During the latter half of the 00's, the European solar market boomed. Solar PV plants suddenly became a significant contributor of renewable energy, and the stable and attractive cash flows attracted a large number of both smal and large investors and banks.
The first major setback came in September 2008 when the new Spanish Royal Decree reduced the tariffs significantly and subsequently we have seen further setbacks in many jurisdictions in the form of production caps, tariff reductions, tariff taxes, capacity quotas, general political uncertainty and lack of (or more expensive) financing.
Although hardware prices have at the same time plunged, many of the ground-mounted projects are no longer financially feasible due to the significantly reduced tariffs. A calculation which is further negatively affected by the generally higher perceived risk attaching to solar PV projects and the higher price of financing.
A combination of falling hardware prices and a generally declining solar PV market has further resulted in financial losses for most solar PV producers. A fact which has only contributed to the negative spiral and negative risk perception as investors and banks have started to doubt the value of the warranties offered by the producers.
We have heard many argue that the tariff barriers which have been announced by the US authorities - and which the EU has threatened to impose on Chinese solar PV producers - will trigger an increase in hardware prices. We very much doubt it.
Although governments have used the falling hardware prices to argue in favour of lower tariffs, we do not believe that tariffs will come back up, and as long as the tariffs are at the current level, there is no room for higher hardware prices. As many projects are, as stated above, already not profitable enough with the current hardware prices, European and US producers will have to either find a way to make a profit on the basis of the current prices - or redefine their business (and market) to avoid bankruptcy.
Looking forward, we do believe that the primary market for European solar PV will concentrate around building-integrated and roof-top projects.
The tariffs offered to building-integrated and roof-top solar PV projects are generally significantly higher than those offered to ground-mounted capacity. Many of such projects still carry a reasonable return to the investors and thus still make sense.
However, since the hardware is typically mounted on or built into the structure of the building, such projects are often complicated to finance as stand-alone projects as the banks cannot obtain separate security positions over the solar PV assets. Investors and banks should therefore look closely into the title and security package before engaging in such projects as stand-alone projects.
Last, but not least we see a great potential for off-grid projects in rural areas. Solar PV hardware is almost ideal for powering wells, pumps, mobile telecommunication masts and other technological and mechanical equipment situated far from the grid.
Not only has solar PV capacity reached parity (and is in most cases below) with capacity from smaller diesel-driven generators; they also offer significant savings, because they need less attendance and no diesel or other resources need to be transported to the site. If constant and stable power is needed, the solar PV facility can be coupled with a battery which then powers the equipment.
To summarise, we see a major shift in the solar PV market. The times with large European ground-mounted projects are gone and are not likely to come back. Instead, solar PV hardware suppliers and solar PV investors should focus on building integrated, roof-top and special-purpose systems where there are few alternatives and much better prices to be obtained.