Solar Storm
Navigating Through the Turbulence
to Reap Value in Solar Energy
Philipp Gerbert and Holger Rubel
October 2009
Contents
Solar Energy in the Context of Global Energy Demand and Generation
2
Solar Technologies and Their Applications
3
Photovoltaic Technologies
3
Concentrated Solar Power
3
Cost Position and Competitive Considerations
3
Future Demand for Photovoltaics
8
The Photovoltaic Industry’s Structure and Current Dynamics
11
Key Issues for Current and Future Solar-Market Participants
11
The Boston Consulting Group
October 2009
Solar Storm
Navigating Through the Turbulence to Reap Value in Solar Energy
T
he solar-energy industry prospered from 2003 through 2008. Concerns over climate change,
energy security, and the price and ultimate availability of fossil fuels led to increasing government support for solar technologies, translating into soaring demand for solar products and
surging revenues for solar providers.
But the industry has run into severe turbulence in 2009. Demand has fallen significantly, hurt by the
economic downturn and shock waves from regulatory changes in Spain, one of the industry’s major
markets. Compounded by the glut of production capacity that came online in response to government
incentives earlier in the decade, the effect on prices has been dramatic—for example, prices for solar
panels are down roughly 40 percent from their peak. Some of the weaker competitors are expected to exit
the industry; many of the survivors face additional stress from the debt financing of past growth plans,
which are now obsolete. Not surprisingly, stock-market valuations for the entire segment have collapsed.
Given this turn in fortunes, critical questions are now being raised by both industry participants and
governments about the true potential of solar energy as a viable energy source and as a business. Current
industry participants and potential entrants, such as technology companies and major oil and gas companies, are also trying to determine optimal short- and long-term competitive strategies.
In this paper, we seek to answer some of these questions by providing a fact-based review of the industry’s
current situation and outlook. While the bulk of the discussion focuses on the photovoltaic (PV) segment,
which constitutes the largest share of the solar-energy market, we also look at concentrated solar power
(CSP), also referred to as solar thermal energy, the industry’s other main technology. Our high-level
findings are the following:
◊ The basic argument for solar energy remains strong. But its costs will have to come down significantly
for the business to be viable. For solar energy to compete successfully in centralized electricity generation, its generation costs will need to fall to about one-third of today’s levels. For distributed solar
energy (that is, solar energy generated on-site or very near where it is used) to reach “grid parity,” or
match current retail electricity prices, its cost will have to fall by 30 to 50 percent.
◊ The increasing diversity of solar technologies and the emergence of new entrants from low-cost countries are spurring innovation and competition. This development will eliminate past bottlenecks and
speed up cost reduction. For instance, polysilicon, a key ingredient of most solar panels, will lose a
significant amount of pricing power in the PV segment.
◊ Distributed PV is on its way to reaching grid parity in favorable markets and should do so between 2012
and 2015. Neither PV nor CSP, however, will be able to compete in centralized electricity generation
over the next five to ten years without government subsidies. But utilities continue to explore solar
energy, both PV and CSP, as a long-term strategy.
◊ Growth prospects for the solar-energy market over the next five to ten years remain dependent on
government policy. For the larger and more predictable PV market, favorable developments on the
government policy front in Europe, the United States, and elsewhere around the world should ensure
healthy volume growth of approximately 30 percent annually from 2009 through 2015, with lower,
less-subsidy-driven growth of approximately 20 percent per year thereafter.
◊ Historically, the PV segment’s value chain has seen the highest profit margins upstream, with lower
margins for midstream and downstream competitors. But market power is temporarily shifting downstream. And both the PV and CSP value chains are becoming more integrated through merger-and-
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October 2009
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acquisition (M&A) activity, partnerships, and consortia. This is expected to stabilize or even increase
margins in the future.
We conclude this paper by identifying key questions that the different stakeholders—current solar-energy
specialists, large energy-technology companies, utilities, major oil and gas companies, and governments—
should ask themselves in order to determine future strategies. It is critical that industry participants ask
these questions now, because competitive advantage in tomorrow’s solar market will likely be established
on the basis of moves made during the industry’s current turbulence.
Solar Energy in the Context of Global Energy Demand and Generation
The world used roughly 20,000 terawatt-hours of electricity in 2008; that amount is expected to increase
by about 2.8 percent per year and reach 28,000 terawatt-hours in 2020. Three-quarters of current electricity generation is based on fossil sources, such as coal, oil, and gas.1 This creates well-known problems. First,
the world is heading toward an unprecedented greenhouse effect, with carbon dioxide levels already at
more than 380 parts per million (up from about 310 parts per million in 1950) and projected to exceed a
range of 400 to 430 parts per million in 2020.2 Second, cheap fossil sources are becoming scarce, and
energy prices are certain to resume their sharp rise after the current economic crisis recedes. Last but not
least, geopolitical uncertainty within resource-rich countries is already causing leading industrial nations
to express concerns about energy security.
