Solar power looks set to become a greater part of the energy mix in Asia.
Growing populations and economies are pushing up the demand for energy, and governments throughout the region are realising it will be impossible to satisfy this demand through their already hard-pressed power generation infrastructures and deliver electricity at manageable cost.
With solar energy systems now more affordable than ever, and solar irradiation levels that are the envy of other regions of the world that spend many months of the year under gloomy skies, Asia is looking to renewable energy, particularly solar, as the way forward.
Factor in environmental concerns about nuclear or fossil fuel, and the strong imperative to substitute expensive diesel generators in regions that are off grid, and Asia could be the new powerhouse for the global solar industry, leapfrogging other regions in terms of speed of uptake.
With growth stalling in the traditional solar power markets, the Asia-Pacific (APAC) region presents the industry with great opportunities: by 2015, capacity in the region (excluding China) is expected to reach 11 GW.
Good fit for challenges
Despite huge disparity between the countries in the APAC region – from the highly developed market of Japan, which is driving forward solar investment as a way to escape reliance on nuclear, to countries seeking to reduce dependence on expensive power imports, or, like India, struggling to get power to their populations – the common denominator is solar irradiation.
Solar energy is a good fit for many of the imperatives across Asia. At one end of the scale, it provides clean, green energy as an alternative energy source. At the other, it delivers power to the many people in the region who have no access whatsoever to national grids.
By moving straight from (often rickety) diesel generators to solar, large parts of the region can potentially bypass the step of installing power gridlines, or upgrading substandard infrastructure.
Markets in Asia are in fact developing in two directions. Price is at the heart of both, and is proving key to making solar such a predominant part of the energy mix.
Some markets are still upheld by subsidies; others are beginning to be driven by grid parity, the cost level at which solar is competitive with conventional sources of energy. This will completely change the market dynamics as solar is more able to stand on its own.
One reason why grid parity is now within reach is that system costs for solar power generation have fallen sharply in the past three years, reducing the capital expenditure of projects and making the move to solar an increasingly viable option for many countries to meet power needs.
The levelised cost of electricity for solar is already in the range of $0.12-0.15/kWh, making it more than able to match diesel on cost. In the Philippines, for example, the average electricity price is $0.26/kWh. If we also consider the cost of carbon, this could push up the price of fossil energy even further, making solar energy even more cost-competitive.
So how is the solar industry faring across the region? How are manufacturers and providers addressing the opportunities in such disparate countries? We’ve highlighted a few of the common trends and challenges.
Power alternatives in India
Like many countries in the region, India has an infrastructure that is unable to keep pace with energy demand. The historic blackout in India in July 2012 was the greatest power outage in history. Its impact was felt by over 600 million people, with an estimated capacity loss of 32 GW.
India knows to its cost what will happen if the country remains excessively reliant on a centralised grid and fossil fuels. Given the huge demand for electricity and the country’s high irradiation levels, the outlook for India’s solar market is highly positive.
|REC solar panels being assembled in Singapore
There is strong growth in the utility-scale solar market, with growing opportunities in rooftop commercial and industrial markets, as well as broad potential for offering solutions to electrify remote spots and replace or complement diesel installations, which are nowhere near as cost-efficient as solar energy.
The cost of a unit power from an off-grid solar system is $0.18 to $0.21 per kWh – lower than power from diesel generators at $0.30 to $0.33 per kWh. Moreover, solar energy is actually available when needed, during peak hours – in strong contrast to grid power, where an overloaded network can fail precisely when it is needed most.
Despite the apparent logic of moving to solar in regions that have little or no access to grid power, a major challenge facing would-be installers is the difficulty of securing financing.
One reason is that this is still a young market, and there is no single country-wide feed-in-tariff to provide investors with a secure ROI projection. However, as less experienced players exit the market and best practices begin to take hold, solar projects are likely to have an easier time securing financing, paving the way for a solar future in the country. In addition, Indian anti-dumping tariffs are creating uncertainty in the market, and this to some extent is slowing investment.
Thailand’s ambitious targets
Another country aiming high with solar power is Thailand. As things stand, Thailand meets around half of its primary energy needs through imports, so the country is understandably keen to generate more of its energy itself.
The aim is to have a quarter of energy needs met by renewable sources, including solar, by 2021. Thailand was one of the first countries in Asia to launch incentive schemes to promote power generation from renewable sources, and operates Power Purchase Agreements guaranteeing premiums on feed-in tariffs to incentivise new solar installations.
In contrast to India, the programmes succeeded in creating stable, predictable conditions (and revenue streams) for investors to sell their solar-generated electricity into the grid.
New policy packages were recently approved to renew support for solar power in the country, with preferential feed-in tariffs for rooftop and ground-mounted solar systems, demonstrating Thailand’s continued commitment to scaling up the percentage of power generated from renewable sources: with the country targeting a solar generation capacity of 2000 MW by 2022, it is therefore no surprise the country is a magnet for solar investment.
