Global Solar Market: Top 10 Trends in 2019
By Tom Heggarty and Benjamin Attia
Midway through 2019, positive signs are appearing on the global solar market. Although 2018 was a year of upheaval for the global solar PV (photovoltaic) market, we’ve seen policy clarity in China and Saudi Arabia as well as highly aggressive solar-plus-storage pricing in Hawaii and bold plans for some of the world’s largest single-site PV projects in India.
Other changes in the marketplace are not so straightforward: Section 201 tariffs in the United States, China’s 531 policy shift, India’s mega-tender cancellations, Japan’s feed-in tariff (FIT) cut, and the lack of clarity around the memorandum of understanding (MOU) between Saudi Arabia and Softbank’s Vision Fund for 200 GW of solar PV with storage.
Given those contrasts, Wood Mackenzie analysis has detected a variety of developments. Here are some thoughts on the top 10 trends to watch this year:
1. The market will (finally) crack 100 GW for the first time
After a muted 2018 decline—the industry’s first ever—brought on by China’s policy brake, the global solar market will finally exceed 100 gigawatts in 2019, with Wood Mackenzie’s latest 2019 forecast topping at 103 gigawatts. The global market continues to diversify. The top 20 largest global PV markets will account for 83 percent of new global demand to 2023, the fastest-growing of which are concentrated in the Middle East and Mediterranean (Saudi Arabia, Iran, Egypt, and Italy).
2. More sub-$30/MWh bids—and maybe even another record low
Although 2018 was the first year since 2012 that didn’t introduce a world-record-low solar PV tariff, technology costs have continued to fall rapidly, with global average utility-scale solar costs declining another 15 percent last year. We believe that ultralow PV costs still have room to fall as low as US$14/MWh (megawatt hours) under optimized assumptions; and the recent cratering of average bids in Egypt, Jordan, and the UAE under US$30/MWh suggests 2019 is likely to see more pricing at a similar level.
3. Revised policy targets will determine the market’s long-term growth
The first few months of 2019 have already seen clarity on policies and targets relating to solar PV in both China and Saudi Arabia. Before those announcements, we forecasted that the two countries would be the first and eighth largest installers of solar PV to 2023. So, how these markets evolve is critical for the trajectory of global demand. In China, the National Energy Administration has released guidelines clarifying measures to promote subsidy-free solar PV. The announcement provides investors with much-needed clarity as to how solar will be promoted in China following last year’s 531 decision to effectively end the award of feed-in tariffs to new projects. In Saudi Arabia meanwhile, a revised 2030 renewable energy target of 58.7 GW by 2030—of which 40 GW will be solar PV—has been announced and an auction timeline specified for 2019.
4. Another entrant to the subsidy-free club in Europe
Spain, Portugal, and Italy have been at the vanguard of subsidy-free utility-scale solar PV, with multiple gigawatts in the development pipeline. This year will see the first wave of those projects delivered. As costs continue to come down, 2019 is also set to be the year that the trend spreads beyond Southern Europe. In the UK, there has been no support scheme available for large-scale solar PV since the Renewables Obligation closed in the first quarter of 2017. Nevertheless, there are projects of 2.3 GW that either already have or are awaiting planning permission in the development pipeline that could be delivered without subsidy.
5. Big business goes big on corporate solar procurement in the U.S.
An increasing portion of U.S. utility PV demand is being driven by corporate nonutility entities looking for savings or to reach voluntary renewable energy targets. Of these corporate buyers, 56 percent are from the technology and data sectors. In third-quarter 2018, corporate procurement saw the largest surge in market share of any utility-scale segment, growing from 13 to 15 percent of utility PV in development in a single quarter. The fastest growth has been in ERCOT (Electric Reliability Council of Texas) and regional transmission organization PJM. As of the latest U.S. Solar Market Insight Report, 25 percent of all projects announced in 2018—representing 2.9 GW of new power purchase agreements (PPAs)—were driven by corporate procurement; and this share is expected to rise modestly in 2019 due to eagerness from corporate buyers to sign PPAs before expected interest rates rise and the 30 percent investment tax credit (ITC) expires.
