support programmes. Germany, Japan and the US (representing two-thirds of the global market) have enabled this transition. Due to the increased awareness in the public and political commitment in these three countries, renewable energies are supported by policy-driven programmes. Local content and a large amount of the value added is needed to legitimate these politics. It is expected that, by 2020, PV will become a global source of energy capable of contributing to the global electricity demand. With adequate policies in the transition phase and increasing prices of conventional electricity production, it is estimated that PV, in 2040, could represent 25% of the global electricity consumption. Reaching Competitiveness

One of the key challenges of the PV sector is to reduce the cost of PV modules to reach competitiveness. Until 2003, the prices of PV modules were decreasing by 20% each time the cumulative capacity installed doubled, given the past growth rate; this represented a 5% annual price decrease on average. PV will become competitive with peak power prices in the next few years. In actual fact, during the day, electricity prices are usually higher at peak power time, which happens to be generally around midday. At this time, electricity can reach peaks that make it very expensive. Coincidently, this is the moment when PV naturally has the biggest output as the sun is fully shining. We expect that in countries such as Spain, Italy or EUROPEAN RENEWABLE ENERGY REVIEW 2006

Greece, solar electricity can be competitive with peak power prices within the next ten years (northern EU countries in the next decade). The same timescale applies in the US, Japan and SouthEast Asia. Support Mechanisms are Necessary in the Transitional Period

Today, solar electricity cannot compete successfully with conventional energy sources, as it requires, as we have seen before, a reduction in the cost of PV modules. In order to acheive a reduction in cost, the existence of mass markets is necessary. To enable this reduction, support mechanisms are necessary to initiate these markets. Energy markets are not ruled like a standard industrial sector; conventional energy sources are heavily subsidized. That is why renewable energy sources, in order to reduce costs, if not initiated by market support programmes, cannot expect to become a new source of electricity generation. The most effective support mechanism that exists today is the one in place in Germany – the feed-in tariff system. The principle of this mechanism is that it offers the individual investor in solar electricity systems an attractive price for selling the produced electricity to the utility grid and rewards them for choosing to be supplied by clean solar electricity. The tariff is set high enough to enable a positive return on investment and a reasonable pay-back time (e.g. 10 years). Usually, the tariff is paid for a long period of time, 20 years, enabling a long-term visibility and, thus, stability for the investor. This system, in place since 2000, was renewed and improved in 2003, enabling an impressive market take-off in Germany (over 100% market growth in 2004).

Winfried Hoffmann is President of the European Photovoltaic Industry Association (EPIA) and of the German Solar Economy Association (BSW) and member of the Scientific Board of Fraunhofer institute solar energy (FhG-ISE) and member of the Supervisory Board of the institute for solar energy research in Hameln (ISFH). He is a Member of the Management Committee of SCHOTT Solar GmbH in Alzenau, Germany, and Chairman of the Board of Directors, SCHOTT Solar Inc. He joined the just formed photovoltaic R&D group for thin film solar cells of NUKEM in 1979 and took over its leadership in 1985. He initiated the joint venture in the photovoltaic field between NUKEM and Daimler-Benz Aerospace to form Angewandte Solarenergie – ASE GmbH in 1994, where he served as Managing Director. In the same year the acquisition of 100% shares of Mobil Solar as a subsidiary company took place, and where he still serves as Chairman of the Board of Directors. In October 2002 the joint venture between RWE Solutions and SCHOTT Glas, the RWE SCHOTT Solar GmbH, was formed, where he served as Chairman of the Board. Effective in 2005 SCHOTT acquired the shares of RWE Solutions and the company was renamed SCHOTT Solar GmbH, where he is Member of the Management Committee. Dr Hoffmann graduated in physics and did his PhD thesis in biophysics.

Germany’s experience has convinced more European governments to adopt similar systems to develop solar electricity. Fortunately these countries are from south Europe where the sun shines stronger. These are Spain since 2004, Italy in 2005, Greece in June 2006 and very soon France. 31

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Figure 1 PV Power installed per year in TW/a 1,000 900 800 700 600

8% (5)

500 400 300

(4)

23%

200

Row market off-grid GW/a

Row market on-grid GW/a

JP market on-grid GW/a

EU market on-grid GW/a

2040

2038

2037

2036

2035

2034

2033

2032

2031

2030

2029

2028

2027

2026

2025

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2023

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0

2020

100

2039

(3) (2) (1)

USA market on-grid GW/a

but also balance of system producers (inverters, cabling devices) and, on top of the chain, silicon producers. Today our sector is facing a temporary shortage of solar grade silicon because the chemical industry did not anticipate such a growth in the PV sector, a sector that relies essentially on politics to have a decisive impact on market development. For many years, the PV industry has been a marginal client for the chemical industry and the raw material provided was rather considered as a way for this sector to get rid of its production surplus. Today, the PV sector has turned out to be one of the main and new attractive clients of the chemical industry as well as the equipment suppliers of semiconductors. It is estimated that to reach expected market targets by 2010, current solar grade silicon production must be doubled from current levels to reach an annual output of 30,000 tons. The photovoltaic sector is becoming an attractive business and able to reboot some sectors which are facing market slow down.

