Solar Commoditisation: What’s Next?

Jan 21, 2015

Within the past 10 years, the solar value chain has transitioned from a technology-driven, specialized market towards commoditization with reduced capital costs, narrower price spreads, and standardized outputs.  Large-scale manufacturing, improved technology efficiencies, as well as shifts to cost-advantaged locations for production have continued to drive the industry.  Much of the exponential growth experienced in the solar industry has been fuelled by legislation and technology development, leading to the achievement of grid-parity in some locations as well as cost-effective PV manufacturing.  However, commoditization does not imply pending industry stagnation, rather, a pivot point to recalibrate policies and investments, focusing on the implementation of sustainable infrastructure and business models.  As lenders become less risk-averse towards the solar industry, due to greater market predictability than previously experienced as well as emerging  cyclical market factors, the barriers to project financing will continue to drop. 

Prior aggressive investments in polysilicon capacity (pinned on optimistic solar outlooks as well as material shortages) caused the PV industry to suffer from oversupply.  The shift from Europe, USA, and Japan to China and Korea – who now account for about half of global polysilicon capacity – is evidence of a growing global network that underpins technology developments and economically-advantaged regions for production, implementation, and export. 

Source: EPIA/Nexant

Historically, government policies have been the driving force behind solar PV demand, increasing the adoption of renewable energy portfolios or targeting solar specifically.  These policies have directed the competition of PV developers towards markets with the best incentives (e.g., feed-in-tariffs, tax subsidies, etc.).  On the back of largescale investments, advances in production technology – improved energy and raw-material efficiency, increased reactor sizes, and process integration – have caused solar capital costs to drop, resulting in the feasibility of grid-parity without the need for subsidies and rendering investment incentives less necessary for industrial growth.

However, policies will continue to play a pivotal role in the solar industry.  Currently, Saudi Arabia’s pending renewable energy policy (41 GW installed by 2032) can potentially boost the industry and attract world-scale investments, with many others already made in the US, China, Middle East, Malaysia, and Korea.  As cost reductions and advances in storage technology will serve to reduce the need for policy support via traditional forms of feed-in-tariffs and/or tax subsidies, the role of policy may need to change focus.  For solar to be a robust alternate (or potentially dominant) energy source, both policy makers and investors need to consider routes to fully leverage the potential of solar energy, its strategic market placement tied to technology, as well as its integration into global energy economies.