The extraordinarily strong growth of the grid connected application officially began in 1997, when the German 100,000 Solar Roof Program and zero interest financing, Japan’s residential rooftop rebate and subsidy and California’s rebate drove industry drove 234% growth over 1996 to >39-MWp. Multi-gigawatt demand for grid connected installations over the past 10 years (2004 – 2014) is a direct result of the EU feed-in-tariff model and subsequent FiT-like incentives. The FiT incentive model is also directly responsible for driving the success of the multi-megawatt (utility scale in the US, solar farms in Europe) sub-segment of the commercial application. Without large investor interest, the multi-megawatt installation segment would not have proliferated to the point that the industry is dominated by it.
In the beginning, the FiT gave investors the expectation of a stable, reliable, return on investment for ~20 years. Unfortunately, though the market reaction to this generous incentive should have been expected, it was not. Initially, the FiT was envisioned as a driver for distributed generation solar. For better or worse installations in FiT-countries was almost immediately dominated by multi-megawatt installations. The popularity of this incentive led to investment in solar manu-facturing capacity and created a significant number of jobs. Incentives must also be supported, and the expense of supporting gigawatts of recently installed solar has led to abrupt changes in program design, or, cessation of these programs, and much lower incentive rates. As a result, the FiT is no longer seen as an unchangeable, government promise, and investor confidence in this investment vehicle has been shaken.
The FiT is slowly though dramatically (for participants) being replaced by bidding processes to set the rates at which electricity is sold. Unfortunately, bidding processes are typically rife with par-ties that underbid, and the very process of underbidding (even the awareness of the possibility of it) tends to influence all parties in the exercise. As these low bids are seen as reflective of the true cost of installation (including labor), the process tends to hold margins for all participants hostage to expectations of ever lower bids. The price paid for tight margins may well be the quality control function at all points along the value chain and ironically, this may lead to less productive (in terms of kilowatts out) installations.
Unlike other low incentive periods the photovoltaic industry is hampered by significantly high levels of manufacturing capacity and government intervention, which has taken the shape of quotas, price floors and tariffs on modules from China and Taiwan. This government intervention was an attempt to right size domestic content, however, as >70% of manufacturing capacity resides in China and Taiwan, the result is the illusion of a supply constrained industry. This illusory supply constraint is leading to higher prices for module products, which, while a welcome change from previous low margins, has not been corrective, and instead is driving margin pressure for demand side participants (installers, system integrators, EPC, et al).