"Solar Growth: No Boom and Bust Environment"

Expert Interview – June 30, 2023

Raffaele Rossi, Head of Market Intelligence at SolarPower Europe

SolarPower Europe, together with Intersolar Europe, launched the Global Market Outlook for Solar Power 2023–2027 , one of the industries most important market studies, at the Intersolar Europe Conference 2023 in Munich.

At the Conference, we spoke to Raffaele Rossi, Head of Market Intelligence at SolarPower Europe, about the newly published market highlights in Europe: groundbreaking overall solar developments and some of the most important emerging and established markets on the continent.

Mr. Rossi, can you share with us the most groundbreaking developments of the European solar market which came out with the report?

The report showed, at the global level, a strong growth of 239 GW (gigawatts) solar installations in 2022. That's equal to a 45% growth. Europe followed the same trail, with a very similar growth rate of 44% and managed to install over 46 GW in 2022, out of which countries of the European Union (EU-27) installed over 40 GW. In the future, the EU is and will remain the major contributor to European installations, mostly driven by the European policy making efforts in the context of the REPowerEU Plan.

Some other highlights: the European continent has surpassed 250 GW of installed capacity. Solar is becoming more and more prominent in the electricity mix. Growth will not stop anytime soon. So differently from what we witnessed in 2011, when the first solar boom took place in Europe, is not going to be a boom-and-bust environment, but rather a structured and more sustainable long-term growth.

In 2023, we expect a further 35% growth rate, bringing total installations to 62 GW across the continent with about 54% for the EU-27. Our medium scenario foresees a market in Europe ranging at 120 GW annually installed up to 2027. And within Europe, the EU would reach an important milestone of about 100 GW installed by 2027 on an annual basis.

Spain has been the largest EU solar market in 2022 and is one of the countries worldwide with the biggest share of unsubsidized solar projects.

Spain has been the shining star last year with 8.4 GW market growth. For the first time in several years, it overtook the role of Germany as the leading European and EU-27 market. Spain is a very interesting case since it's mostly driven through a subsidy free market, at least for the utility scale, which remains the driving force for the Spanish market.

Some auction rounds were launched in 2022, but the results were rather disappointing. The bidding ranges were considered too high for Spanish developers who preferred going merchant. We will see what will happen in the next auction rounds. The market might segment a little bit also in the utility scale segment with some developments also taking place through auction systems.

The rooftop segment is increasingly interesting in Spain. It has exceeded the gigawatt scale by now and we expect it to continue further as the impact of prices for electricity have impacted the residential and commercial and industrial (C&I) segment. The appetite for rooftop solar will continue also thanks to the provision of funds through the recovery programs stemming from the EU.

How do you evaluate concerns about an advanced price cannibalization development for solar in Spain that foresee decreasing interest for investors because of low electricity prices?

When it comes to cannibalization, with large deployment of solar capacity and further penetration into the energy mixes, it will become more and more a topic. I think it's being aware of the challenges that we are facing and the fact that we still live in an energy system that is thought for centralized generation.

What will be important is to act on two fronts. First, rewarding flexibility solutions and strengthening the grids are important aspects that policy makers and grid operators are not necessarily 100% on top of, yet. And the second message would be further allowing consumers through price signals to shift their energy demand to when there is availability of cheap green electricity. We're talking about demand side solution. We're talking about more flexibility, storage solutions.

It's also important that the Power Purchase Agreement (PPA)-market continues and systems such as auctions offer long term solutions in terms of availability and bankability of projects. So it might be in the future that the merchant solar might not continue being the largest segment of Spanish development.

In terms of price cannibalization: Is Spain only the beginning, and how can European markets promote the transition from subsidized solar markets to functioning free markets?

I don't think that will happen soon. Also, because countries like scheduling auctions with allocated capacity volumes simply to allow stable growth and visibility about future installations. To make a global example which relied less on this type of structured growth, we can look at Vietnam. Vietnam had an uncapped FIT which led to massive installations in 2019-20, but with an abrupt end of the scheme in 2021, the annual market plunged from 11 GW to under 1 GW year on year. Now the government faces the challenge of huge amounts of solar installed in a short period, without parallel grid and system planning, and has taken some extreme measures to slow the further deployment of solar.

