Global Market Outlook 2016

Global Market Outlook For Solar Power / 2016 - 2020 Supported by: SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020 / 7 2016 has sta...

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Global Market Outlook For Solar Power / 2016 - 2020

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1

SOLAR POWER INDUSTRY & TECHNOLOGY TRENDS © Photo courtesy of Huawei

2016 has started positively for the global solar power sector. In the first quarter, China alone installed over 7 GW, which equals 14% of the 50.6 GW that was commissioned last year, Europe passed the 100 GW mark of installed PV capacity, and the solar signals from many other parts of the world are very loud and clear. Solar continues to thrive.

The Paris Climate Summit (COP21) in December 2015 was not only a landmark agreement in the fight against climate change, it also clearly recognized the crucial role solar will play in order to be able to transform the world’s energy system and keep global warming below 2 °C, and if possible even below 1.5 °C. The conference saw the launch of the International Solar Alliance, where more than 120 countries signed up to make solar a core energy source. Also on the occasion of COP21, the world’s largest regional and national solar associations united under the leadership of SolarPower Europe to speak with one voice, founding the Global Solar Council (GSC), which has its first headquarters in China, its secretariat in the US, and is currently chaired by Europe.

700 GW

of total global installed solar power is possible by 2020

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1 SOLAR POWER

INDUSTRY & TECHNOLOGY TRENDS / CONTINUED

FIGURE 1 PPA PRICE OFFERS FOR SOLAR PV AND WIND ONSHORE POWER PLANTS IN DIFFERENT COUNTRIES

140

120

Jordan

India India

USD/MWh

100

Germany Chile

South Africa

South Africa Brazil

Brazil Brazil

UAE USA

40

France

Australia

Brazil

Canada

60

Germany

Brazil

Uruguay

80

India

USA Jordan

South Africa

Germany

Jordan

Brazil

South Africa India Chile Peru

Peru Egypt Morocco

Mexico

20

UAE

Solar Wind onshore

0

2012

2014

2015

2016

Year Source: International Energy Agency 2016

The recent solar price developments show the rapidly improving cost-competitiveness of solar power generation, which can generate electricity at price levels that are now frequently even below new conventional power plants, in particular in regions with low financing cost (see Fig. 2).

© SOLARPOWER EUROPE 2016

PV is increasingly cost competitive with fossil fuels and even onshore wind power

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FIGURE 2 SOLAR ELECTRCITY GENERATION COST IN COMPARISON WITH OTHER POWER SOURCES

400 350

LCOE (USD/MWh)

300 250 200 150 100 50

3%

7%

N uc le ar

T

C oa l

C G C

Re si de nt ia C lP om V m er ci al U til PV ity -s ca le PV

C oa l N uc le ar

T C G C

Re si de nt ia C lP om V m er ci al U til PV ity -s ca le PV

C oa l N uc le ar

T C G C

Re si de nt ia C lP om V m er ci al U til PV ity -s ca le PV

0

10%

MEDIAN Source: International Energy Agency 2015

© SOLARPOWER EUROPE 2016

Cost of financing is the key decision criteria for investments in utility-scale solar The record-low solar power price bids in recent tenders have reasons beyond technology improvements and high solar irradiation in the locations of the planned power plants. When looking at the cost of a solar power plant, modules and balance of system (BOS) cover roughly 50%. On top come costs for operation and maintenance (O&M) service contract and insurances. But the single largest contributor to a solar power plant is the cost of financing at about one third of the total. The cost of financing is heavily depending on two items – operational risk and regulatory risk. When using certified and high-quality low-cost products combined with appropriate service contracts and insurances to cover warranties, the operational risk can be very well controlled. Solar power is a proven technology with many systems in the field working without flaws for over 20 years. The regulatory risk is a factor that is much harder to assess, as it involves politics. In Dubai’s stable political and economical environment, and with state energy agency DEWA being the organizer of the tender and the off-taker of the power, many developers evidently assessed a very low regulatory risk.

