This article is based on Solar Power Europe’s report, Global Market Outlook
When solar entered 2020, it was prepared for a solar decade. Impressive cost reductions made solar the lowest-cost technology in many regions of the world. The 1 US cent/kWh power price range was achieved in several tenders last year, and with the backing of developing financing institutions, the 2 US cent/kWh range was reached even in the first tenders in developing countries. Corporate solar PPAs had been increasingly finding traction in the market, and with the cost of battery storage quickly dropping as well, solar plus storage at utility-scale had been starting to become an attractive solution instead of gas peakers to utilities. In addition, residential and commercial rooftop systems, increasingly used for self-consumption after reaching socket parity and providing attractive returns, had proven to be more and more popular, reaching around 33% of total solar power installations by the end of 2019.
But then the COVID-19 pandemic shut down the world’s markets, and disrupted solar’s hot streak – China was impacted the first quarter of 2020, and the rest of the world was hit in second quarter. While the installation of large-scale power plants had been affected to a much lesser extent, the rooftop PV segment has been generally hit much harder, primarily in countries with full lockdowns, as the social distancing measures made it difficult for installers to get access to buildings.
Since then, all leading solar market analysts have significantly decreased their 2020 forecast, some even twice, to account for the impact of COVID-19 on their market models. The largest short-term corrections came from IHS Markit, which reduced its 2020 forecast by 26%, or 32 GW, to 109 GW in April, from 142 GW in December 2019. By the end of May, the estimates in the analysts’ medium scenarios ranged between 106 GW (Wood Mackenzie) and 111 GW (Bloomberg NEF), with one conservative outlier from the International Energy Agency (IEA), which anticipates only 90 GW new solar this year, caused by supply chain disruptions, lockdown measures, and emerging financing challenges.
Solar Power Europe’s analysis in the time of COVID-19 resulted in a Medium Scenario anticipating about 112 GW of newly installed PV capacity in 2020, making it the most optimistic global solar forecast, even though only by a slim margin. Compared to 2019, this would translate into a 4% market shrinkage over the 116.9 GW added in 2019. Its Low Scenario estimates a demand drop to 76.8 GW. This outcome is extremely unlikely based on observations of overall solar activities in the first months of the year. However, if another wave of the pandemic hit major economies severely in the second half of the year, demand for solar might indeed collapse. The High Scenario forecasts up to 138.8 GW of solar additions in 2019, which sounds extremely optimistic and is also improbable; but the development of solar has been full of surprises in the past. Again, the biggest wildcard is China, which has a big lever to move the solar balance in any direction.
Regional developments in 2020
Retrospectively, looking into a crystal ball to forecast the future of solar installed capacities has never been easy for industry experts – the solar market is too dynamic and still hinges on a few countries, in particular China, that can influence the course of the entire industry. However, our Medium Scenario forecast clearly shows that China and the rest of Asia-Pacific will continue to dominate global demand. Once the Chinese solar market programme restructuring is completed, scheduled for next year, the country is also expected to develop more smoothly. In 2021, Europe is expected to grow its shares slightly, while the American Continent is estimated to slightly lose shares.
China: The country should grow rapidly this year, as it has overcome COVID-19 first and needs to protect installers and feed its domestic manufacturers, which have been seeing less demand from abroad where the lockdowns were taking place later. This was the rationale for IHS Markit to increase its forecast for PV installations in China to 45 GW at the end of March. After only 3.95 GW was installed in the first quarter, a strong decline from 5.2 GW a year earlier, there should be plenty of demand for the reminder of the year, in particular as quite some capacity from the July 2019 auction was not built by the end of that year, and an installation deadline end of June were supposed to trigger demand in Q2. With the national auction scheduled for March shelved and expected to occur later in the year, this is another event that might trigger installation activities in 2020. However, the China PV Industry Association (CPIA) reduced the lower end of its 2020 forecast in early June from a 35–45 GW range to 32–45 GW, while GlobalData lowered its forecast from 40 GW to 33.4 GW because of the economic slowdown and lack of capital. With 2020 anticipated to be the last year the national government offers subsidies before the “subsidy free” era of the 14th 5-year programme starts next year, our Medium Scenario forecast shows some modest optimism, anticipating China to install 39.3 GW this year, which would mean a 31% market growth over the 2019 additions of 30.1 GW.
United States: Solar power Europe expects newly installed capacity in the US to increase by 21% to 16.1 GW, from 13.3 GW in 2019. This is not as optimistic as the US Solar Industries Association (SEIA), which argues in their market analysis that utility-scale solar will propel the US solar industry to a record 18 GW due to a project pipeline of 51 GW, despite massive job losses in the sector due to a decline in residential demand. But our view is a bit more cautious, as COVID-19 was not over in the US in early June, and the safe-harbor provision offered companies to delay project completions.