Now, consider solar energy. More than 150 million terawatt-hours of energy are irradiated by the sun
toward the earth’s landmass every year. Put differently, in an area the size of Austria in a location as
solar-radiation-exposed as the Sahara, you could capture the amount of solar energy necessary to fully
meet global electricity demand. Solar thus seems by far the most attractive solution to the world’s energy
needs. Today, however, solar energy contributes less than 0.1 percent to the power generation mix. The
reason is simple: solar generation is not cost competitive. (See Exhibit 1.)
1. International Energy Agency, World Energy Outlook 2008.
2. Intergovernmental Panel on Climate Change, Working Group I Fourth Assessment Report, Climate Change 2007: The Physical
Science Basis.
Exhibit 1. Solar Technologies Are Not Cost Competitive Today
Levelized cost of energy
(euro cents per kilowatt-hour), 2008
30
Nonrenewable energies1
Renewable energies
20
17.0
11.0
10
4.8
0
5.5
Retail
price range
10.8
7.2
6.8
Wholesale
price range
4.6
Nuclear Combined- Hard coal
cycle gas
turbine
CO2-emissions related
11.8
19.0
Fuel
Gas
Water
Wind
Biomass
Integrated
gasification (running) (onshore)
combined cycle
(with CO2 capture)
Operations and maintenance
Solar
CSP2
PV2
Capital expenditures
Sources: Bernstein Research; European Energy Exchange; BCG analysis.
1
Based on an oil price of $78 per barrel and a permit price of 20 euros per ton of emitted CO2.
2
CSP = concentrated solar power; PV = photovoltaics. Assumptions are for California, with an assumed solar radiation of 7.5 kWh/m2/day.
Solar CSP assumes a 200-megawatt plant; PV assumes thin-film modules.
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October 2009
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Although the numbers can only be indicative, given that both wholesale and retail costs and prices vary
significantly by location, the data demonstrate that solar-energy technologies today cannot match other
power-generation options in terms of cost (based on the levelized cost of energy, or LCOE, a widely used
measure for comparing the cost of energy generation across technologies). Thus, subsidy programs,
cost-reduction measures, and regulations that put a price on carbon-based energy sources are all critical
for the development of solar energy. (Note, however, that solar PV is distinct from most other energy-generation technologies in that it can be installed at the user site. Its prices are thus often compared with
retail rather than wholesale prices.)
Solar Technologies and Their Applications
Solar power has several applications. The best-known and most prominent are rooftop PV installations,
which have both residential and commercial markets. Such installations have electricity-generating
capacities ranging from 5 to 1,000 kilowatts and constitute approximately 70 percent of the installed base
of solar capacity. Ground-mounted PV solar parks and central CSP plants account for about 25 percent of
installed capacity. The latter two applications can reach “utility scale” in terms of generation capacity,
ranging from 1 to several hundred megawatts. Finally, “off-grid” PV use, which is typically found in
remote locations or mobile facilities, represents approximately 5 percent of installed capacity.
Each of the several competing solar technologies has its own “sweet spot” in the above applications. This
competition is critical to ensure fast technological advances and drive down costs and prices. Solar
technologies can be classified as either photovoltaic or concentrated solar power.
Photovoltaic Technologies
PV technologies leverage the ability of semiconductors to absorb light and directly create an electric
current. PV has several subcategories:3
◊ Polycrystalline silicon (c-Si), today’s dominant technology, is based on the use of a 200-micrometer-thick
silicon layer. This technology is the current leader in efficiency and is the primary technology used in
solar panels found on residential and commercial rooftops.
◊ Thin-film technologies are based on a very thin (only several micrometers thick) layer of different semiconductors, such as cadmium telluride (CdTe), silicon, and copper indium selenide or copper indium
gallium selenide. These technologies are the cost leaders for commercial rooftop applications and
medium-sized ground-mounted facilities.
◊ Organic technologies and nanotechnologies aim to optimize the critical PV parameters—the absorption of
light, the separation of charges, and the charges’ lifetime and flow to the electrodes—while controlling
costs. Most of these technologies are still in the early prototype stage, but their promise nurtures the
industry’s ambition to revolutionize costs and efficiency.
Concentrated Solar Power
CSP concentrates sunlight by means of mirrors and powers a conventional steam or gas turbine or other
heat engine to generate electricity. It is most attractive for large, utility-scale applications in the world’s
solar belt. (See the sidebar “Concentrated Solar Power.”)