While the cost of utility-scale solar increasingly beats conventional power plants, distributed solar is cheaper than retail electricity in many countries. However, a simple cost comparison is not enough for solar to succeed in the long-run in electricity markets that were designed for centralized, dispatchable power generation. The value of a unit of energy produced by solar and its variable nature are not appropriately acknowledged. In liberalized markets, technologies with zero marginal cost, like solar, drive power prices down to levels that are still below today’s generation cost. In the distributed segment, inappropriate regulation, as well as taxes for self-consumption, make it difficult for solar to take advantage of its low cost. Intelligent new electricity market designs are key for solar power to be able to contribute large shares into the power mix. In the meantime, solar continues to rely on different incentive mechanisms that drive demand. This includes technology-specific renewable portfolio standards (RPS) and tenders, tax credits, traditional feed-in tariffs or Power Purchase Agreements (PPAs), as well as premiums for the feed-in of excess power generated in self-consumption systems. In 2015, one third of solar power demand was driven by schemes other than traditional uncapped feed-in tariffs (see Fig. 3).

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GLOBAL SOLAR MARKET UPDATE 2000 - 2015 © Alessandro Cosmelli, Photo courtesy of Enel Green Power

2015 concluded a 3-year trend, manifesting solar as a real global power generation technology - with strong demand on all continents. Originally kick-started in Germany, then expanding across Europe, and as of 2013, Asia has been the driving force for solar PV growth. At the end of last year, China took over the title from Germany as the country with the largest total installed solar power capacity.

50.6 GW have been installed and commissioned in 2015, which is a bit higher than the preliminary numbers (50.1 GW) published in our Market Report 2015 in March – and in line with the forecast of the GMO 2015. This means, solar demand grew 25.6% over the 40.3 GW commissioned in 2014. The countries driving the bulk of the world’s solar growth in 2015 remained the same group as the year before: The strong solar commitment of the Chinese government pushed the country’s PV market up by 46% to 15.15 GW in 2015, from 10.6 GW the prior year, contributing 30% of total global demand alone. While the government’s target originally was nearly 18 GW, the final results can be partially explained by slower than expected development of the distributed market and transmission grid constraints. Japan ranked second in 2015 again. Supported through the most attractive invectives, the Japanese market grew 13%, to an all-time high of 11 GW (and thus even higher than we first estimated in our recent Market Report), making it the only other market in the 2-digit GW range. Driven by feed-in tariffs and utility-scale power plants, both China and Japan together were responsible for more than half of all new solar grid-connections in 2015. The US market maintained its third rank, but grew its grid-connected capacity below average global growth rates – by 18% to 7.3 GW, from 6.2 GW in 2014. The main driver in the US are state renewable portfolio standards and a 30% Investment Tax Credit (ITC), which have incentivised half of the new installations being utility-scale power plants. While the other incentive tool, net-metering, is increasingly being challenged by utilities and regulators, demand for residential solar jumped by nearly 70% to over 2 GW. Europe as a whole saw a first slight uptick in 2015 since 2011, adding 8.2 GW to the grid, a 15% growth after three consecutive years of declining demand. Three European countries still belong to the global top 10 in 2015 - the United Kingdom (4th), Germany (6th), and France (9th).

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2 GLOBAL SOLAR MARKET

UPDATE 2000 - 2015 / CONTINUED

For the first time, India belonged to the top 5 solar markets in the world. It augmented its total solar power target to 100 GW by 2022, and created the International Solar Alliance, a group of around 140 countries that target universal access to clean energy. The 2 GW of new PV capacity added in 2015 – mainly utility-scale systems awarded through tenders, is just the start of the Indian solar boom. A number of markets, remained more or less stable in 2015, showing no or only little growth, but contributed still close to 1 GW – in Europe, this included France, which went down slightly to 879 MW. In Asia, Korea increased newly added solar power capacities by 12% to 1 GW, and in the pacific rim, Australia again added around 900 MW. Australia has been traditionally a feedin tariff market. Now that the residential market shows the first signs of saturation, this segment has transformed to self-consumption and starts to embrace battery storage, while the general market is opening up toward commercial and industrial applications.

Several other countries contributed significantly, such as Canada, adding 600 MW, Taiwan installing 400 MW, and Chile connecting close to 450 MW. While the African on-grid market has traditionally been dominated by South Africa, which added only around 200 MW in 2015, utility-scale solar power is now starting to get traction in other African countries . Algeria added 268 MW, and Egypt installed a few utility scale PV plants, after announcing an ambitious program targeting 2.3 GW by 2017. The key takeaway for solar from 2015: After COP 21 and the quickly spreading news about solar power’s increasingly competitive low cost levels, photovoltaic technology has become a truly global solution for generating power, quickly enticing newcomers to implement this power generation technology all around the world.

