2018 was a year of upheaval for the global solar PV market. According to Wood Mackenzie Power & Renewables.
From Section 201 tariffs in the U.S., to China’s 531 policy shift, to India’s mega-tender cancellations, to Japan’s feed-in tariff cut, plus the lack of clarity around the memorandum of understanding between Saudi Arabia and SoftBank’s Vision Fund for 200 gigawatts of solar PV with storage, the year was characterized by uncertainty.
But even just a few weeks into 2019, there are positive signs for the global solar market. We’ve already seen policy clarity emerge in China and Saudi Arabia, highly aggressive solar-plus-storage pricing in Hawaii, and more bold plans for some of the world’s largest single-site PV projects in India. In a new report (available for free), we highlight the top 10 trends to watch in solar this year. Below, we highlight five of them.
The market will (finally) crack 100 gigawatts
Final deployment numbers* show a very modest deployment increase in 2018, brought on by China’s policy changes, which wasn't enough to crest the 100 gigwatt mark. In 2019, the global solar market will finally breach 100 gigawatts, with Wood Mackenzie’s latest forecast topping 103 gigawatts for the year. The global market also continues to diversify. The top 20 largest global PV markets will account for 83 percent of new global demand to 2023, the fastest growing of which are concentrated in the Middle East and Mediterranean (Saudi Arabia, Iran, Egypt and Italy).
China will remain crucial to global installations, but its market share will fall from 55 percent in 2017 to 19 percent by 2023. As emerging markets in Latin America, the Middle East, and Africa scale up rapidly and begin to deliver results post-2020, installations will settle at 115 to 120 gigawatts through 2023. We expect quarterly installations to break 30 gigawatts for the first time in Q4 2019.
More bids below $30 per megawatt-hour — and maybe even another record low
Although 2018 was the first year since 2012 that didn't produce a world-record-low solar PV prices, technology costs have continued to fall rapidly, with global average utility-scale solar costs falling another 15 percent last year. We believe that ultra-low PV costs still have room to fall as low as $14 per megawatt-hour under optimized assumptions, and the recent cratering of average bids in Egypt, Jordan and the UAE to under $30 per megawatt-hour (all dollar values USD unless noted) suggest that 2019 is likely to see more pricing at a similar level.
There are several upcoming tenders in the first half 2019 that could play host to more ultra-low prices. The twice-delayed auction in Mexico, to be held in January 2019, could deliver another record, as could the 2.25 gigawatts of solar PV set to be auctioned in 2019 under Saudi Arabia’s revised renewable energy program. The first auction held in the country was won by ACWA Power for $23.4 per megawatt-hour. However, these ultra-low tariffs are starting to have broader market impacts. In Latin America, some developers are looking to power-purchase agreements or merchant markets for higher returns on investment.
Big business goes big on corporate solar procurement in the U.S.
An increasing portion of U.S. utility PV demand is being driven by corporate, non-utility entities looking for savings or to reach voluntary renewable energy targets. More than half (56 percent) of these corporate buyers are from the technology and data sectors.
In Q3 2018, corporate procurement saw the largest surge in market share of any utility-scale segment, growing from 13 to 15 percent of utility PV in development in a single quarter. The fastest growth has been in ERCOT and PJM territories. As of the latest edition of the Solar Market Insight report, 25 percent of all projects announced in 2018, representing 2.9 gigawatts of new PPAs, were driven by corporate procurement. This share is expected to rise modestly in 2019 due to eagerness from corporate buyers to sign PPAs before an expected increase in interest rates and before the 30 percent federal Investment Tax Credit (ITC) expires.
Outside of the U.S., 2019 should see increased corporate procurement activity in Europe. In part this is due to the large pipeline of low-cost unsubsidized projects in development, particularly in Spain, but the regulatory environment should also begin to look more favorable. The EU’s revised Renewable Energy Directive, adopted in December 2018, requires that member states must remove barriers to the signing of long-term power-purchase agreements for renewable energy where possible.
More projects trading hands, particularly in the U.S.
Last year saw an uptick in global secondary market activity, a trend we expect to continue in 2019. We tracked almost 21 gigawatts of solar PV asset transactions globally in 2018, up 38 percent on the previous year — though a large proportion of this was related to Global Infrastructure Partners’ acquisition of SunPower’s 4.7-gigawatt U.S. utility-scale pipeline.
Financiers are becoming more comfortable with solar as an asset class, and strategic investors and asset owners have increasingly been looking to acquire projects earlier in the development cycle, taking on increased development risk to capture a greater share of the project’s margin.
In the U.S., where 47 percent of all solar asset transactions took place in 2018, we expect to see an increase in activity with sponsors looking for early-stage, large-scale portfolios in advance of the ITC stepdown. Elsewhere, India should see more merger and acquisition activity as markets consolidate in the wake of highly aggressive auction bidding; and in some Southeast Asian markets, the transition away from feed-in tariffs will be followed by an increase in M&A.
Mono PERC and bifacial modules keep capex costs marching down
Next-generation module technologies will offer increased performance and unit-cost reductions in 2019. This year, 41 percent of global module manufacturing capacity will be dedicated to mono PERC production, up from 36 percent in 2018. This year will also be the first where we will see substantial installations of bifacial modules.
While industry standards have yet to be codified and several stakeholders await additional performance data before making procurement decisions, 2019 will see several flagship projects incorporating bifacial modules, particularly in desert environments. By the end of 2019, as global blended module prices fall below $0.25 per watt-DC, global average capex will fall to $0.95 per watt-DC — this is skewed by high-cost projects in Japan, however. Most countries in Asia will see average capex fall below $0.80 per watt-DC.
The 10 trends in brief
The full list of trends in the new report include:
- The market will (finally) crack 100 gigawatts
- More sub-$30 per megawatt-hour bids — and maybe even another record low
- Revised policy targets will determine the market’s long-term growth
- Another entrant to the subsidy-free club in Europe
- Big business goes all in on corporate solar procurement in the U.S.
- More projects trading hands, particularly in the U.S.
- Large-scale solar-plus-storage comes into the spotlight, but remains a niche solution in emerging markets
- Mono PERC and bifacial modules keep capex costs trending down
- A make-or-break year for mega project plans
- Oil and gas majors embrace solar in upstream and power
To see the details behind all 10 trends, download the free Wood Mackenzie Power & Renewables paper here.
*This story has been updated to reflect final deployment numbers for 2018. The global market did not see a contraction, as previously stated. But it remains below 100 gigawatts.