Cost Position and Competitive Considerations
In this section, we mainly discuss PV, which constitutes the lion’s share of the market and has a larger
variety of applications relative to CSP.
The most critical issues for PV technologies are their current cost position and potential for improvement
3. The list is not exhaustive. For instance, there is also concentrated PV, which combines PV elements with concentrators. This
technology, however, seems to lack a sweet spot in terms of applications.
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October 2009
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Concentrated Solar Power
Concentrated-solar-power (CSP) plants, which have
a long history in California, are experiencing a
modern revival, driven in part by the surging
interest in photovoltaics (PV). This revival is
spurring significant innovation and cost-effectiveness in the CSP space. One of the most prominent
CSP initiatives currently is the Desertec consortium, which is assessing the feasibility of capturing
solar power in the Sahara and channeling it to
Europe, the Middle East, and North Africa using
high-voltage direct-current cables.
◊ On the other hand, CSP requires direct sunlight
and water for its operations.
Several types of CSP exist today, with parabolic
trough technology having the longest track record.
(See the exhibit below.) In principle, all these
technologies have their specific merits and could
join in the critical effort to drive down costs by two
means:
CSP shares the use of sunlight with PV, but the
technologies have other, very different characteristics:
◊ Unlike PV panels, which have limited scale
effects, the traditional turbines and engines that
CSP employs enjoy significant scale effects up to
a capacity of several hundred megawatts. Thus,
CSP is a conventional central, rather than
distributed, power-generation technology.
◊ CSP plants can add thermal storage capabilities
to extend electricity generation beyond sunlight
hours, an important feature for use in the
electric grid.
◊ Technological Innovation. While some elements of
CSP technology, such as mirrors, turbines, and
engines, are mature in terms of development,
there remains potential for improvement.
Engineering companies are confident that they
can increase efficiencies in “the system”
considerably (from 13 percent today to 17 to 20
percent in the coming years) by adopting new
techniques—for example, by transitioning to
higher operating temperatures.
◊ Experience Curve. The greatest potential for
reducing costs lies in the optimization of a large
range of cost and efficiency levers at the system
level on the basis of accumulated experience.
Parabolic trough has an initial lead over other
technologies because of its tenure and large
Parabolic Trough Technology Has an Experience Lead
in Concentrated Solar Power
Types of Concentrated-Solar-Power Technology and Their Characteristics
1 Parabolic trough
2
Tower
3 Linear Fresnel
4
Dish Stirling
Description
A parabolic trough
with reflectors
concentrates power
on absorber tubes to
heat a transfer fluid
Heliostats concentrate
solar energy on a
central receiver
A multifaceted
reflector heats fluid
in absorber tubes
Parabolically arranged
mirrors reflect sunlight
to power a Stirling
engine
Operating
temperature
About 350 to 400
degrees Celsius
About 550 to 600
degrees Celsius
About 280 to 450
degrees Celsius
About 750 degrees
Celsius
Steam turbine
Steam turbine
Steam turbine
Stirling engine
30 to 80 megawatts
electrical
11 to 20 megawatts
electrical (single tower)
10 to 30 megawatts
electrical
10 to 25 kilowatts
electrical (single dish)
Mature technology
with further
development potential
Several plants in
development
Several pilots in
operation
In demonstration
stage; several
prototypes in operation
Generation
Size
Maturity
Market share,
2008
96 percent
3 percent
1 percent
Trials phase
Sources: Abengoa Solar; DLR; Solar Power; broker reports; BCG analysis.
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October 2009
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Concentrated Solar Power (continued)
installed base, but the beginning of “industrialization” (that is, standardization of design and
mass production) in the industry is lowering
costs across technologies.
At the required large scale and in locations with
direct sunlight, CSP appears slightly more cost
competitive than PV today. It should keep this
advantage over the next three to five years, though
longer term the situation is less clear. Dispatchability, based on the ability to store heat, remains a key
advantage of CSP over PV. In this area, molten-salt
tanks are the proven technology, although alternatives based on concrete or phase-transition materials seem viable.
Demand for CSP is concentrated in the world’s
solar belt—particularly the southern United States,
southern Europe, North Africa, and the Middle
East—and is slowly extending to Asia and Australia.