FIGURE 4 EVOLUTION OF GLOBAL ANNUAL SOLAR PV INSTALLED CAPACITY 2000-2015

60

50.6 50

GW

40

30

20

10

0 2000

2001

2002

EUROPE

2003

2004

AMERICA

2005

2006

2007

CHINA

*APAC excl. China

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2008

2009

2010

APAC*

2011

2012

MEA

2013

2014

2015

RoW

© SOLARPOWER EUROPE 2016

The cumulative installed solar PV power capacity increased 29% year-on-year to 229 GW by the end of 2015. In only 5 years, from 2010 to 2015, the total global PV capacity jumped over 450% from less than 41 GW. Looking back 10 years, solar’s development has been even more impressive - from 5 GW of total commissioned PV capacity at the end of 2005 the market has grown 45 times in just one decade.

2015 was the year Asia fully caught up with European solar pioneers. Out of the 229 GW installed and commissioned at the end of 2015, Europe still accounted for the major global share at 97 GW, but the Asia-Pacific (APAC) countries had almost reached the same level at 96 GW. America (including both North and South America) still lags behind at 31 GW. Middle East/Africa (MEA) had only 3 GW of PV end of 2015.

Since 2000, when the modern solar success story basically began with the implementation of Germany’s feed-in tariff program, installed global solar power capacity has even multiplied by a factor of more than 150.

FIGURE 5 EVOLUTION OF GLOBAL TOTAL SOLAR PV INSTALLED CAPACITY 2000-2015

250

229.3

200

GW

150

100

50

0 2000

2001

2002

EUROPE

*APAC excl. China

2003

2004

AMERICA

2005

2006

2007

CHINA

2008

2009

2010

APAC*

2011

2012

MEA

2013

2014

2015

RoW

© SOLARPOWER EUROPE 2016

SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020 / 15

2 GLOBAL SOLAR MARKET

UPDATE 2000 - 2015 / CONTINUED

For the first time in a decade, Germany is no longer the country with the largest cumulative solar capacity: In addition to installing the largest solar volumes per year, China has now also taken the lead regarding total solar power capacities - reaching 43.5 GW, equal to 19% of the global market share at the end of 2015. Germany, now ranked second, has yet to reach the 40 GW mark. Japan scored third place with 34.3 GW connected to the grid, ahead of the USA with 25.6 GW

and Italy with 18.6 GW. Besides these 5 countries, no other national market touched the 10 GW level by the end of 2015. In the first quarter of 2016, the UK, which had 9.1 GW installed by end of 2015, exceeded 10 GW as well. While India (5.1 GW) could be the next to reach the 10 GW level, potentially already this year, it will take a few more years for others to get there. At the end of 2015, France had a total solar capacity of 6.5 GW, Spain was at a level of 5.4 GW and Australia at 5.1 GW.

