Renewable energy trends over the past several months have diverged, both geographically and by type. Economic pressures have accelerated the withdrawal of solar subsidies, particularly in Spain and Germany, from an overly generous level. However, despite the reduced support, project returns have been so robust (10-30% from Germany to Italy), that solar PV demand forecasts have risen from 7-8 GW to over 12 this year. As always, next-year’s market is the issue, and German consumption – as much as two-thirds of this year’s global demand, is a major question mark, having pulled significant demand forward from 2011. On the other hand, the US market is ahead of forecast, with little change in subsidies and, despite local budget woes, most state renewable portfolio standards are still on track (though California has a referendum to slow down its implementation). US demand looks even better, as very large projects are working their way through the pipeline. My longer term view is that subsidies, while a very useful jump start for the industry, can, and should, fade to black over the next five years, benefitting the lowest cost technologies and producers. For instance, as module prices approach $1/watt, plus another $1/watt to install, a Big Box retailer could self generate for about $0.10/kwh – the US national average, before subsidies. The company with the best chance to be able to sell at $1/watt by 2014, First Solar, has a 30% cost advantage on peers, and is poised to be the winner as subsidies disappear.
It has been a very difficult year for wind power, with US -based orders down as much as 70% from 2009 (so far). Already competitive with conventional power in many markets, the cost curve is not improving materially, and financing has turned out be more difficult than for solar, where maintenance is modest by comparison. In addition, the FERC is reportedly sitting on a study which will conclude that the US transmission grid can, at most, accept 5% renewable power, which would have a much more adverse effect on wind than solar (since solar is more easily adapted for distributed – off grid – generation and use). I believe that, with or without an “energy policy,” solar will continue to grow much faster than wind in the US, barring a breakthrough which reduces the scale required for wind projects to competitive serve distributed generation opportunities. One of the fastest growing global markets, China, has essentially developed its own supply base, leaving conventional suppliers to serve more economically sensitive markets, and with too much capacity. The result is flattening installations in 2010, and the prospect for weak prices next year.