The Solar Demand Forecaster found that in Q2 2011, New Jersey offered the highest internal rate of return (IRR) out of 50 U.S. states, 31 Chinese provinces and semi-autonomous regions, and 75 countries and global regions. High Solar Renewable Energy Credit prices pushed New Jersey’s IRRs into the 40 percent range in 2010 and early 2011.
But the state will soon begin to suffer the effects of oversupply, forcing a collapse in prices with no floor in place. California – the largest market in the U.S. – will continue to see steady growth thanks to stability and visibility with step-down incentives and recent RPS (Renewable Portfolio Standards) legislation, Lux said.
IRR is the discount rate at which the net present value (NPV) of future cash flows from a capital investment equals zero. Capital expenditure is the primary factor in determining a market’s IRR, along with incentives and operating expenses. Lux says IRR provides an apples-to-apples metric for investors to compare demand and project growth for solar across disparate markets.
The research house’s Solar Demand Forecaster tracks IRR and projects future growth through 2016 for six key photovoltaic technologies: monocrystalline silicon (c-Si), multicrystalline silicon (mc-Si), cadmium telluride (CdTe), copper indium gallium diselenide (CIGS), thin film silicon (TF-Si), and high concentrating photovoltaic modules (HCPV).
In the rankings, Portugal came second by IRR, with its steadily rising internal rates of returns (IRR) for the six major solar technologies pushing that country to a projected annual market of nearly 400 MW in 2016.
“Elsewhere in Europe, high solar potential and favorable IRRs for investors are countered by uncertainty surrounding incentives – which could slow growth moving forward,” said Matt Feinstein, the Lux Research Analyst who led the Demand Forecast. “Italy and Germany will remain the Continent’s most stable markets with returns hovering near 9 percent and 22 percent through 2016, respectively, thanks to annual incentive step-downs.”
India is another market worth watching, Lux said. With quarterly IRRs skyrocketing past 20 percent thanks to the country’s newly introduced National Solar Mission, India could become one of the strongest demand markets through 2016 – if subsidies are extended past 2013, as expected.