The Race To Grid Parity: Which Countries Will Enjoy Cheap Solar First?


Solar subsidies have been capped, cancelled and cut over the past several years, but solar installations have continued to rise – driven primarily by increased demand from one market: Germany.

However, as manufacturers approach near-term limits on cost reductions, German demand will begin to decline, according to a new report from Lux Research. As a result, demand will shift to Asia and North America, and the solar market will grow in terms of megawatts installed, but revenues will stay flat as price declines outpace volume growth.

The report found that solar demand will shift to a broader range of markets over the next five years, based on an analysis of the levelized cost of electricity (LCOE) and internal rate of return (IRR) across 156 countries, states and regions. Japan, China and India will emerge to drive significant volumes, and the U.S. will come forth as a heavyweight, given the government's support of tax equity through 2016 and a myriad of state-level programs.

‘The global solar market for grid-connected systems will grow from 15.8 GW in 2010 to 37.5 GW in 2016, a compound annual growth rate of 15.5 percent,’ says Lux Research Analyst Matt Feinstein. ‘However, price declines will outpace volume increases, at least at first.

‘The industry will actually shrink on a revenue basis from $64.4 billion in 2010 to $56.9 billion in 2012, before recovering to $65.4 billion in 2016,’ Feinstein predicts.

Leading IRR markets such as New Jersey, Australia and Greece attract attention this year, according to the report. With subsidies, a surprising number of markets have IRRs worthy of investment by project developers today.

Today, the most attractive residential markets are Australia (52% subsidized IRR), Greece (32%) and Ontario (27%), while the most attractive commercial markets are New Jersey (42%), Portugal (37%) and Hawaii (34%).

On the utility ground-mount side, Portugal (81%) tops the list, followed distantly by New Jersey (58%) and Cyprus (44%). By 2016, viable investment targets will increase dramatically, encompassing 45 residential markets, 88 commercial markets and 85 utility markets.

Subsidies and grid parity are not necessary to generate positive demand, Lux Research adds. An anticipated future increase in the cost of retail and wholesale power is all that is necessary to generate positive demand – even in countries without subsidies. Brazil, for example, is projected to reach a 12% unlevered, unsubsidized IRR for commercial multicrystalline PV systems at the end of 2016 – even though solar will not yet have reached grid parity.

Indeed, of 55 geographies demonstrating unsubsidized IRRs above 10% at the end of 2016, only 10 will have reached grid parity.

Lux Research predicts that commercial systems reach grid parity fastest, with 10 geographies there by 2016. The number of commercial rooftop markets reaching parity will grow from one in 2010 to 10 in 2016, including the Dominican Republic and Nicaragua.

Hawaii will be the first to accomplish residential grid parity in 2011; by 2016, a total of seven other residential markets will follow, including Italy, Denmark and Ukraine. For utility ground-mount, the number remains small.

Photo credit: Conergy AG

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