As a large-scale “utility technology,” CSP competes
head-to-head with other central energy-generation
technologies. For the foreseeable future, its market
will likely remain smaller than that for distributed
PV by a factor of four or five, and CSP will, like PV,
require subsidies. Because central generation
leverages the traditional skills and business models
of established competitors, those competitors are
likely the best positioned to assess and act in the
CSP sphere without risking major disruptions to
their business. The recent acquisition by Siemens
of CSP specialist Solel follows this logic.
over the next several years. Exhibit 2 summarizes the current situation and outlook for several of those
technologies: c-Si and the two most popular thin-film technologies—one based on CdTe and the other
based on the refinement of amorphous silicon, or so-called micromorphous silicon (µ-Si).4
The axes of the exhibit—module production cost and average module efficiency—are the technologies’
main cost drivers. Average efficiency determines how many modules are needed to build an entire system
and thus influences construction, installation, and “balance of system” costs, such as inverters. The
resulting isocurves for total system costs of €2.50, €2.00, and €1.50 per watt peak are depicted for 2008
and for expected cost levels in 2012. Note that the exhibit shows cost only and does not include margins
along the value chain. Ultimately, the total system costs drive the LCOE when full installation costs,
margins along the value chain, and potential financing costs are added and different solar conditions are
taken into account.
Today’s dominant technology, c-Si, is not the PV market’s cost leader. Its popularity, particularly in
countries with feed-in tariffs, or guaranteed prices per kilowatt-hour, stems primarily from its wide
availability and ability to fit on size-constrained roofs. Global cell and module companies, such as
BP Solar International, Kyocera, Q-Cells, Sharp, SolarWorld, Suntech Power, and Yingli, built their
positions on the basis of c-Si. Their suppliers of polysilicon and wafers, such as Hemlock Semiconductor,
LDK Solar, REC Solar, and Wacker Chemie, have likewise built strong and highly profitable businesses in
the past several years.
The competing thin-film technologies currently have two main streams:
◊ CdTe, dominated by First Solar, is the cost leader now and will be for the foreseeable future. It is thus
popular for ground-mounted applications and commercial rooftops. One drawback of CdTe is the
toxicity of cadmium, which has led European countries and Japan to ban the substance in batteries;
another drawback is the potential shortage of tellurium beyond 4 to 5 gigawatts of annual production.
◊ Amorphous silicon (a-Si), whose practitioners are increasingly transitioning to µ-Si, has historically
trailed CdTe in efficiency. But with a strong base of equipment manufacturers, such as Applied Materials and Oerlikon Solar, and with major product vendors, such as Sharp, scaling up their efforts, µ-Si
could approach the cost position of CdTe within the next few years.
4. There are other thin-film technologies, such as high-efficiency copper indium selenide (CIS) and copper indium gallium selenide
(CIGS), but there are few data on volume production.
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Exhibit 2. Photovoltaic Technologies Have Distinct Cost Profiles and Growth
Prospects
System cost
per watt
peak
Module production cost
(euros per watt peak)
2.0
2012
2008
Levelized
cost of
energy per
kilowatt-hour
€2.50
20–25 euro cents
2012
2008
€2.00
15–20 euro cents
2012
2008
€1.50
12–15 euro cents
c-Si
1
1.5
µ-Si (a-Si)2
c-Si1
1.0
CdTe3
0.5
CdTe3
µ-Si (a-Si)
2
0.0
5
10
15
20
Average module efficiency (%)
Market size (megawatt peak)
2008
2012
Source: BCG analysis.
Note: Module and system costs do not include margins.
1
This depicts costs for average competitors in the polycrystalline silicon space. Best-in-class competitors can achieve costs that are closer
to those for CdTe-based companies.
2
Micromorphous silicon, toward which amorphous silicon is migrating.
3
Cadmium telluride.
The most important conclusions regarding the above are the following:
◊ As several PV technologies compete for cost leadership, it should be possible to push total system costs
below the critical €1.5 mark. Price competitiveness will also ensure that even without subsidies, an
LCOE of less than 12 euro cents per kilowatt-hour should be achievable in favorable solar regions.
◊ Supply bottlenecks in specific technologies, such as those we have witnessed with polysilicon for c-Si
over the last several years, should in the future neither constrain the industry nor lead to exploding
prices. (See the sidebar “Polysilicon Cycles: The End of Oligopolistic Pricing Power.”)
◊ Obtaining a leading cost position will become critical for individual competitors in the industry. On the
cell and module levels, cost reductions are typically driven one-third by gains in conversion efficiency,
one-third by gains in operational and process efficiency, and one-third by a move to large-scale production in low-cost countries.
The above factors will ensure that PV reaches residential grid parity by 2012 to 2015 in distributed power
generation in the lead markets. It is difficult, however, to see how current PV technologies in central power
generation can compete on cost against other types of energy (for example, nuclear energy) in these and
other markets without government subsidies. 5 Thus, while countries can gradually reduce today’s very
high subsidies and differentiate more strongly the level of support by application of solar PV (as, for
example, France already does today), it could take ten years before subsidies and favorable regulation can
be fully removed without endangering the future growth and adoption of PV within the overall powergeneration landscape.