FIGURE 6 EVOLUTION OF GLOBAL REGIONS' ANNUAL PV INSTALLATIONS 2010 - 2015

100 90 80 70

%

60 50 40 30 20 10 0 2010

EUROPE

2011

2012

AMERICA

2013

APAC

2014

MEA

2015

RoW © SOLARPOWER EUROPE 2016

FIGURE 7 GLOBAL TOP 10 SOLAR PV MARKETS TOTAL INSTALLED SHARES BY END OF 2015

Rest of World 15.8% China 18.9% India 2.2% Australia 2.2% Spain 2.4% France 2.8%

Germany 17.3%

United Kingdom 4.0%

Italy 8.1%

USA 11.3%

Japan 15.0%

© SOLARPOWER EUROPE 2016

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2 GLOBAL SOLAR MARKET

PROSPECTS 2016 - 2020 / CONTINUED

FIGURE 8 GLOBAL ANNUAL SOLAR PV MARKET SCENARIOS UNTIL 2020 140

120.2

120

100

15% 14%

76.7

GW

80

10%

8%

60

50.6

62.6

22%

47.1

40

20

0 2010

2011

Historical data

2012

2013

2014

Low Scenario

2015

2016

2017

High Scenario

2018

2019

2020

Medium Scenario © SOLARPOWER EUROPE 2016

For next year, 2017, a somewhat more moderate growth rate is anticipated in the Medium Scenario, following the end of the attractive incentive program of the UK, Europe’s leading market in 2014, 2015 and most likely 2016, and Japan’s potential move to tenders. Added to this is the assumption that China controls growth, as long as the lack of transmission lines from the locations with high solar power plant densities requires frequent curtailment, and plans for much larger shares of distributed solar generation materialize. In the period 2018 to 2020, further cost improvements, new markets, customers better understanding solar’s value, and new market players are very likely to lead again to higher annual growth rates. The most probable scenario (Medium Scenario) assumes that annual demand grows up to 97 GW in 2020. The surprising rapid cost reduction in recent solar tenders, might even trigger much higher demand for PV. There is also upside potential for distributed solar in combination with battery storage. The High Scenario estimates a strongly growing annual market, reaching 120 GW in 2020.

The key to sustainable growth of solar power is a stable policy environment. If only a few major markets take the wrong policy decisions - such as failing to adapt their electricity market design to the needs of renewables, adding unjustified high taxes or import barriers, cutting incentives too rapidly or changing framework conditions retroactively - dramatic disruptions can occur, which has happened in several European countries. Taking these risks into account, the Low Scenario assumes a development that results in 63 GW of market demand in 2020. The Low Scenario is very unlikely from today’s perspective, but should not be completely discarded. Compared to the Global Market Outlook 2015, this report foresees a much more positive solar development for all 3 scenarios for the coming years. While the 2015 version assumed between 396 GW and 540 GW with the most likely scenario resulting in 450 GW of total operating solar power by 2019, the GMO 2016 forecasts a range between 427 and 596 GW and 516 GW for the most probable Medium Scenario. In 2020, total solar capacity could be between 490 and 716 GW, with 613 GW considered the most likely scenario. In any case, 2 milestones will be reached in all scenarios – 300 GW solar power in 2017, and around 500 GW by 2020.

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The use of solar power will spread to many quickly emerging markets on all continents over the next 5 years. The Top 20 markets would each absorb more than 2 GW by 2020 even in the Low Scenario and at least 4 GW in the High Scenario. But the bulk of the growth will be still carried out by a few markets. While 8

countries might add each over 10 GW if the policy environment is working optimally, only 4 markets – China, US, Indian and Japan - are supposed to add over 20 GW in any scenario, with China being the only country that could even exceed the 100 GW level in the High Scenario.

FIGURE 11 TOP 20 MARKETS' SOLAR PV ADDITIONS FOR HIGH AND LOW SCENARIOS 2016 - 2020

China

105.0

60.0

USA

69.0

47.0

India

66.0

35.0

Japan

22.6

Turkey

12.5

3.3

Germany

10.8

6.3

Mexico

12.0

5.7

Pakistan

11.0

4.8

Brazil

34.2

9.5

4.6

8.4 6.3

Australia United Kingdom

8.2

3.4

7.8 5.0

Korea France

4.7

Egypt

3.5

Philippines

2.1

7.3

6.8

5.5

Italy

5.1 2.4

Netherlands

4.8 2.5

Austria

2.1

Low Scenario

4.7

Canada

4.4 3.0

Thailand

4.0 2.2

0

High Scenario

20

40

60

80

100

120

GW © SOLARPOWER EUROPE 2016

SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020 / 21

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THE EUROPEAN SOLAR MARKET 2000 – 2015 UPDATE © Solal Building | Dijon (F) | Project by ISSOL sa/nv for GDF-Suez

2015 marked a strong growth year for the European solar market. With 8.2 GW of newly gridconnected PV, the European PV market grew 15% year-on-year. This is the first upward trend since 2011, when annual grid connection peaked at 22.5 GW, following a growth period in the first decade of the century that was triggered by feed-in-tariff programs in Germany, Italy, Spain and a few other countries.

