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New Solar Finance Models Set to Replace Government Funding, Report Says

As government-funded financial incentives for solar photovoltaics are reduced in some major markets, price reductions and third-party ownership models will become the key drivers for the PV market for the foreseeable future, according to a report by Pike Research.

Solar PV, the dominant form of renewable distributed energy generation, grew at a rate of 72 percent in 2010, the fastest of all renewable technologies during this period, according to Distributed Solar Energy Generation.

Government-funded financial incentives have historically been a huge driver of growth in the industry. Markets that are dependent on financial incentives, however, can shift suddenly, Pike says. In 2008, a 500 MW cap in the tariff caused the Spanish PV market to collapse, creating a glut of solar PV modules in the market. Germany, by far the largest market for solar PV systems, recently cut its tariff as well.

Using the lessons learned from these markets, other countries are proceeding more cautiously by incorporating caps, local content rules, and restrictions into their programs to help predict and manage costs, according to the cleantech market intelligence firm.

Despite this uncertainty surrounding public funding, Pike expects the distributed solar energy generation market to increase from about $66 billion in 2010 to more than $154 billion annually by 2015, a compound annual growth rate of 18 percent. During that period, the firm anticipates that total installed capacity of distributed PV will rise from 9.5 GW to more than 15 GW.

While government finance will still be a major force behind this growth, Pike points to leasing programs from companies such as SolarCity, Sungevity and SunEdison that are now driving homeowner investment in PV by offering installations with no or very little upfront investment.

Purchase power agreements – under which developers lease commercial rooftop spaces and install solar PV systems, essentially creating a distributed power plant that is connected to the grid – represent a growing portion of the PV market, and systems installed under PPAs are cheaper than large-scale installations, the report says.

Finally, lower prices are opening up new markets for distributed and utility-scale PV, the report says. The price of solar modules is expected to have dropped by 10 to 15 percent over the course of 2011, Pike says.

A report by Lux Research released earlier this month predicted the amount of annual solar installations would rise by just 0.4 GW in 2012, but new installations will rebound to 38.3 GW in 2017 as emerging markets quadruple in size.

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2 thoughts on “New Solar Finance Models Set to Replace Government Funding, Report Says

  1. This article implies that the German solar tariff program is government-funded. This is incorrect. The German solar tariff program is not funded by the government, i.e., by tax payers. The higher costs of PV electricity are paid in Germany by electricity customers. Unlike government subsidies for fossil fuels and nuclear energy, which are basically paid by all tax payers, the German renewable energy subsidies are paid by electricity customers. The more electricity these customers use – and the more environmental impact they cause – the more they subsidize renewable energy. The reasons for the recent tariff cuts in Germany – beyond the annually planned cuts based on cost reductions – are political and technical. Some political parties jumped on sporadic customer complaints about higher electricity cost and the electrical grid is running into capacity problems during peak supply hours. Similar reasons exist for the cap in Spain.

    So, although new solar finance models are emerging, especially with costs getting closer to the costs of fossil fuels, government funding has not been the major source of the biggest PV incentive programs worldwide. Incentives for clean energy that are paid by energy consumers, not tax payers, are still the fairest approach to address environmental problems caused by energy production and use.

  2. I agree with Jack’s comments. It makes more sense that those wasting the most non-renewable energy have to subsidise these schemes. That way they are given a deterrent from using fossil fuels, although they may not see this as a such benefit. Yet in the long run they may make the decision to switch to renewable energy sources; at least that is the idea.

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