Perspectives on the California Solar Market: Uncertainties and Opportunities
By Greg Brucia (San Diego)
California may have a dominant position within the US solar market, but the US has only a modest position in the global solar market. That was a key message from two leading solar industry analysts, Paula Mints of Navigant Consulting and Stefan Pietzsch of EuPD Research, at a June 27, 2011 webcast presented by Intersolar North America titled US Solar Market Overview and Future Trends.
Both presenters emphasized the importance of government support for the development of solar markets. Mints noted early US dominance in the supply market gave way first to Japan and Europe in 1999 and later to China and Taiwan, with increased government support being the common driver for the successive leaders. Not surprisingly, Mints suggested that increased government support would be necessary for the US to return to a more competitive position in the supply market.
Domestically, the speakers agreed government support has been a key to California’s leading position within the US, driven in large part by the plethora of incentives in California – a leading renewable portfolio standard, feed-in tariffs, utility rebates and net energy metering. Pietzsch noted other supporting factors such as a culture in California that embraces protection of the environment and a willingness among consumers to change behavior to further that goal. This has been particularly important for the development of the residential and small business sector, the historical backbone of California’s solar market. But Pietszsch also sees these factors supporting growth in the utility-scale segment, which is predicted to be the highest growth segment of the California solar market.
Both presenters foresee flat to moderate growth in 2011 and 2012 with higher rates of growth perhaps following after that. Each pointed to the nascent nature of the industry which can allow for growth opportunities that may not be available in a more mature industry. For example, Pietzsch noted something we have seen with our own clients, when he compared the California and German solar markets: the German residential solar market saw positive effects that resulted from increased efficiency of solar installers which enabled them to bring down the cost of installation and more effectively educate and market to consumers. Similarly, as the US market matures and implements new technologies, such as innovative energy storage solutions, the ability of installers to promote awareness through effective marketing and to drive affordability through efficient installations can be a key support dynamic for residential and small business market segments.
Consistently present in the discussion, however, was the specter of government support and the critical role it plays in the domestic and global solar markets. In reviewing the past and looking toward the future, both speakers acknowledged the obvious importance of governmental action for the continued development of the solar market and noted that with very low or stagnant economic growth and massive budget deficits at both the state and federal levels, nothing is certain.
At a recent program in Northern California, our own policy partners former Congressman Bart Gordon and Daniel Ritter echoed that perspective but also emphasized that advocacy by solar players both large and small can help to educate Congress when they make difficult budget decisions. Mints warned, “what the government giveth, the government can taketh away.” While that is true, we would also add to that the industry does not need to sit on the sidelines and wait for government action (or inaction) to dictate the market opportunities.
Many utility scale and other solar projects currently under development rely on government incentives, such as the energy investment tax credit and the cash grants in lieu thereof, as critical pieces of their financing plan. The uncertainty surrounding the continued availability of those incentives relates also to the timing of any changes. Given the current political and economic environment, significant change could come sooner than anticipated.
What can developers do to protect themselves? First, they need to carefully monitor developments affecting the government incentives involved in the financing plans to gather as much advanced information as possible and maximize the time available for making any necessary adjustments. Second, developers should explore steps that can be taken to accelerate the pace of development of their projects with an eye toward locking in the incentives before any negative change. Finally, developers should attempt to develop alternative financing arrangements in case the incentives on which they are relying become wholly or partially unavailable.
