The past two months have seen dramatic changes in solar incentive policies around the world, changes that are certain to change the landscape for end PV markets in coming years. For this article, we will focus on three specific policy changes that have occurred within the past couple of months:

1. Italy. On May 4, 2011, the 4th Conto was approved, and with it a sweeping set of changes to the feed-in-tariff schedule in the world’s second-largest PV market. Under the revised schedule, feed-in tariff rates are reduced each month in 2011, and again on a bi-annual schedule in 2012. For residential rooftop systems, feed-in-tariff rates will be reduced by a total of 23% in 2011, and another 15% in 2012. For large ground-mounted systems (over 1 MW), feed-in-tariff rates are reduced 35% in 2011 and an additional 23% in 2012.
2. California. On April 12, 2011, Governor Jerry Brown signed into law an ambitious new renewable energy requirement for California, requiring that 33% of electricity consumed in the state be sourced from renewable resources including solar by 2020. Note that California is the second-largest energy market in the U.S, comprising approximately 7% of total U.S. electricity consumption (259 TWh). While there is less price certainty in the competitive PPA market in the U.S., Federal tax incentives for solar (30% investment tax credit, accelerated tax depreciation) are in place for at least the next five years.
3. China. Another major change in the solar policy landscape occurred last month with the news that China has revised its long term national strategic goals for solar, now targeting a cumulative 50 GW of solar to be installed in China by 2020, significantly higher than the previous 2020 target of 20 GW. Like the U.S. there is at this point in time no national feed in tariff program to provide investor certainty on solar PV energy prices; however it is reasonable that for large projects, a competitive LCOE will be in a comparable range to the U.S.

Figure 1. Micromorph® cost reduction.

What do these positive and negative changes in solar incentive and mandate policies mean for PV demand? In the short term, it’s going to be a wild ride for the industry, as reduced FIT project development and increased production capacity create significant excess inventory that is sold at prices that approach the marginal cash cost of production. At the same time, these reduced prices will create an elastic demand increase in large markets outside of Europe, demand that is reinforced by new renewable mandate policies in US and China.

There will also be winners and losers among the different PV technologies in these volatile market shifts. In short the winners in this scenario will be those technologies that have the lowest sustainable cost of production, and at the same time have sufficient track record in the market to qualify for low cost project financing. The losers in the months and years ahead will be those producers who have a less efficient cost structure—due to high production costs, inefficient market channels or high cost of financing due to being less bankable.

Thin film silicon is well positioned for these new market conditions. Driven by semiconductor equipment industry leaders that are experienced in delivering continual and rapid technology evolution and cost declines, the cost of ownership has been reduced by over 50% in just the past three years. Oerlikon Solar and other thin film silicon leaders continue to invest heavily into product and equipment R&D, and have identified significant opportunities for further future cost reductions and module performance improvements.

As an illustration of the competitive positioning for thin film silicon in the wake of the above-described policy changes, we have presented below three different scenarios, in three different regions:

1. 500 kW rooftop application in Italy, operational in H2 2012
2. 10 MW ground mounted application in California, installed in H2 2012, competing for RPS
3. 10 MW ground mounted application in China, installed in H2 2012

Key assumptions for this analysis

• Module price. Based on 2011 cost of ownership for Oerlikon Solar ThinFab (120 MW capacity, 10% average module efficiency), assuming production at a plant in the region. Assumes gross margin percentage of 35%
• BOS costs. For 10 MW installations, based on bottoms-up benchmark costs from leading EPC’s adjusted for efficiency differences compared with CdTe or c-Si. Assume BOS 50% higher for 500 kW rooftop. Estimated 2012 BOS costs as follows:
  1. Italy 500 kW rooftop: €1.36/W
  2. US 10 MW ground mount: €0.91/W
  3. China 10 MW ground mount: €0.68/W
• Energy production. Assume 1690 kWh/kW for Italy (Bari), 1639 for California (San Diego) and 1638 for China (Yingchuan). Note that these values are based on the use of Micromorph®, with an energy yield that is approximately 5% higher than typical yield of crystalline PV.
• Available incentives. For Italy scenario, assume H2 2012 FIT level, including 10% premium for in-country production (€0.22/kWh). For US assume 30% ITC and 5-year MACRS. For China, assume no incentives.
• LCoE escalator—2.5% p.a. for Italy and US, 4.0% for China.
• Financing. Results are based on 100% equity.

Results

Table 1. Results of the analysis.

The results of the analysis, Table 1, demonstrate that TF Si technology will continue to be among those PV technologies that are competitive even as policies shift and margins are compressed. The project in Italy shows an excellent overall rate of return for project investors, even with the reduced FIT levels. The results for the 10 MW projects in US and China demonstrate that continuing cost reductions made possible by technology/equipment suppliers position thin film silicon to deliver low-cost power that is competitive with other leading PV technologies in renewable mandate markets.

Chris O’Brien is head of market development for Oerlikon Solar, and is based in Washington, DC. He has held senior management positions with leading solar PV companies including Sharp Solar and BP Solar since 1995. Chris has previous career experience in the energy efficiency and independent power industries. He holds an engineering degree from Dartmouth College and an MBA from Stanford University.

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