5. We discuss only conventional business costs here. Deeper tradeoffs faced by governments are reviewed later in the paper.
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October 2009
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Polysilicon Cycles: The End of Oligopolistic Pricing Power
Over the past several years, commercial success in
the photovoltaic industry has been largely driven by
access to polysilicon. This situation, we argue, has
changed for good. (See the exhibit below.)
Polysilicon is a crystallized form of pure silicon that
is used by the semiconductor and solar-energy
industries. Since 2005, demand from the semiconductor industry has flattened at approximately
25,000 metric tons per year, while demand from the
solar industry continues to increase and has
surpassed demand from the semiconductor
industry since 2007. Up to 2007, the polysilicon market was in the hands of six large competitors. But
the growth of the solar industry has attracted new
entrants, mainly from challenger countries in Asia.
These companies made quick inroads into wafer
manufacturing, but their impact on polysilicon
manufacturing is only emerging.
Prices of materials purchased under long-term
contracts during 2007 and 2008, at $70 to $115 per
kilogram, were well below spot prices, which peaked
at $400 per kilogram in September 2008. As a
consequence, cell and module manufacturers that
failed to secure a long-term supply of polysilicon
were locked out of the solar boom. They either were
forced to limit production or took substantial hits
on profitability owing to the spikes in prices of
materials.
Spot polysilicon prices in 2009 have come down
toward the range of current long-term contracts,
and, given the recent increase in production
capacity, polysilicon supply should soon outstrip
demand. In light of this, we expect the following
developments:
◊ Polysilicon will remain an attractive segment for
efficient producers. Polysilicon and wafer
producers will continue to play a critical role in
ensuring the price competitiveness of c-Si
modules. While prices for polysilicon arguably
need to decrease toward the $40-per-kilogram
level by 2012, most suppliers will be able to
further lower their costs by moving to largescale, low-cost locations. The most efficient
producers could reduce costs to $20 per
The Silicon Bottleneck Is Expected to Disappear
Constrained supply in 2008 put upward
pressure on prices...
Spot market prices
up to $400 per kilogram
(September 2008)
Unit costs
(dollars per kilogram)
$70–$115 per
kilogram
80
average selling
price for
long-term
2008: undersupply
contracts
60
2008
demand
40
...but by 2012, capacity should be sharply
higher and silicon’s long-term price range
should decline significantly
Unit costs
(dollars per kilogram)
80
60
40
20
20
0
0
50
100
150
200
250
300
350
2012: potential oversupply
Si
50
100
Capacity (kilotons)
Demand
New entrants
Incumbents
New entrants--China
$30–$40 per
kilogram
expected
average selling
price for
Additional long-term
potential contracts
mg- capacity2
1
2012 expected
demand
Demand
New entrants
150
200 250 300 350
Capacity (kilotons)
Incumbents
Chinese entrants
Sources: Collins Stewart; Deutsche Bank; Economist Intelligence Unit; Goldman Sachs; Lehman Brothers Holdings; Société
Générale; UBS; company reports; BCG analysis.
1
Metallurgical-silicon-based competitors.
2
More than 100 companies announced plans to enter the market following the recent spikes in silicon prices, but we suspect that
many of those companies will not follow through. Still, some companies will and there will be additional capacity as a result.
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October 2009
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Polysilicon Cycles: The End of Oligopolistic Pricing Power (continued)
kilogram by 2012 (barring a technological
surprise that pushes costs even lower) and
continue to earn healthy margins.
◊ Advances in thin-film technologies will limit
future polysilicon pricing power. The advent of
large-scale production of thin-film modules,
which compete head-to-head with crystalline
modules in the large segment of commercial
applications, will force the entire c-Si value chain
to become and stay price competitive. In
combination with government policies that
increasingly encourage the cost-effective
deployment of PV, thin-film substitutes should
rein in the future pricing power of polysilicon
suppliers.
The development of new technologies, however, could further accelerate the penetration of solar PV.
Among the more promising opportunities based on new technologies are the following:
◊ It is possible to increase efficiency even further by using more complex materials, such as copper
indium selenide or copper indium germanium selenide, whose mass production was pioneered by
Würth Solar, or by adopting more complex layer structures, such as third-generation heterojunctions.
With either approach, the challenge is to increase efficiency at low cost.
◊ Alternatively, there is a lot of activity currently in the development of organic solar cells based on
polymers or organic crystals, which would be very cheap to produce. Reaching higher efficiency with
low-mobility polymers is a challenge, however. More advanced organic crystals might overcome this
challenge and could actually extend the theoretical efficiency limit for traditional semiconductors from
31 percent to 49 percent for single layers.