On the heels of the boom cycle and its unsustainable peak, a strong market consolidation followed, with European countries progressively transitioning from traditional feed-in tariff driven solar investments to more market-driven solar installations. Between 2011 and 2014, volumes of new PV grid-connections in Europe declined each year, reaching a 5-year low, at 7.1 GW, in 2014. The UK took the No. 1 spot in Europe again, adding 3.7 GW of new solar power capacity in 2015. Germany stayed on rank 2, grid-connecting less than 1.5 GW, significantly missing the official annual target range of 2.4 to 2.5 GW. The long-time European solar leader’s market was negatively impacted by a new pilot tender scheme for systems above 1 MW as well as continued problems to attract large numbers of investors with its self-consumption scheme. France remained the third largest European market, installing less than 0.9 GW in 2015, driven by tenders granted in the past and a slightly growing distributed market. France also commissioned the largest PV power plant in Europe last year, a 300 MW utility-scale system. Except for the UK and Germany, each of the other European markets added less than 1 GW solar power in 2015. Italy, once a European leader, continues its transition mode, and installed around 300 MW. Spain, a world market leader in 2008, has completely disappeared from the European PV map for many years. After stopping its feed-in-tariff scheme, the Spanish Government not only implemented retroactive changes, it also hindered the emerging self-consumption market with a solar tax and high fines for non-declared prosumers. While it is good news that Spain more than doubled installations to 56 MW in 2015 from 22 MW in 2014, this is way below the country’s potential.

15%

Solar power could cover of electricity demand in Europe in 2030

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The solar sector in Europe is still in a transition phase. The 15% market growth in Europe in 2015 should not distract from the big solar picture on the European Continent: Without the enormous growth in the UK, the European solar market would have remained in 2015 roughly at the 2014 level.

Despite the transition struggle of several of the advanced European solar markets, total installed capacities grew from 88.9 GW in 2014 to 97.1 GW by the end of 2015, which means Europe maintained its title as the world’s largest solar continent in 2015, though only about 1 GW ahead of the Asia/Pacific region.

FIGURE 15 EVOLUTION OF EUROPEAN TOTAL SOLAR PV INSTALLED CAPACITY 2000 - 2015 FOR SELECTED COUNTRIES 120

97.1

100

GW

80

60

40

20

0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Austria

Belgium

Bulgaria

Czech Rep.

Denmark

France

Germany

Greece

Italy

Netherlands

Romania

Spain

UK

Rest of Europe

© SOLARPOWER EUROPE 2016

SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020 / 27

3 THE EUROPEAN SOLAR MARKET 2000 - 2015 UPDATE / SEGMENTATION

The European PV markets remain driven by policy issues. The European Union has as many different solar policy environments as its number of countries. Depending on the preference of policy makers and regulators, some countries have more utility-scale PV installed while others own a bigger share for industrial, commercial or residential rooftops. As a rule of thumb, the less active a once strongly thriving market is in Europe, the larger is the share of cumulative installed utility-scale solar. Following its short-lived solar boom periods based on utility-scale plants, which ended after the financial incentives programs were terminated, countries like Romania, Bulgaria or Spain have hardly added any noteworthy solar capacities.

A European latecomer, the UK’s recent solar boom was also primarily triggered by incentives for utility-scale systems, which ended in March 2016. The UK also has a separate feed-in-tariff program for small PV systems, which was cut as well. In smaller, more densely populated European countries, such as Belgium, the Netherlands, or Austria, policy makers have usually preferred rooftop solar. There are also markets in Europe, which have supported all segments, though with different emphasis over time. In Germany’s flourishing solar days until 2012, growth was mainly carried by commercial systems, and to a lesser extent utility-scale and industrial segments. After moving to self-consumption with feed-in premium, the market has been based mainly on residential rooftop systems, while a new tender scheme for ground-mounted installations above 1 MW is starting to contribute to demand.

FIGURE 16 EUROPEAN SOLAR PV TOTAL CAPACITY UNTIL 2015 FOR SELECTED COUNTRIES

100 90 80 70

%

60 50 40 30 20 10

Residential

Commercial

Sl ov ak ia

Be lg iu m

itz er la nd

la nd

Industrial

Sw

Po

N et he rla nd s

Au st ria

Ita ly

De nm ar k

G re ec e

an y

G er m

Fr an ce

ga l Re pu bl ic

rtu Po

C ze ch

do m Ki ng

U ni

te d

Sp ai n

ar ia Bu lg

Ro m

an ia

0

Utility scale

© SOLARPOWER EUROPE 2016

RESIDENTIAL: systems below or equal to 10 kWp COMMERCIAL: systems with a capacity between 10 and 250 kWp INDUSTRIAL: systems with a capacity above 250 kWp UTILITY SCALE: systems with a capacity above 1000 kWp and built on the ground

