Subsidies under Fire
The headlines have not been favorable, particularly for solar programs, over the last month, as Germany, Italy, and France (up to 60% of 2010 demand) have publicly debated the size and cost of their ambitions. Over the weekend, Italy proposed a cap on installations which could limit sales into that market by this spring. So far, all three have, somewhat, kicked the can down the road, capping future installations but allowing a massive pipeline of ‘intentions’ to move forward. Even the UK and Israel, who very recently established new programs, are wondering if they were too generous. The net of settlements (mildly positive in France and Germany, but negative in Italy) so far is that 1H 2011 demand will be strong, although weakening in the face of higher supply in 2H. Next year could be another matter, as demand in the newest, fastest growth markets (US and China) are just getting off the ground.
We have meet with several Chinese solar PV manufacturers in recent days, and two points are clear (1) the days of cost reduction through pure scale are nearing an end and (2) the bigger, better, more liquid manufacturers have moved on to new ways to cut costs. Shifts in silicon type, more sophisticated doping (cell manufacture), glass thickness/cost, and module efficiency are all top of mind with the top tier manufacturers. As a result, there is probably a wider variation in module efficiency and economics than ever. In addition, much of the forecast oversupply consists of older, higher cash cost, nonintegrated, capacity in Germany, Japan and Taiwan. These are most vulnerable in an oversupplied market (several lines already shuttered in Germany as producers outsource to China), as First Solar, Sunpower, and most of the Chinese manufacturers continue to sell out. Frankly, this sounds like ‘specialty polyethylene,’ value-added but unlikely to defend the position of the low cost supplier much beyond 2011.
Longer term, higher oil prices lead to higher electricity costs (ex-North America), improving the relative economics of many non-hydrocarbon options. However, the challengs, in Europe, is that volatile wind and solar installations are ahead of the ability of the grid to handle the power.
US subsidies are also under fire. While the 30% tax credit on solar is in force until 2016, the cash grant (immediate refund) option is unlikely to be renewed in 2012. This is less an issue as long as financing is available elsewhere, but could pull demand forward into this year. More significant is that tone on other expiring programs, including corn-based ethanol, natural gas vehicles, and wind, where Congressional action is required for 2012. The blending credit for corn based ethanol, now $0.45/gallon, may renew at a sharply lower level, along with the import tariff on Brazilian product.
Last week, a number of ‘corn state’ congressmen voted AGAINST programs to enhance corn-based ethanol use. Meanwhile, India is making progress with its own alternative energy program, proposing credits for hybrid cars, and several test programs for solar subsidies (consistent with last month’s note). Both First Solar and Ying Li believe that India could be the surprise growth market by 2012 — huge electricity needs both on and off grid (one third of population has no electricity today).