◊ Dye-sensitized solar-cell technology, which is based on a photochemical reaction rather than a p-n
junction, constitutes an entirely different approach. These cells are easy and cheap to produce and work
with all lighting. The challenge here is stability, given that the liquid electrolyte does not react well to
either high or low temperatures.
Given the tremendous research going into solar energy all over the world, we should expect significant
progress in all of these areas. We must emphasize a particular point: if someone were to develop a low-cost,
high-efficiency, stable cell, today’s energy landscape would be significantly altered.
In concluding this section, we note a tangential development of particular relevance to the growth of solar
energy: the growing market for electric cars. This is spawning large investments in R&D and rapid progress in the development of electric storage and “smart grids,” both of which are essential complementary
technologies for a solar world. This is yet another data point to suggest that, beyond the troubled waters of
the industry’s current uncertainties, the future of solar technologies will be bright.
Future Demand for Photovoltaics
PV’s installed global base amounted to about 16 gigawatts at the end of 2008. (See Exhibit 3.) It is concentrated in three countries: Japan, the early pioneer; Germany, the most consistent proponent and the
largest market; and Spain, the growth champion in 2007 and 2008.
The PV market’s growth (measured in gigawatts shipped) will decrease in 2009. Weighing on growth are
oversupply—due largely to the policy-driven boom and subsequent collapse of the Spanish market (see the
sidebar “The Spanish Experience”) as well as financing bottlenecks resulting from the global economic
crisis—and the market’s subsequent drop in prices. Outside of Spain, however, the global markets should
continue their 20-to-50-percent-per-year growth in gigawatt terms over the next several years, supported
by the previously described cost declines and favorable government policies during the economic crisis
and beyond. Through 2015, and beyond that point in many global markets, PV penetration will remain
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Exhibit 3. Beyond 2009, Photovoltaic Markets Are Expected to See Healthy Growth
Estimated market growth
Installed
base
(gigawatts)
16
22
52
116
Dominant markets
350
Photovoltaic solar module
shipments (gigawatts)
70
20%
per year
20
Dip in 2009 due to
regulatory changes
in Spain following
the bull market
65.3
26.3
60%–70%
policy
driven
30%
per year
13.3
10
79%
per year
2.1
0
3.0
30%–40%
driven by
economic
demand
–6%
5.8
5.4
2006 2007 2008 2009
2012
2015
2020
Source: BCG analysis.
1
BIPV = building-integrated photovoltaics.
Germany
The largest market; expected
to have a cumulative capacity
of 28-gigawatt peak in 2015
Spain
A regulatory-driven pullback
in 2009 following strong
growth in 2007 and 2008
United
States
The largest future market
and a core battlefield in 2009
and 2010
Italy
High growth from a small
base since 2008
France
Growth driven by BIPV and
overseas territories1
Japan
Early pioneer; a revival of
programs in 2009
China
Current renewable-energy focus
on hydro/wind, but strong solar
vendors and emerging programs
India
Weak measures behind
5-gigawatt government target;
high need
Middle
East
Mainly driven by strategic
investments in large projects
Rest of world
dependent on government incentive programs and regulation, although to a diminishing degree. This
trend introduces an element of uncertainty into market predictions, as showcased by Spain’s experience.
Recent and ongoing developments in key markets are largely drivers of demand. Among the more noteworthy developments are the following:
◊ Germany remains the lead market for PV to date, with the German government providing consistent
incentives based on generous feed-in tariffs that ensure a subsidized price for solar-generated electricity
for 20 years after installation. (With the recent sizable decline in module prices, however, these incentives now look too generous and will be reviewed by the government.) The government has also
encouraged the development of a local PV technology industry, in spite of the country’s relatively
unfavorable conditions for adopting solar energy.6
◊ The U.S. PV market is driven by investment incentives and state-level renewable-energy goals rather
than by feed-in tariffs. The market has seen important policy changes over the past several years in the
form of extended and new federal- and state-level programs that encourage solar-energy adoption and,
more recently, investment incentives that were also extended to utilities. The Obama administration’s
economic stimulus package and its $65 billion allocated to the energy industry contain “green” aspirations. More important effects, however, would arise from the administration’s potential carbon capand-trade and explicit renewable-energy targets, with quantitative goals that are close to the range
seen in the European Union. The United States should overtake Germany as the largest PV market
after 2012 and is currently one of the most hotly contested growth markets, with California, which
represents approximately 50 percent of the U.S. market, leading the charge.
◊ Other countries in the industrialized world, such as France, Italy, and Japan, are pushing in the same
direction. By 2015, significant contributions to global PV demand are also expected from emerging
6. Germany has a solar-radiation intensity on a par with that of Alaska.
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The Spanish Experience
In August 2005, in line with other European
governments, Spain’s government approved a new
national energy plan (Plan de Energías Renovables)
to promote the use of renewable-energy sources.