28 / SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020

Europe has surpassed the impressive level of 100 GW of cumulative grid-connected solar power in the first quarter of 2016. In the High Scenario, the European solar power market could grow by over 75% to 170.9 GW by the end of 2020. In the Low Scenario, a 33% growth rate would lead to only 129.6 GW of total solar power. Political support for solar power varies a lot in European countries. Despite solar’s impressive cost improvements, most European governments are not supporting the technology to an extent seen in the world’s leading markets in Asia-Pacific and America. Europe’s three largest solar markets in 2015 – UK, Germany, France - will be among the largest contributors to solar growth on the Continent until 2020, although the policy environment, in particular in the UK, and also Germany, is not solarfriendly these days. However, a functioning infrastructure

- including standards, a large number of solar installers, utilities increasingly engaging in solar, and storage & solar product offers attracting new groups of customers – will keep these developed markets going. One of the largest solar markets in Europe will be Turkey, though for very different reasons. Turkey’s economy is growing faster than for the rest of Europe, its population is quickly increasing – and so is demand for electricity. Unlike the EU, Turkey has no power generation overcapacities; low cost solar is a welcome contribution to satisfy growing power demand. The Medium Scenario expects 15 European markets to add each at least 500 MW until 2020, with the largest two – Germany and Turkey – adding over 8 GW, which is expected to result in 52 GW of new solar installations (see Fig. 19).

FIGURE 18 EUROPEAN TOTAL SOLAR PV MARKET SCENARIOS 2016-2020

180

170.9

160 140

11% 10%

120

107.3 97.1

100

9%

129.6

8%

GW

8%

102.7

80 60 40 20 0 2010

2011

2012

Historical data

2013

2014

Low Scenario

2015

2016

2017

High Scenario

2018

2019

2020

Medium Scenario

© SOLARPOWER EUROPE 2016

SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020 / 31

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SOLAR IN THE EUROPEAN ELECTRICITY SYSTEM 2000 – 2015 UPDATE © Photo courtesy of REC Solar

Solar power is supplying 4% of electricity demand in the European Union, based on the total installed PV capacity by the end of 2015.

In Italy, around 8% of power consumptions is supplied by solar PV. The EU’s top three solar electricity consumers are Italy, Greece and Germany, where solar covers more than 7% of their needs. With 17 of the 28 EU members having solar contribute more than 1% of their electricity demand, the message is clear: Solar is becoming an established player in the European Union’s power generation portfolio. As in the last few years, in 2015 PV was again among the top two electricity generation sources installed in the European Union. Solar and wind combined around 20 GW, equal to about 75% of newly added capacities in 2015. Coal, nuclear as well as gas saw significantly more decommissioning of power plant capacities than new additions.

FIGURE 21 PV CONTRIBUTION TO THE ELECTRICITY DEMAND IN THE EU-28 IN 2015

9 8 7 6

%

5

4%

4 3 2 1

Fr an ce C yp ru s Po rtu ga l Au st ria N et he rla nd s

ar k Sl ov en ia Sl ov ak ia

De nm

M al ta

U ni

te d

Ki

ng

do m

an ia

Ro m

Sp ai n

G re ec e G er m an To y ta Bu lE l ga ur op ria ea n U ni on Be lg C iu ze m ch Re pu bl ic

Ita ly

0

© SOLARPOWER EUROPE 2016

34 / SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020

Still, more new coal power plant capacities were added in 2015 (4.7 GW) than the year before (3.3 GW), clearly showing that the Emission Trading Systems (ETS) is not delivering as it currently fails to drive polluting coal out of the market. The EU 28 has still more than half of its power fleet based on inflexible technology – 26% coal and 26% nuclear.

A specific plan for Member States is urgently needed to organize an orderly retreat from coal and end the situation of generation overcapacities due to inflexible technologies in Europe.

FIGURE 22 POWER GENERATION CAPACITIES ADDED IN THE EU-28 IN 2015 15

12,800

10

7,655 4,714

5

232

119

4

Decommissioned Installed

MW

1,867 4

0

0 -518

-281

-1,825 -5

-3,282

-4,254 -8,051

-10 Solar PV

Wind

Coal

Solar PV

Gas

Biomass

Hydro

Other Renewables

Waste

Geo-Thermal

Ocean

Fossil Fuels

Fuel Oil

Nuclear

Peat

Decommissioned

Source: SolarPower Europe, Wind Europe

© SOLARPOWER EUROPE 2016

FIGURE 23 NET POWER GENERATION CAPACITIES ADDED IN THE EU-28 FROM 2000 TO 2015 160 140

137.5 120.6

120

95.4

100

60 40

8.9

20

8.2

4.6

0

3.1

0.4

0.3

0.01

-20

-11.8

-40

-32.6

-60 Wind

Gas

Solar PV

Solar PV Source: SolarPower Europe, WInd Europe.

