European PV Installations To See Temporary Boost, But Distress Persists

A projected quarter-over-quarter (Q/Q) rise of 22% during the fourth quarter of 2011 (Q4'11) in the European photovoltaic market is providing a welcome temporary boost for downstream solar companies, according to a new report from Solarbuzz.

However, this growth rate still leaves significant corporate challenges in the management of the tumultuous slowdown this year in the world's largest regional photovoltaic market. The downstream challenge in 2012 will be effective management of a new pricing environment against a backdrop of declining incentives and still-to-be-realized grid parity economics, the company says.

Despite the Q/Q growth, year-over-year (Y/Y) growth is forecast to drop 25% this year for several reasons: major cuts in solar incentives, a weak project financing environment, and a module price path collapsing so fast that it has left downstream companies needing to offload inventories or face significant write-downs.

The trend of rapidly falling module prices, down 32% Y/Y at the distributor level at the end of Q3'11, has provided a compelling rationale for many downstream companies and end-customers alike to defer purchases in the expectation of further price cuts, according to the report.

In Germany, the prospect of a 15% tariff cut due at the start of 2012 has finally given the market a large enough boost to secure the largest share of the Q4'11 European market. However, Germany will be overtaken by Italy as the largest European (and global) market in 2011, despite tight bank lending constraints in Italy.

Ground-mounted installations, while down 27% in 2011, took over one-third of the European market in the second half of the year, following a largely seasonal pattern of a rising share toward the end of the year. Non-residential building-mounted systems will take a 55% share this year, Solarbuzz predicts.

The European markets are constrained, to varying extents, by tightening of PV incentive policies, bank lending restrictions, and utility concerns over electricity grid stability as PV deployment spreads. Additionally, policy changes made by various European governments, including the U.K. last week , have had some significant and largely unintended consequences.

‘Falling prices have compensated for major cuts in government solar incentives to leave PV investment returns still sufficiently attractive in almost all markets,’ says Alan Turner, vice president of Solarbuzz Europe. ‘However, the more important consequence of frequently changing incentive policies across Europe has been greater uncertainty and, therefore, higher risk for project financiers.

‘This has come at the worst time for banks also suffering under macroeconomic and currency crises,’ he continues.

The Q1'12 market in Europe is projected to be down 72% Q/Q, with the ground-mount segment the hardest hit (down 81%) and residential least affected (down 41%), according to Solarbuzz. At the country level, Greece, Spain and the U.K. provide the highest incremental market share growth opportunities.

The German market is forecast to fall 11% Y/Y in 2012, and installed system prices are forecast to decline by an average of 17% next year.

The successful realization of the benefits of grid parity will require grid management concerns to be overcome as developers, especially in southern Europe, start to plan projects financed on the basis of power purchase agreements, the report says. Meanwhile, downstream companies in France and Italy are receding from the high-risk project business to focus on the small roof sector or distribution.

Smaller markets offering the most stable volumes or growth potential over the next one to five years are Austria, Belgium, Bulgaria, Greece, Romania, Spain, Ukraine and the U.K. Although the latter is facing severe proposed tariff cuts, its residential segment will retain attractive returns, with prices continuing to fall. In the major markets, residential is the strongest segment in Belgium and the U.K., while ground-mount is strongest in Greece and Spain.

The other major markets have a more balanced segment mix, Solarbuzz predicts. France and Italy present the largest forecast quarterly variations in segment mix through 2012.


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