According to the plan, renewable energies would
meet 12 percent of the country’s overall energy
needs and 30 percent of its total electricity consumption by 2010. The plan also set targets for
different types of technology. Of the 42.5 gigawatts
of renewable capacity expected to be in place by
2010, wind would contribute almost half, at 20.2
gigawatts, while solar energy was budgeted with
relatively small shares of 0.4 gigawatts for PV and
0.5 gigawatts for CSP.
The government put in place significant incentives
to promote the technologies. The most potent of
these incentives were guaranteed prices per
kilowatt-hour (so-called feed-in tariffs, or FITs) and
the provision of financing options. For wind energy,
FITs resulted in an average selling price of 8 to 10
euro cents per kilowatt-hour from 2006 through
2008; for solar energy, the average selling price was
a significantly higher 43 to 45 euro cents per
kilowatt-hour. (By comparison, the average market
price for conventional power was 4 to 6 euro cents
per kilowatt-hour during the period.)
Although the scheme largely produced the intended
effects for wind energy, for solar energy it proved
too generous. New PV installations soared, jumping
from 24 megawatts in 2005 to 100 megawatts in
2006 and 600 megawatts in 2007. By September
2007, the government realized that it was about to
overshoot its solar targets and it put on the brakes,
declaring that new regulations (specifically, lower
FITs and a cap on the size of new installations)
would go into effect within a year. This, however,
only reinforced the short-term frenzy: 2,500
megawatts of PV capacity were installed in 2008,
and 17 CSP plants, mostly at the maximum,
50-megawatt limit for subsidies, were committed to
or were under construction. Ultimately, Spain
accounted for 43 percent of the 2008 global market
in PV, and almost 85 percent of the CSP megawatts
planned or under construction by the end of 2008
globally was based in that country.
The Spanish government’s decisions regarding its
solar policy have had significant ripple effects:
◊ The currently installed PV capacity reached
about 3.2 gigawatts by the end of 2008 and will
produce about 4.8 terawatt-hours of electricity
per year. This could require about €1.8 billion in
annual cost subsidies, or €45 billion over 25
years. The cost of CSP capacity will come on top
of this.
◊ Although the boom did create jobs, the sustainability of those jobs remains unproven.
◊ The 2-gigawatt reduction of demand in Spain
thus far in 2009, coming on top of the global
economic downturn, has upset the global PV
market. It has caused Europe to be flooded with
cheap PV modules since the end of 2008 and has
sent shock waves across the global value chain.
Spain’s lesson shows how critical it is for governments to fine-tune their incentive policies to the
local business case for solar energy—and how
painful a later correction can be. At the same time,
it demonstrates the kind of business disruptions
that solar-energy stakeholders must be prepared for
during the subsidy-driven period of the next several
years.
markets such as China, whose renewable-energy targets today still focus on hydroelectric and wind
power, and India, whose government has ambitious targets for solar energy but historically has struggled with implementation.
By 2015, in locations that have high electricity prices and favorable conditions for the adoption of solar
energy (for example, California, Italy, and Japan), PV prices will have dropped below residential grid
parity. At that point, subsidies can gradually be phased out, but favorable regulation that ensures full grid
access for distributed solar energy will need to continue. On the basis of this potential for increasing
economic viability, PV could continue to thrive and reach roughly 360 gigawatts of installed global
capacity by 2020, producing 500 terawatt-hours of electricity annually—which is still only 2 percent of
global demand.
Whether unsubsidized solar energy, in the form of either PV or CSP, will be fully competitive by 2020
as a generation technology, including the cost of grid access, remains uncertain and will depend on
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October 2009
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changes in general energy prices, climate change realities, and the regulation of carbon emissions and
nuclear energy. It will also depend on the emergence of further fundamental innovation within the solar
industry.
The Photovoltaic Industry’s Structure and Current Dynamics
The PV industry can be divided into upstream, midstream, and downstream markets, each with its own
characteristics, business models, and levels of profitability. Upstream and midstream markets are characterized by global competitors that are focused on PV; most of these companies have enjoyed large profit
margins over the last several years. Downstream markets are characterized by companies that are more
regional in nature, many of which are not focused exclusively on PV. Most of these regional businesses
have lower capital requirements and historically have had lower margins than their upstream and midstream counterparts.
