Commentary:Cooperation with traditional energy firms to help spur solar demand Nuying Huang,Taipei;Jackie Chang,DIGITIMES[Thursday 10 May 2012]The governments in Europe have been cutting down incentives for solar PV systems.Emerging solar markets such as the US and China have also been cutting solar incentives.This means the high internal rate of return(IRR)caused by subsidies is likely to dwindle.The solar industry is moving toward self-sufficiency and many firms believe once the scale of the market grows to a certain level,traditional energy source firms will begin to adopt renewable energy sources,making solar one of their power supply sources.
The system approach
Due to oversupply,the solar industry went through turbulences in 2011 and beginning of 2012.Firms that lacked competitive advantages were eliminated while survivors continue to find new ways to climb out of losses.Many solar firms in the supply chain have been eager to enter the market of system development to get a hold on end market demand.Some solar firms believe this type of strategies will not help because investing in system development need to figure out subsidy and financial policies of the country in order to be successful.
Other solar firms believe decision makers need to have a clear understanding and foresight of the market trend.The decision makers should predict solar market trend from the point of view of power generation instead of technology.Governments such as the ones in Europe,the US,and China have been lowering the incentives.
The solar industry can return to normalcy once it no longer needs government incentives to stimulate demand.As governments began to force power companies to produce certain percentage of power using renewable energy sources,demand for such products has been rising.The oil companies have been the supplier for power companies,hence it is likely that oil companies will also invest in the solar industry.
The power of traditional energy firms
Some crude oil and power companies have been observing the trend of renewable energy source markets.Oil firms such as BP from the UK,Shell from the Netherlands,and Total from France all invested in solar firms.Due to oversupply,BP exited the solar market.
Enel Gree Power(EGP),a subsidiary of Enel,the largest power company in Italy,recently announced the plan to cooperate with Japan-based Sharp to build a solar power plant.In 2011,EGP had installations of solar and windpower of 880MW.US-based Duke Energy recently acquired a 10MW solar farm in Arizona from Germany-based Solon.In China,the five largest power companies have been eager to enter the solar market showing the importance of renewable energy sources.
Due to involvement of traditional power companies,solar firms believe future demand is likely to rise continuously,especially after the March 11,2011 earthquake in Japan raised concerns over nuclear power plants.If nuclear power plants are shut down around the world,new power plants that use safe renewable energy will have to take over and fill in the gaps.
Furthermore,oil companies have been close to policymakers in various countries.Having the support of oil companies is likely to benefit the development of renewable energy source industries.
A new business model
Some solar firms believe when the market grows to a certain size and become competitive with traditional power-generating sources,large-size oil and power companies will enter the industry.
Nevertheless,if that happens,the solar supply chain will become equipment providers.The procurement process of the solar projects will likely be taken over by EPC(engineering,procurement,construction)firms.The EPC firms will then propose the project to oil or power companies.
This type of business model means it would be hard for the solar supply chain to have a voice on how the market developments should be.The solar industry is unlikely to have dominance over prices and supply in the future.
Cooperating with traditional energy firms to benefit solar industryPhoto:Digitimes file photo
