Throughout its history, dating to the 1970s, the terrestrial PV industry has faced unreliable incentives, skeptical government support and unsuccessful market manipulation, utility antipathy to changing the status quo, entrenched reliance on conventional energy and protracted periods of aggressive pricing. These factors have led to a specific market behavior on the part of participants.
Driven by incentives, in particular the European-style Feed in Tariff, the market for PV systems grew at a compound average rate of 38% from 2009 through 2014. In 2009, the market for PV deployment was dominated by Europe at 83% of total demand, a situation that was not sustainable. In 2014, the market for PV deployment is more diversified, still primarily incentive driven and dominated by the markets in a few countries and thus remains highly vulnerable.
Entrenched behavior, such as a rush to install prior to a change in an incentive have resulted in acceleration of deployment at sometimes questionable quality, acceptance of power purchase agreement prices and tender bidding at rates too low to ensure long term profitability among other unhealthy market behaviors. Business models have sprung up to take advantage of incentives that perpetuate unhealthy market behavior.
- Unreliable incentives: Incentives such as feed in tariffs and also capacity based incentives such as rebates stimulate out-of-control market behavior in that deployment overshoots the original intent of the incentive. Typically, these incentives are developed with few controls and little understanding of market behavior. Anticipating a decrease in the incentive, market behavior accelerates leading to incentive budget shortfalls and electricity ratepayer anger over increasing utility bills. Globally, governments have reacted with retroactive changes to incentive rules and remuneration, rapid decreases in tariffs and rebate levels and the abrupt cessation of incentive activity. In recent years utilities have sought new fees for PV system owners, curtailment of production and alterations to net metering schemes.
- Skeptical Government Support and Unsuccessful Market Manipulation: Though it would seem as if climate change should be sufficient reason for governments to begin shifting energy production away from fossil fuels and to renewable technologies, unfortunately climate change action remains captive to well-funded special interest groups. Even in China, where air pollution is responsible for the deaths of thousands of people a year, coal continues to drive close to 80% of electricity production. Achieving government support tends to depend on the strength of the solar lobbying function. In Germany the solar lobbying function has traditionally been strong. In the US the solar lobbying function on a federal level has not achieved significant success in driving federal policy though the state SEIA’s (which are not divisions of the federal SEIA) have had differing levels of success.Government mandates for achieving a percentage of electricity production from renewable technologies often fall into the category of unenforceable goals and are vulnerable to changes in administration (governance). Incentive programs are often overrun by high priced consultants with the result that efforts are often shortsighted as to methods of achieving goals in a controlled fashion. As to the latter, Germany’s FiT and the California Solar Initiative (CSI) were successful, for the most part, at stimulating the market for solar deployment while also controlling it. Government goals for deployment often fall victim to utility pushback and rate payer (voter) anger over higher electricity bills. As strong markets for PV deployment were flooded with low priced imports and domestic manufacturers struggled to compete and finally began failing, governments in the US, Europe, Canada, India, instead of implementing positive measures to incentivize domestic content (cells, modules and balance of systems) governments in the EU and US stepped in too late with punitive measures that did little to restore domestic manufacturing.
- Utility Antipathy to Changing the Status Quo: Deployment of distributed generation (DG) photovoltaic installations, particularly the residential application), takes a direct hit on utility revenue model. This is particularly true for the investor owned utilities (IOUs) in the US and for monopolistic utilities in other countries. The utility business model will need to change, becoming smaller and leaner while focusing on local populations to make a necessary change to a more distributed model that supports a future driven by renewable energy technologies. Globally utilities are loath to change the status quo and as deployment of DG PV accelerates are instituting changes to and controls of net metering as well as adding fees to electricity bills of residential and small commercial PV system owners. The lobbying function of large utilities is significantly stronger than that of renewable technologies in genera,l and specifically that of the solar lobbying effort. Often utilities lay the reason for their reluctance to switch to renewable technologies at the feet of variability (availability of the sun or wind resource) and in the US point to the Duck Curve (the difference between forecasted load and production from renewable technologies and ensuing ramping problems) to shore up reluctance.
- Entrenched Conventional Energy: While the lobbying function of large utilities is significant it is dwarfed by that of conventional energy producers of oil, coal and natural gas. Natural gas has successfully rebranded itself as a ‘relatively’ clean energy source that is immune to variability concerns. Coal, oil and natural gas have well-funded lobbying efforts and it is in their interest to keep electricity consumers from conservation and from switching to renewable energy technologies. End users in industrialized countries are vulnerable to the public relations efforts from conventional energy producers.
- Aggressive Pricing: In the late 2000s, manufacturers from China benefiting from grants, loans and other subsidies ramped capacity and began pricing competitively. In a relatively short period of time manufacturers in Europe and the US found themselves in an uncompetitive position. Unfortunately, low margin pricing was celebrated by the PV industry as progress and expectations were set in the minds of end users that pricing would continue decreasing from an already unsustainably low level. It is now almost impossible for prices to increase to the point where a comfortable margin would be possible. The best that can be hoped for is a cessation in price decreases. Manufacturers in Japan are now facing price and margin pressure similar to that experienced by manufacturers in Europe and the US.
- Business Models: In the US, the Solar Lease Business model, now spreading to other countries, entices residential and small commercial customers with promises of free solar. This means that the installation is provided at no charge and maintenance is included. This model includes an annual escalation fee on the order of 3% that is based on the assumption that utility generated electricity will increase by 3% a year. Promised maintenance is often not performed and the sales function is highly aggressive. In the end solar lease customers pay far more for their installation than they would if they bought the system using reasonable financing.