Will the solar power market ever hit prime time? This question continues to haunt the industry. Players worry that, despite the obvious utility of solar power to all segments of the global economy, the market has yet to live up to the expectations of many corporate executives, governments, and environmentalists.
There have certainly been many gains over the years. A new McKinsey report says the solar photovoltaic (PV) market has transformed from a "cottage industry centered in Germany to a $100 billion business with global reach." Fueled by government support, especially in Europe (and more recently in the United States), the market expanded rapidly at the beginning of the last decade.
It's beginning to look like those were the good days. The solar market isn't exactly declining today, but pressure on government finances has forced some countries to scale back support for the industry. Also, the demise of many Western players in recent months has cast a shadow over the sector. Many of the companies that have pulled out of the market were not competitive with lower-cost Chinese players that began supplying products to the sector in recent years.
As EBN blogger Jennifer Baljko pointed out in a recent post, the solar market's "greenest promises are running red with losses," as a result of "pullbacks in government subsidies" and "stepped up competition from manufacturers in lower-cost regions." (See: Western Solar Efforts Go Red.)
McKinsey said in a press release that "demand today isn't keeping up with supply." That is a rather disappointing observation, considering the potential savings for businesses, households, and government institutions.
What will pull the solar market out of its rut, and what does the future hold for the sector? Demand, of course, has to increase exponentially. As crude oil prices continue to climb, the desire for alternate energies will strengthen, and the solar market may benefit as consumers become more open to lower-cost energy sources. However, this won't be enough to light a fire under the solar market. What the industry needs even more is for the cost of PVs to drop significantly over the next few years. This would further lower the threshold for adoption.
Fortunately, that new dawn isn't so far off, according to McKinsey. The research firm identified five areas that it sees as offering growth opportunities in the solar market over the next 20 years. Many household global technology and manufacturing companies, including Samsung, Hanwha, TSMC, and GE, are positioning themselves for growth in these areas.
- Off-grid areas: "Solar power is ideal in places without access to an electric grid," the McKinsey report said. "Applications include delivering power to agricultural irrigation systems, telecommunications towers, remote industrial sites such as mines, and military field sites. Within this segment, the most significant potential resides in areas that use diesel generators to provide uninterrupted power supply for remote infrastructure."
- Residential and commercial retail customers in sunny areas where power prices rise steeply at times of peak demand: "Many businesses in places like California, Hawaii, Italy, and Spain already generate their own power using solar applications. In the near term, this segment's growth will depend on the availability of low-cost financing, customer-acquisition costs, and reactions from regulated utilities."
- Isolated grids: "Small grids fueled by diesel generators require an LCOE of between $0.32 and $0.40 per kilowatt hour (kWh) to be economically attractive. These primarily provide power to remote villages in Africa, India, Southeast Asia, and parts of the Middle East... The current barrier to deployment is the limited availability of low-cost financing in non-OECD regions."
- Peak capacity in growth markets: "The largest potential for this segment lies in markets where substantial new electric-power infrastructure is set to be built (for instance, India, Brazil, the Middle East, and China) or in countries that rely heavily on imports of liquefied natural gas (such as Japan)."
- New, large-scale power plants: "As with smaller peak-capacity plants, large-scale solar plants are more likely to be built in emerging markets that are expanding their infrastructure aggressively, where the cost of solar will be compared with the cost of a new coal, natural-gas, or nuclear plant. Companies must still achieve breakthroughs in manufacturing techniques to reach this cost threshold in solar."