As the solar industry deals with a slump in demand from traditional leaders like Germany and Italy, the industry is looking to emerging markets for demand. China will pick up some of the slack this year, but who else is emerging as companies search for demand for their products, and what should government support look like in the future?
I talked to experts in the industry at the GTM Solar Summit last week looking for answers to these questions. Here's what I learned from them.
A solar power boom close to home
The U.S. is anything but a mature market when it comes to solar, and is actually one of the emerging markets the industry is looking to. I asked Angiolo Laviziano, founder of integrated renewable energy company Mainstream Energy, what drivers are needed to bring the U.S. into sustainable solar growth. Here are a few of his thoughts:
- The cost curve for the end customer needs to be the focus for the industry. This includes not only module prices, but also balance-of-system costs like permitting and installation labor. As these costs come down, solar will grow in attractiveness to both residents and utilities.
- Government involvement on a state level is key. Markets vary from state to state and it will be the policies set at the state and utility levels that drive solar, not federal policy.
- In response to my question about what the best policy is based on what the industry has learned so far, Laviziano said a capacity-based rebate structure where the rebate comes down with higher levels of installation would be ideal in the U.S. The policy and installations would need to be very transparent so that the rebate could be modified quickly and everyone knows when and by how much a rebate would be reduced. Any subsidy would also need to be set at a reasonable level that declines over time with the understanding that it wouldn't last forever.
What Laviziano, along with others in the industry, is worried about is a boom and bust in new markets, as happened in Spain. The feed-in tariff rates were so high that the market was overwhelmed, leading to a bust when the rate was cut.
I asked if a reverse auction, as California just held, would be a good method for bringing down costs for consumers and installing a set amount of solar. Laviziano was hesitant, and so are others in the industry, about who will emerge as winners in such auctions. When cost is the only thing being looked at, you often don't get the best project, just the cheapest. Those two aren't always the same thing; just ask the construction industry.
Emerging markets south of the border
I also talked with Isabelle Christensen, director of North American Operations for JinkoSolar (NYSE: JKS), about how her company is expanding in the Americas.
Jinko got something of a slow start in the U.S. market, failing to be approved by installers like SolarCity when they began expanding. This has caused it to play catch-up, but it is taking a two-pronged approach in the U.S. now and hopes that markets south of the border will be a big part of the future.
JinkoSolar is selling to small integrators and distributors, similar to SunPower's (Nasdaq: SPWR) strategy of having a lot of channels, as well as selling to big customers like SolarCity, which is where Yingli Green Energy (NYSE: YGE) has put its focus. Both have been successful for these companies, and Jinko sees this as a way to diversify demand. The company is also going straight to utility developers, competing directly against other manufacturers.
In Latin America, the company is hoping to get a head start by building relationships with buyers. Since it isn't a great marketing company, according to Christensen, it must focus on its advantage as a good manufacturing company and on creating energy over having a big brand name. She sees markets in the Caribbean, Brazil, Mexico, and Chile as attractive for Jinko in the future. They have the political willpower and are reliant on external energy, two factors that will drive solar's adoption.
Searching for demand in the Americas
The battle has been long and slow for solar from a policy standpoint. But some markets in the U.S. and even more in Latin America provide attractive opportunities, even without subsidies. One presenter highlighted a project in the works just south of the U.S. border in Mexico being sold strictly on net metering basis. Something as simple as priority access to the grid or net metering can go a long way in these markets, where electricity is expensive and power can be sporadic.
If U.S. tariffs go up this month, Latin America could be where Chinese manufacturers find the new demand source that they so desperately need. Trina Solar (NYSE: TSL), Yingli, and Suntech Power (NYSE: STP) have the infrastructure to exploit these markets and the best financials in China.
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