Source: Hoffman W, Schott Solar, 2006 IEEE WCPEC Hawaii, 8 May 2006.

A Solution to Poverty Eradication

These countries are launching a decisive trend toward sustained markets development. Demand is growing and should not remain unsatisfied That is why the industry has to prepare itself to answer the consumers’ needs. We have seen how adapted support mechanisms could enable the sustainable development of markets in Europe and globally. The European Photovoltaic Industry Association

More than two billion people live without electricity today. Because of the fast-growing population in remote rural areas this figure will increase, even if many electrification programmes are completed successfully. For decentralised power needs, PV solar electricity is best. Following the continuing price decline, in the next decade PV will be cost-efficient and affordable enough to be able to close the energy gap in the new world. Accordingly, the rest of world market off-grid

The global photovoltaic sector has been growing significantly for the past eight years at a rate, on average, of over 40%.

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(EPIA) estimates that in 2010 the annual global market could reach 5.4GWp approximately 20GWp cumulative installed capacity globally could be achieved, which could provide electricity to over 20 million people around the globe. The industry must prepare itself over the entire value chain to answer market development with adequate production capacity.

applications will start to overtake other markets by the mid 2020s and will have the largest share after 2030. Allocating local content in these future markets will be a major topic in the coming years. Today’s leading EU on-grid market will be almost saturated by that time as well as the Japanese and US markets. To prepare for this future, changes in the PV industry have to be put in place today.

If we are going to reach an annual market of 5.4GWp manufacturers have to adapt their production capacity across the entire value chain. Not only do PV cell and module producers have to up-scale production outputs

A Sector with High Business and Job Creation Potential

Not only does PV electricity have high potential in EUROPEAN RENEWABLE ENERGY REVIEW 2006

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Our mission…

“Deliver a distinct and valuable service driven from the Strength of a Single European Photovoltaic Voice”

Our priorities…

•

Competitiveness

•

Innovation

•

Quality

•

Promotion

Our target…

Provide clean solar electricity to 7 million families in Europe by 2010 The Strength of a Single Photovoltaic Voice www.epia.org

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Figure 2: Policy-driven Scenario – Annual Worldwide Market (MWp) 6,000 5.425 5,000 3.750

4,000

3,000

2.666 1.971

2,000

1,000

0

1.581 1.057

1.150

2004

2004

0.595

2003

2006

2007

2008

2009

2010

Source: Hoffman W, Schott Solar, 2006 IEEE WCPEC Hawaii, 8 May 2006.

the long term to meet electricity needs but it will also become a leading business. Today, the PV industry generates a turnover of over €5 billion per year. It is estimated that in 2040 it will be €500 billion. Today, over 40,000 people already work for PV in Europe. Solely in terms of job creation, in order to meet the 2020 market forecast, it is estimated that PV could employ two million people worldwide. EPIA, the Strength of a Single Photovoltaic Voice

EPIA represents over 95% of the European PV industry and globally 80% of the manufacturers. It

driving directions: competitiveness, innovation, quality and promotion. Competitiveness is key to competing soon with peak power in the conventional electricity market. To fulfil the demand created by new political support programmes in Europe and worldwide, the industry is up-scaling its production capacities to reach the critical mass and realise economies of scale. Innovation is critical to making the difference among other technologies. Adapting products to consumers’ needs is also crucial. This requires closer work with research centres to adapt production processes and technologies. A quick transfer of laboratory results, to piloting and production processes in the industry is necessary. As far as quality is concerned, PV can be considered as a clean source of energy as long as it is sustainable. PV must be reliable to be able to meet customers’ expectations. The sector has already developed a full life-cycle analysis for each adequate solution, including proven recycling technology. Promotion is indispensable to raising awareness for renewable energies and in particular PV. Promotion towards decision-makers at national, European and global level is key to getting necessary interim policies until competitiveness is reached. This should take place within five to ten years at peak power prices on Southern European electricity markets and in the next decade in Northern Europe. A constant dialogue must be undertaken with all involved stakeholders (architects, utilities, construction sector).

Today, over 40,000 people already work for PV in Europe. Solely in terms of job creation, in order to meet the 2020 market forecast, it is estimated that PV could employ two million people worldwide.

exists to deliver a distinct and valuable service driven from the strength of a single PV voice. The role of EPIA is to accompany the industry through the expected market growth, on the one side by ensuring political support and the adoption of adequate support mechanism to ensure demand and on the other side by working together with all the stakeholders to ensure that the industry can actually meet the demand created. This will be achieved by following four main 34

EPIA has chosen to develop its strategy along these four pillars through the development of partnerships. The key for success to undertake this action plan is to work with the right partner such as professional associations, local governments, research institutes or media. Preparing reports or position papers, or organising seminars or promotional campaigns requires transparency and working in close collaboration with the right stakeholders. This is fundamental to obtaining reliable, credible and wideaccepted results. n EUROPEAN RENEWABLE ENERGY REVIEW 2006

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