6. More projects trading hands, particularly in the U.S.
Last year saw an uptick in global secondary market activity, a trend we expect to continue in 2019. We tracked almost 21 GW of solar PV asset transactions globally in 2018, up 38 percent on the previous year—although a large proportion of this was down to Global Infrastructure Partners’ acquisition of SunPower’s 4.7 GW U.S. utility-scale pipeline. Financiers are becoming more comfortable with solar as an asset class; and strategic investors and asset owners have increasingly been looking to acquire projects earlier in the development cycle, taking on increased development risk to capture a greater share of the project’s margin. In the U.S., where 47 percent of all solar asset transactions took place in 2018, we expect to see an increase in activity with sponsors looking for early-stage, large-scale portfolios in advance of the ITC step-down.
7. Large-scale solar-plus-storage comes into the spotlight but remains a niche solution in emerging markets
Following three headline-grabbing solar-plus-storage procurements in 2018 from Xcel Energy ($30–32/MWh), NV Energy ($31–37/MWh), and PG&E (567.5 MW across four projects), the solar-plus-storage space started off 2019 with a bang. Seven projects have been proposed in Hawaii that would add 262 MW of solar and more than 1 GWh of storage at prices as low as $78/MWh. Wood Mackenzie currently estimates 1.4 GWh of energy storage installed across the entire United States and forecasts 8.8 GWh of front-of-the-meter solar-plus-storage capacity installed in the U.S. by 2023, growing at an 82 percent CAGR (compound annual growth rate) starting in 2018 and led by California, Arizona, Colorado, and Hawaii.
8. Mono PERC and bifacial modules keep CapEx costs marching down
Next-generation module technologies will offer increased performance and unit-cost reductions in 2019. This year, 41 percent of global module manufacturing capacity will be dedicated to mono PERC (passivated emitter and rear cell) production, up from 36 percent in 2018. This year will also be the first where we’ll see substantial installations of bifacial modules. While industry standards have yet to be codified and several stakeholders await additional performance data before making procurement decisions, 2019 will see several flagship projects incorporating bifacial modules, particularly in desert environments. By the end of 2019, as global blended-module prices fall below US$0.25/Wdc (watts direct current), global average CapEx will fall to US$0.95/Wdc. This is skewed by high-cost projects in Japan, however, and most countries in Asia will see average CapEx fall below US$0.80/Wdc.
9. A make-or-break year for mega-project plans
Last year saw mega-project announcements stall the progress of solar PV markets in India and Saudi Arabia. In India, the Solar Energy Corporation of India (SECI)s 10 GW tender has been repeatedly delayed, while in Saudi Arabia, the 200 GW MOU has been shelved. As a result, 2019 is set to be a make-or-break year for the concept of tendering very large volumes of capacity through a single request for proposal (RFP). Such large programs have yet to demonstrate economies-of-scale efficiencies in hardware, soft costs, or construction timelines.
10. Oil and gas majors embrace solar in upstream and power
As the energy transition accelerates, oil and gas majors are increasingly making strategic moves to adapt to the changing energy landscape. From large private utilities, to battery manufacturers, to EV-charging infrastructure companies, to rural solar home system companies in sub-Saharan Africa—the most forward-thinking oil and gas majors are moving into the electricity space. Despite numerous challenges, including much lower rates of return than upstream investments, they’re well positioned to succeed because of their strong balance sheets, scale, global presence and brand, and commodity trading and risk management expertise.
Tom Heggarty is a senior analyst, Power & Renewables, at Wood Mackenzie, a Verisk (Nasdaq:VRSK) business.
Benjamin Attia is an analyst, Power & Renewables, at Wood Mackenzie.