Japan’s appetite for renewables
At the other end of the scale is Japan. Prior to the Fukushima nuclear disaster, Japan had neglected solar and other renewable sources, despite the country’s high levels of irradiation, instead favouring nuclear power.
Since Fukushima, the country has had a far greater appetite for renewable energy programmes. New schemes are in place with generous feed-in tariffs to promote solar investment, and these measures are set to take Japan into the top three solar markets globally this year.
A report by Bloomberg New Energy Finance predicts that Japan’s solar capacity will double by the end of 2013, making it the second fastest growing solar market in the world after China.
Japan aims to cover around one fifth of its energy mix through renewable sources in the next decade. The feed-in tariffs are helping promote investment in the sector, creating excellent opportunities for industry players right along the value chain.
What it takes to thrive
The huge price reductions that are spurring solar uptake in Asia are inevitably creating challenging conditions for the solar industry. The main cost pressure for a long time has been on module manufacturers due to overcapacity. This is now easing.
System prices will continue to fall, but the pace of reduction is likely to slow. Cost pressure has now shifted away to other components in the system, notably the inverter industry, where we are seeing some consolidation, following takeovers in 2013 of two of the top ten industry players.
The systems business of REC has completed more than 130 MW of systems designed and executed by REC teams, and can handle the full life cycle for the customer, from solar panels to system design to EPC.
REC also arranges finance solutions and oversees long-term operations and maintenance for the facilities we install.
REC is convinced that a local presence also makes all the difference to success in Asia. REC has opened its own office in Bangkok as part of its commitment to capturing growth opportunities in Thailand’s fast-growing solar market. The company also has its own offices in Japan and India, and employs over 1000 people at an integrated, state-of-the-art, 800 MW production facility in Singapore.
Since opening in 2010, the factory has demonstrated via high standardisation and automation that its production costs can compete with any plant in the world. The company also continues to invest in and build our Asian sales and engineering teams to meet rising demand.
Work still to do
Solar energy may already have gained traction in Asian markets, but there is some way to go before it can unleash its full power.
Financing, for instance, remains a stumbling block. Even though the finance community has understood and is beginning to embrace solar, and no longer views solar energy initiatives as excessively risky, no investment will be forthcoming without robust evidence to demonstrate ROI commensurate with the risk of the project and the length of its term.
|Silicone production at REC’s plant in Singapore
This means presenting a solid business case and long-term performance data. Investors will therefore prefer installations with high quality, high-performing solar panels from a manufacturer who is financially stable and certain to stay around.
We are proud that REC fulfils these requirements: we produce high-performing solar panels in our Singapore plant and offer an industry-leading product and power output warranty. REC is well positioned to manage these challenging market conditions and has a strong financial position compared to our industry peers.
REC, as an environmentally responsible company, also feels much more can be done to improve energy efficiency in Asia. Measures can be small-scale and still be effective – everything from improved insulation in housing, to educating people on both the private and commercial levels as to why and how they should save energy.
This will slow the energy demand, ease the strain on hard-pressed grids, and make for an environmentally sustainable solution.
Another challenge for the industry – not just in Asia – is the dependence on subsidies. Subsidies do have a vital role to play in getting a country to the position on its solar development trajectory where it would like to be. This holds true for a variety of countries across the Asia region, where energy policies and incentive programmes such as those in Japan are bold in scale, framed by the nuclear disaster of early 2011.
However, with prices now lower, solar energy can increasingly compete without subsidies. This is a challenge to many of the players in the market – and inevitably many will not survive once the flow of subsidies dries up. To be viable into the future, solar will have to work toward a world without subsidies, with technology that is able to survive alone.
This is a key opportunity for the strong players – and we count REC among them – to show the value of solar.
Making solar mainstream
Much work also remains on overcoming the reluctance of utility companies to accept solar power. This may in fact be more of an issue in advanced markets such as Japan rather than in the emerging economies in Asia; utility companies in these countries, casting around for innovative ways to resolve energy challenges, are only too aware that a completely fresh approach, such as solar, is an answer. Could Asian utilities leapfrog their equivalent companies in Europe, and fully embrace smart grids? As solar energy gains more ground in markets such as India, there will be myriad smaller, distributed power generation facilities – some in previously un-electrified spots – feeding power into the grid, and smart grid technology provides greater flexibility for handling these complex network topologies with infeeds from many small-scale sources. New approaches to demand-side management and power storage will also be key in better managing the peaks in energy consumption.
These solutions take solar energy to a new level. The industry will create value by providing customers with complete solutions for their energy needs. Manufacturers who have acquired broad experience with projects in strong markets in Europe, and can contribute their experience and expertise in new emerging markets looking for fresh approaches, are those who are likely to reap the benefits as Asia’s journey to solar energy gathers speed.
Tim Ryan is senior vice-president of Sales for the Asia Pacific region at REC, For more information, visit www.recgroup.com.
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