Hydro

Biomass

Other Renewables

CSP

Waste Geo-Thermal

Fossil Fuels

Peat

Ocean

Nuclear

Coal

-39.6 Fuel Oil

Decommissioned Installed

GW

80

Decommissioned © SOLARPOWER EUROPE 2016

SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020 / 35

4 SOLAR IN THE EUROPEAN ELECTRICITY SYSTEM ASSESSMENT OF 2020-2030 ENERGY TARGETS

As the European Union agreed on a 27% renewable energy target for 2030, SolarPower Europe calls for an increase to a more ambitious 35% goal, that would more appropriately reflect the COP 21 agreement from Paris, which strives to limit global warming to 1.5 °C. The Renewable Progress Report presented by the European Commission in 2015 shows that France, Luxembourg, Malta, the Netherlands, the United Kingdom and to a lesser extent, Belgium, Spain, Hungary and Poland are lagging behind and will have to increase their efforts in order to meet their legally binding renewable energy targets by 2020. In addition, while several Member States are currently on track, they will have to intensity their efforts as their trajectory becomes steeper towards the end of the decade.

fast cost decrease of solar, these countries now have a renewed opportunity to comply with their obligations while accelerating the transformation of their power, transport and heating sectors. Looking at 2020, SolarPower Europe forecasts that PV could contribute between 5.2% (Low Scenario) and 7% (High Scenario) of the European electricity demand. This has to be compared to the 4% achieved at the end of 2015.

As shown in figure 24, substantial parts of the anticipated gaps in many of these countries could be filled by solar considering our High Scenario. With the

In the following decade, our modelling suggests that between 10 and 15% of Europeans’ electricity needs will be covered by solar. Assuming no-growth for electricity demand by 2030, reaching a 15% share would require the European solar market to increase from 100 GW today to a total of 375 GW. This means an annual 18 GW market until 2020 and an average of 20 GW in the coming decade. Taking into account that the European solar power market was already at an annual level exceeding 22 GW in 2011, this is possible – and at a fraction of the cost.

FIGURE 24 POSSIBLE SOLAR PV CONTRIBUTION TO EU-28 2020 RES TARGETS

FIGURE 25 POSSIBLE SOLAR PV CONTRIBUTION TO EU-28 ELECTRICITY DEMAND BY 2030

100

400

90

15%

350

80 300 70 250

10% GW

%

60 50 40

200

7.0%

150

30

5.2% 100

20 50

10

Au Be str l ia Bu giu lg m C aria C ro ze ch C atia Re ypr p u De ub s nm lic E s ar t k Fi onia nl Fr and G an er c m e G any r H eec un e g Ire ary la nd It La aly L Lu ith tv xe ua ia m ni bo a u N et M rg he al rla ta n Po ds P o l an d Ro rtug m a Sl an l ov ia Sl ak ov ia en U S ia ni t e S pa d we in Ki d ng en do m

20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 30

0

0

High Scenario

High Scenario 2020

Possible PV contribution to reduce RES commitment gap under High Scenario

Low Scenario

Low Scenario 2020

PV contribution to RES penetration in 2020 under Low Scenario

Medium Scenario

Extrapolated High Scenario 2030

Expected RES penetration in 2020 (PV not included)

Historical data

Extrapolated Low Scenario 2030

Gap between RES commitments and expected realization under High Scenario for PV

© SOLARPOWER EUROPE 2016

36 / SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020

© SOLARPOWER EUROPE 2016

4 SOLAR IN THE EUROPEAN ELECTRICITY SYSTEM TENDERS FOR SOLAR POWER

Tender systems are a good tool for creating transparency in power generation costs, in particular for technology with decreasing costs. Despite the burden of the Minimum Import Price (MIP), which kept prices in the EU for modules from the world’s largest manufacturing country, China, artificially high, European developers were able to bid at competitive prices. Without the MIP, European developers would offer an even more competitive option for European society to make the transition to a clean power economy. Even in Germany, with its rather low irradiation levels, the pilot solar tenders resulted in average purchase offers from the regulator to the successful bidders at low costs, which have continued to fall from the first to the fourth tender – from 0.092 Euros per kWh in April 2015, 0.085 EUR in August, 0.08 EUR in December, and 0.074 EUR in April 2016. The following figure shows how a 0.0741 EUR/kWh solar power purchase price in Berlin (most of the German bids were awarded to systems in the state of Brandenburg) could be translated to other European capitals – with all other assumptions maintained equal (CAPEX, OPEX and cost of capital). The simplified model shows how costefficient solar has become throughout Europe under the

