Solar companies have pegged the United States as the market to conquer because of its size, but for 2009, it's likely to be Germany that will have the large appetite for the abundant supply of solar panels, analysts say.
The United States lags behind countries such as Germany, Spain and Japan in solar energy generation, but its size and an earnest push by federal and some states to promote more installations has made the U.S. a promising market. But not this year.
The U.S. market is likely to shrink in 2009, thanks to the recession and the time it takes for the federal government to start doling out the grants and other incentives it promised earlier this year via the stimulus package.
The country saw 391.3 megawatts of solar panel-based energy systems in 2008. But it's likely to install 358.2 megawatt in 2009, said Paula Mints, principal analyst at Chicago-based Navigant Consulting, during the Photovoltaics Summit in San Francisco on Monday. In 2010, the United States could add 428.7 megawatts, she added.
That's the most conservative estimate. If the credit market improves and the government could act quicker to distribute the stimulus funds, then the U.S. market could see as much as 600.4 megawatts of new installations in 2009, Mints said.
"It's hard to define the business in the United States – it's fragmented and immature," Mints said. "In the future, we'll have a strong market in the U.S."
The United States won't see its 2009 installations surpass the 2008 figure for several reasons. There are two main types of incentives: Tax credit and rebates. Both require buyers – be there consumers, businesses or investors – to line up their own financing, which is hard to come by.
The federal government is supposed to provide developers with money to finance solar power projects if they would forgo the 30 percent investment tax credit. But it has yet to kickstart the program, which is likely to be put in place later in the summer.
Consumers and power project developers in Europe also face financing issues. But many large markets in Europe provide incentives in the form of feed-in tariffs instead of rebates and tax credit. And that makes the European market more attractive in the short term.
Feed-in tariff policy requires utilities to buy solar electricity at a premium over long-term contracts, which in effect provide a profit-making opportunity for consumers and businesses.
Germany fell behind Spain to become the No. 2 market in 2008, but it's poised to reclaim the top spot in 2009 and install more solar than in 2008.
The country installed 1.35 gigawatts of solar energy systems in 2008, and it could add an additional 1.5 gigawatts in 2009, said Daniela Schreiber, head of research at EuPD Research in Germany, at the same solar conference. Her forecast calls for 1.65 gigawatts of new installations in 2010 and about 1.73 gigawatts in 2011.
Germany isn't the only country with feed-in tariffs. But it's been at it for many years, and it's put in place mechanisms that better manage the decline of the solar electricity rates. Those rates are supposed to fall over time because the costs of producing and installing solar energy equipment are supposed to decline as the market grows.
The German program doesn't have an annual, national cap for the amount of solar energy installations that could qualify for the tariffs. Instead, it sets a limit that, if exceeded, would lead to a greater decline of tariffs in the following year. If the limit weren't met, then the decline would be smaller.
Spain, on the other hand, puts a cap. Schreiber likens this approach to a gold-rush mentality and boom-bust cycle. For example, project developers rushed to complete projects in early 2008 knowing that the cap would be lowered for 2009. That pushed up panel prices and prompted the government to investigate developers who claimed to have completed the projects when they didn't (see Spain, the Solar Frontier No More).
Germany also is able to run its feed-in tariff program without the kinds of bureaucracy that plagues countries such as Italy and Greece, Schreiber added.
"Germany is a good model for providing the right framework for a sustainable market," Schriber said.
Overall, companies worldwide are expected to ship about 5.5 gigawatts of solar panels in 2009, even though they have 9.9 gigawatts of production capacities, Mints said. Those are conservative estimates, she said.
"You are looking at a lot of expensive and unused equipment sitting there," she said.
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