India: Solar Power Europe’s Medium Scenario for India is very negative for this year. In Q1/2020, only 1.1 GW was installed – a 43% decline compared to Q4/2019 and the lowest volume in over three years. In addition to the multiple problems that caused India’s market to shrink in 2019, this year is adversely impacted by COVID-19, which has resulted in logistical issues for material supply and labour. Solar Power Europe estimates that India will install only 6.1 GW, a 31% decrease over last year’s 8.8 GW additions, and another step away from a two-digit market volume it installed only once in 2017, after which annual additions went down.
Asia-Pacific: The region is expected to see demand increasing by 4% to 70.1 GW, whereas the Americas is anticipated to grow by 5% to 21.1 GW.
Europe: The continent is expected to see a deep dive in demand this year, putting a clear break on the very positive momentum seen in the last two years. When looking just at the European Union, 11 of the 27 members, including some of the largest markets, are expected to install less solar than the year before. There are a few exceptions in countries that were less affected and did not implement hard lockdowns, like Germany. As the EU’s second-largest market in 2019, Germany installed more solar in April, during the climax of the crisis, than in the same month last year. Altogether, during the first four months of 2020, Germany added a total of 1.48 GW, which is close to the capacity of the 1.55 GW deployed during the same period in 2019. Still, our Medium Scenario anticipates Europe’s solar additions to fall by 29% to 16.1 GW, from 22.9 GW in 2019.
Middle East and Africa: This region has not been affected by COVID19 as severely as Europe so far, although this may change in the future. Nevertheless, many countries in these regions have taken measures which restricted life and work; this is why Solar Power Europe expects in its Medium Scenario a 31% demand reduction to 4.7 GW in 2020.
Global solar market developments, 2021 to 2024
The organisation does not expect the virus to pose a big risk in the medium-term for utility-scale solar, while C&I and residential sectors might see negative impacts for some time as businesses and consumers will not necessarily invest in solar if they are struggling from a longer economic downturn. Here, the economic stimulus package will have a very important role, indirectly to boost national economies to enable a healthy business environment, but also directly, offering financial incentives for solar investments, which some countries and regions have already announced.
Solar’s return to growth in the coming years will be backed by all major markets for various reasons. In China, as of 2021 the new post-FiT area will begin based on auctions and wholesale systems. Until then, the Chinese administration will get its act together and call for an end to its solar programme restructuring.
Post-COVID, solar in India is expected to grow strongly in the coming years, as the government will do its utmost to meet its 100 GW target by 2022. This is not expected to happen – so far only 4 GW of the 40 GW rooftop systems is installed, and there is also a huge pile of administrational, financial, and logistical issues for large-scale solar in the way. Still, at least 15 GW is likely to be installed annually as of 2021.
In the United States, 2021 is supposed to be the year when the maximum ITC capacity will be installed, probably over 22 GW. While this will likely be the peak for the next few years, the 20 GW level might be the new normal in the US.
Europe is expected to return as of 2021 back on its growth path. The European Commission’s Green Deal calling for carbon neutrality by 2050 and a much more ambitious reduction target for CO2 emissions of 50-55% instead of today’s 40% by 2030, will have to make use of low-cost and versatile solar to succeed. As the Green Deal will be core to the EU’s COVID-19 economic stimulus package, solar is expected to access funds from a number of incentive tools, such as InvestEU, which will support renovation of buildings.
The way forward
Now, governments have the opportunity to accelerate the energy transition and realise the structural benefits renewables can bring regarding economic development and job creation. With the right policies they can enable low-cost solar to reach its full potential and lead the energy transition.
The first solar support examples as part of COVID-19 economic stimulus packages can be already seen around the world. This spring, the Malaysian government announced a new tender for 1 GW (AC) utility-scale solar capacity as part of its recovery measures; the Swiss government has given green light to support the expansion of solar PV systems this year with CHF46 million (USD48.5 million); Japan included an economic stimulus package of almost USD1 billion to support corporate PPAs to facilitate the development of onsite renewables. At the end of May, the European Commission proposed a two-year Euro 750 billion COVID-19 recovery instrument, ‘Next Generation EU’, with the European Green Deal at the core of the recovery strategy – this is expected to roll out solar energy projects across member states and launching a massive renovation of the EU’s building stock and infrastructure, which will benefit solar as well. In early June, Germany’s smallest state, Bremen, made it mandatory to put solar on all new houses, including public buildings. But all this can be only a start.
While Solar Power Europe assumes in its Medium Scenario a notable 34% growth rate to 150 GW in 2021, which does anticipate significant levels of governmental recovery support, this capacity would be still 6% short of last year’s 2021 forecast. It would take until 2022 to get back on track, reaching 169 GW. Only in 2024 are the virus impacts expected to be fully left behind.
But given that the right policy support measures are taken to accelerate the deployment of the lowest-cost clean power generation sources solar and wind – and enabling also the large scale production of renewable hydrogen to help decarbonise our society before 2050 –, the 2020s could indeed evolve into a solar decade, fully unleashing the power of the sun.