current regulatory conditions even with access to components with punitive import duties on the world’s largest supplying nation. In Madrid, it should be possible to generate solar power at a level of around 0.045 EUR/kWh and in the south of Spain even below 0.04 EUR. Several European countries, where utility-scale solar provided the base of the solar growth in the past, have yet to establish solar tenders after they abandoned the traditional feed-in-tariff schemes, such as Spain, Czech Republic or Bulgaria. In addition, these countries and a number of others in Europe have implemented retroactive measures that have damaged the confidence of investors as well as the countries’ attractiveness for energy investments. These measures include feed-in-tariff cuts for existing installations or later limitation to operating hours, like in Spain. In Belgium, the region of Wallonia has decreased the number of years of payment for the Green certificates for existing installations. As a consequence, the cost of capital for financing solar power plants in such markets is at much higher levels than in stable countries, like Germany, countering the cost reduction progress of solar technology and regional advantages.

FIGURE 26 THEORETICAL SOLAR GENERATION COST IN DIFFERENT EUROPEAN CITIES WHEN APPLYING CONDITIONS OF GERMAN Q1/2016 TENDER (EUR/kWh) Warsaw Brussels Amsterdam

0.0741

Berlin London Stockholm Bucarest Bordeaux Ankara Rome Lisbon Athens Madrid 0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

EUR/kWh © SOLARPOWER EUROPE 2016

SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020 / 37

5

GLOBAL MARKET OUTLOOK FOR SOLAR POWER © Photo courtesy of REC Solar

After the world united at COP 21 in December 2015 in Paris, agreeing that global warming should not exceed 2 °C, and if possible even stay below 1.5 °C, the time has come to implement the best tools to achieve these ambitious goals. The solutions are obvious replacing fossil fuels with renewable energies is one of the fastest and most cost effective ways to cut greenhouse gases. Recent technical and cost developments clearly indicate that solar is the preferred renewable energy choice to combat global warming.

Today’s solar power plants can generate electricity at price levels that are increasingly below new conventional power plants. Costs continue to come down very rapidly. In the latest tenders unsubsidized solar power bids were even lower than the lowest-priced PPAs for onshore wind. At the distributed level, solar is cheaper than retail electricity in many countries today. Solar’s progress and potential for further cost reduction has caught the attention of many foresighted policymakers and is quickly spreading. Emerging markets in Asia and America are driving today’s growth through traditional support schemes, such as uncapped premium feed-in tariffs. However, if the share of solar power grows beyond certain levels, a further sustainable development will depend on a transformation to new market framework conditions. Intelligent and reliable new electricity market designs will be key for solar power to be able to contribute large shares into a country’s or region’s power mix. In an electricity market suffering from overcapacities, like Europe, it is foremost about retiring polluting coal power plants. It is also about market rules that are designed for variable renewable energy sources with zero marginal cost, that can be complemented with smart grids, storage, flexible power generation and demand side management tools. In particular, a move to tendering schemes for utility-scale solar needs proper design and sufficiently large volumes to work flawlessly. Self-consumption and storage of distributed solar requires the development of new business models, based on frameworks at the retail level, which appropriately remunerate the true value of solar power, and where solar is not hindered through high taxes or other obstacles. If the market design conditions are set correctly, respecting solar and other renewable technologies’ specifics, solar power as the lowest-cost renewable energy will be able to fully serve society and the global economy. This will keep costs as low as possible in the world’s transformation process to clean power generation and in time to meet the ambitious Pairs Climate Summit targets.

38 / SolarPower Europe / GLOBAL MARKET OUTLOOK FOR SOLAR POWER 2016-2020

SolarPower Europe (European Photovoltaic Industry Association) Rue d’Arlon 69-71, 1040 Brussels, Belgium T +32 2 709 55 20 / F +32 2 725 32 50 [email protected] / www.solarpowereurope.org

ISBN 9789090298146

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