Auctions and self-consumption rooftop programs are helping governments to have a more linear, sustainable, trajectory towards their goals. Of course, it's important that these goals are ambitious. We will keep seeing auctions for some time and maybe in the future we will see some innovative business models.

An interesting point you mentioned before is that the system is still oriented towards centralized generation and that we need a system change first to avoid the price problem that is showing on the horizon…

A shift from this system can happen both from the policy side but also from the end consumer side. If consumers are allowed to have access to price signals such as dynamic tariffs for their electricity, then they will shift their consume habits towards times when cheap energy is more available. We have the technological solution and the digital solution to allow so. If you think about the integration of EVs with batteries, with heat pumps, with PV, that is something that we see happening. What is missing is the framework that fully allows those trends to take place.

We have a strong market growth in Italy right now. Italy is back on the top ten markets in 2022. Can you explain some recent factors and developments in the country?

Out of the gigawatt markets that we saw in 2022, Italy was the one with the largest growth rate year on year, over 100%, in fact. That was mostly driven to the famous Super Bonus 110% tax reduction scheme for the residential rooftop segment. That scheme has now changed. The conditions have worsened, that segment might shrink in the future. For the beginning of 2023, we still saw very strong levels of installation, but it´s rather grid connection of projects that were installed in 2022.

At the same time the C&I segment is anticipated to grow significantly and utility scale is finally taking traction through positive regulation from the Italian policy makers, including on permitting procedures. Another interesting trend is Agri-PV in Italy as an agricultural country with lots of land allocated for agriculture. The Government has introduced a support scheme for Agri-PV projects that look at innovation.

Let´s talk about the Dutch market: The Netherlands have the highest solar production per capita, with 1,000 Watt of installed solar power per inhabitant. How is the distribution between the different segments in the country, can the Netherlands use as an example for Europe?

The Netherlands is the other rising star in in the European constellation. It is second worldwide only to Australia and these are the only two countries that reach an average per capita of over 1 kilowatt installed solar per inhabitant and beyond. When it comes to the segmentation in the Netherlands, it is very balanced between residential, C&I and utility scale, which in the last years have kept roughly one third of the market each. It´s a mature market that should be looked at as a positive example across the world and particular in Europe.

Europe has a quite strong rooftop segment in many member states, but indeed some traction is still missing from certain member states, especially from Central and Eastern Europe with a few notable exceptions.

You highlighted in your presentation at Intersolar Europe Conference 2023 European countries that don't belong to the EU-27 were conquering bigger market shares lately. Can you mention some of them or also other EU-27 markets which are on the rise?

We are seeing for quite some years is that there is a diversification place taking place across Europe and within the EU. In the past, it was rather driven by a few sizeable markets, now the deployment of solar across Europe is not dependent on a few countries only.

Maybe some notable mentions within the EU-27 countries such as Denmark, Greece, Hungary and Austria have become gigawatt scale either for the first time or for the first time in since a long while. Outside of the EU, some notable mentions are indeed Turkey, Switzerland and the United Kingdom, who brought the gigawatt scale level back after quite some years since the slashing of the feed-in-tariffs in 2017. What is interesting is that in many of the countries that reached the gigawatt scale, such as Austria and Switzerland, the growth is driven primarily by rooftop segments thanks to very favorable and attractive policy frameworks that allow to do so even in smaller countries that do not necessarily have wide land availability.

Outside the EU-27 has Turkey been a gigawatt market for the second year in a row. What is interesting there is a strong manufacturing base which is supported by national policy makers. Therefore, developing a demand for such products is also of the interest of the government. Reportedly the market was within 1 and 1.5 GW last year and it's also expected to remain stable and grow further in the coming years. There are different drivers, one of which is the energy prices. So there is an appetite, especially from the C&I segment and public buildings to install rooftop solar. There are also auctions and the government is looking at utility scale solar with regular tenders.

Raffaele Rossi spoke to Sarah Hommel de Mendonça.

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