The rapid growth of the PV market over the last few years has led to high prices and a resulting fast
buildup of global capacity along the entire value chain, including the entry of aggressive Chinese competitors. This trend was bound to produce overcapacities, which indeed occurred in 2009, and the situation
has been exacerbated by the sudden restriction in the Spanish market and the global economic crisis. As a
result, the entire upstream PV value chain has had to manage a sudden shift from focusing on secure
supplies and maximum production output to fighting for differentiation and sales volume. Companies’
build-out plans have been scrapped, and for many cell, module, and equipment manufacturers, the first
two quarters of 2009 were their worst in years. The near-term outlook remains shaky, with even polysilicon providers expected to be affected. At the same time, downstream participants in subsidized markets
have seen their margins increase, leading many upstream companies to initiate a buildup of capacity in
this segment.
While marginal PV contenders are now severely threatened, even strong market participants such as
Q-Cells and BP Solar International have started to restructure, with the former raising cash from sales of
an equity stake in REC Solar and both Q-Cells and BP Solar closing high-cost production lines. It is thus
mandatory for every current and future market participant to seek answers to the fundamental questions
summarized in the next section.
Key Issues for Current and Future Solar-Market Participants
The solar industry’s current backdrop is complex. There is clearly a very strong underlying logic for solar
energy over the medium and long terms; simultaneously, much of that growth is contingent on government policy, and there is a glut of capacity in the market at the moment. Thus industry participants and
potential entrants face difficult choices as they contemplate their next moves.
Current solar specialists need to focus on how to get through the current period and, at the same time,
define a viable long-term business model and manage the transition. Large, utility-scale projects, in
particular, will require new consortia models and cooperation among stakeholders in order to manage
both risks and financing, which individual companies will be unable to cope with independently. Such
cooperation among, for example, cell and module producers and system integrators is already occurring.
Global technology companies, such as ABB, General Electric, Intel, Mitsubishi, Samsung, and Siemens,
whether already focused on energy or pursuing it as a secondary line of business, need to be equally clear
on their future points of differentiation and on their business model. As part of that effort, they should
consider leveraging the currently low stock-market valuations of solar specialists to make strategic acquisitions.
Utilities need to decide whether they can afford to make a strong commitment to solar energy, given the
heavy reliance on government subsidies and the potential for a resulting political backlash. Conversely,
they need to decide whether they can afford not to make that commitment, because doing so could hurt
their image and relationship with the government as well as potentially pave the way for new competitors.
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Given that upgrading to a smart grid seems to be a necessity either way, utilities also need to find a way to
pay for that.
Oil and gas companies need to decide whether they want to be in the solar business for real.7 Most of their
moves to date have been small in size and have seemed motivated largely by the potential for brand
enhancement. This is unlikely to remain a viable strategy.
Finally, governments and regulators need to define and quantify their true priorities, whether those priorities are related to environmental protection, job creation, or energy security, and to shape their programs
accordingly. They must balance the seemingly high cost of solar energy with the less tangible but severe
potential risks of climate change related to fossil fuels or the risks associated with nuclear energy. To then
launch an effective program, governments will need to have a thorough understanding of solar technologies and cost positions, and of industry structure and dynamics, as demonstrated by Spain’s experience.
T
he solar-energy industry’s long-term prospects appear strong. But success for individual industry
participants is far less certain and will hinge to a large degree on how they navigate the current
market turbulence. Companies must pick the right strategies—from the development of a technology road
map to the choice of markets, business models, and partners—and execute flawlessly, whether seizing an
M&A opportunity or driving down the cost of operations. Admittedly, this will pose considerable challenges. But the ultimate prize is vast and will more than justify the effort and investment.
7. This refers primarily to international majors. National oil companies act more as government arms than as businesses in the
solar industry.
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About the Authors
Philipp Gerbert is a partner and managing director in the Munich office of The Boston Consulting Group.
He is a core member of the Energy & Environment practice, as well as a topic leader in energy technology.
You may contact him by e-mail at [email protected].
Holger Rubel is a partner and managing director in the firm’s Frankfurt office. He is a worldwide coleader of BCG’s sustainable development sector, with a focus on sustainable technologies. You may contact him
by e-mail at [email protected].
Acknowledgments
The authors would like to thank Gerrit Amthor, Gunar Hering, Jan Justus, Christian Panofen, Thomas
Seemann, and Thilo Stelzenmüller for their contributions to the writing of this White Paper, and also Balu
Balagopal, Maurice Berns, Daniel Lopez, Petros Paranikas, and Rend Stephan for their valuable comments. The authors would also like to thank Gary Callahan, Angela DiBattista, Gerry Hill, and Sharon
Slodki for their editorial and production assistance.
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading
advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized
approach combines deep insight into the dynamics of companies and markets with close collaboration at
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© The Boston Consulting Group, Inc. 2009. All rights reserved.
10/09 Rev. 11/09
The Boston Consulting Group
October 2009