By Jon Guice, PH.D. with Larry Sherwood, Anneke Hohland and Eric Paul
For every successful new market entry, several others fail. This is true for established products in new territory and for entirely new products. It is also true for established companies and startups. Market development strategies and market entry decisions are some of the most complex, high-risk and high-reward issues that business people ever face.
In solar power, most people understand that there is not one market in the United States but many. American states and regions have diverse and rapidly-changing markets, public policy support and regulatory regimes. This makes the U.S. a particular high-risk--and high-reward--location for solar businesses.
AltaTerra Research works with a variety of clients from around the world seeking to bring an established product to the U.S. and U.S.-based companies launching a new product in their own country. In this article, guidance for working in the American solar market is presented.
First, a strategic observation is presented, which is that solar electric--as distinct from various types of solar thermal technology--is the touchstone solar technology in the U.S. and will probably remain so for at least several years. This observation has implications for a wide range of market-entry issues, including product design, channel development, partnerships and policy engagement.
In the bulk of the article, fresh data on actual solar installations is presented. Data through 2008, estimates for 2009 and projections for 2010 are examined, focusing on Photovoltaics (PV).
Table 1. Five largest clean technology funding rounds: 2008 (Source: ClCompany websites; CCleantech Group, [http://cleantech.com/about/pressreleases/010609.cfm] and Climate Prosperity: A Greenprint for Silicon Valley, Joint venture Silicon Valley Network)
PV is the Standard Solar Technology
Long ago, a “touchstone” was a piece of rock that was used to evaluate the quality of gold. Today, a touchstone is any standard by which something is judged. In the United States, unlike other countries, photovoltaic technology is the model by which other solar technologies are understood and evaluated.
In 2006, in the United States as a whole, wind power grew 45% and solar electric grew by 40%. Nonetheless, PV is the leading growth area of renewable energy in California--the largest state market for solar technology and the center of solar finance and invention. At every stage of innovation--from research and policy to existing installations and distribution channels--the state’s renewable energy scene is dominated by solar electric power systems.
Even solar hot water, which was first patented near Los Angeles a century ago and now seen worldwide--except in the United States--is dwarfed by the solar electric market. Today, the vast majority of on-site renewable energy electric power installations in the state are PV--not wind power, for example.
PV has established distribution channels as well. There are scores of residential and non-residential PV installers. Solar hot water, small wind, and most other residential renewable energy technologies are generally carried by PV installers and distributors.
Venture investors are also largely oriented toward PV and related business models and solar technologies. The number-one renewable energy technology for venture investment to date--both in number of deals and amount invested--has been solar electric power. PV has been regarded as “the next wind power” in its potential for a high rate of growth globally. In 2008, for example, nearly 40% of all venture investment was in solar power, of which the great majority was PV.1) Of the five largest clean technology venture investments worldwide in 2008, the top three were in solar electric power (see Table 1).
Public policy is also predominantly oriented toward solar electric power. Much of the existing infrastructure, venture investment, policy, and the attendant press oriented toward PV.
This situation will change somewhat over the next several years as other types of renewable energy come on line--particularly on a large scale, as with wind and biogas. However, for the next few years, and certainly for small-scale and residential technologies, PV will continue to dominate other forms of renewable energy in California and the rest of the U.S. We see growing potential for solar thermal, hybrid and other solar technologies over the next decade--and we are actively engaged in these markets--but advise our clients to include interactions with PV markets in their plans--because success in market entry depends on it.
Figure 1. Capacity of annual U.S. photovoltaic installations, 2004-2008
(Source: Interstate Renewable Energy Council, presented in AltaTerra Research webcast by Larry Sherwood (https://altaterra.yourmembership .com/store/view_product .asp?id=386598))
Growing Again
Recently, AltaTerra Research presented a national web conference on the American solar market with Larry Sherwood, author of the annual “U.S. Solar Market Trends” reports published by the Interstate Renewable Energy Council (IREC). The information on actual installation data collected from a wide variety of sources and locations in a highly diverse and fragmented national market is briefly shared here. In these highlights, we focus on the market for grid-connected Photovoltaics (PV) in the U.S. Within the scope of the U.S. market for grid-connected PV, the insights provided here include actual data through 2008, estimates for 2009 and projections for 2010.
Data through 2008
The data presented in this web conference come from Larry Sherwood’s ongoing work with IREC, and are based on a wide variety of about 40 sources around the country, including government sources and analysis of actual installations. Some of these sources are publicly available, such as the California Solar Initiative database, which is updated weekly. While anyone can access the data from these public sources, it is a challenge to understand and compare the data due to differences in reporting. For the purposes of the web conference, for example, all data was converted to DC watts. Another challenge in analyzing the data for PV installations is determining in which year the installation happened since most of the data comes from incentive programs. We attribute installations to the year in which payment was made. The installation of many projects near the end of the year makes a big difference in how many installations are accounted for in each year.
As shown in Figure 1, the total capacity of off-grid PV installations in the U.S. has been growing at a modest rate over the past 5 years. The real story is the growth that has been occurring in the grid-tied market. Prior to 5 years ago, off-grid installations accounted for more than half the market. In 2008, they accounted for only about 15% of the market.
Figure 2. Capacity of annual U.S. grid-tied PV installations, 2004-2010
(Source: Interstate Renewable Energy Council, presented in AltaTerra Research webcast by Larry Sherwood (https://altaterra.yourmembership.com/store/view _product .asp?id=386598))
Projections for 2009 and 2010
Figure 2 shows installed Megawatt (MW) capacity for grid-tied installations through 2009 and 2010 (estimated). The data is broken down by residential, non-residential and utility installations. Residential and non-residential installations are defined as on-site installations on the customer side of the meter. In utility installations, the power goes into a bulk power market and is resold by the utility to its customers. Utility installations include fields of PV panels, and some instances of utility installations on customer buildings.
In 2008, the residential market was a little more than a fourth of the total market. The non-residential, commercial and institutional market was the largest portion, with most of the largest installations financed through Power Purchase Agreements (PPAs). In 2009, we do not expect much change in the distribution of the market share between residential, non-residential and utility installations.
Despite the dire press about what is happening in 2009, the reality is that 2009 has been a good year for installations in the U.S. Based on available data for installations to-date, known installations that are in the pipeline, and announced large projects that we expected to be completed by end of 2009, AltaTerra Research estimates a growth rate of 25%-40% for 2009. This does not account for projects that remain under construction at the turn of 2009. While this growth is slower than the past several years, in which we saw growth rates in the 50%-75% range, it is still growth, which is especially good in hard economic times. In looking at individual incentive programs, every program is experiencing healthy growth rates of 25%-80%.
In 2010, we expect growth rates for grid-tied PV in the U.S. to accelerate up to and perhaps beyond the growth rates of previous years. Module prices are decreasing, opening up new market opportunities. The federal stimulus is also going to have a big impact. For example, the rules for the cash grant program, which is being offered as an alternative to the federal tax credit, were just announced in July, 2009, so most projects under that program would not be installed until 2010. The utility-scale market is projected to grow to 300 MW by 2010. There are also a number of federal installations on the horizon, with direct funding being provided for solar projects on government buildings. In addition to other federal and state programs and the ongoing popularity of incentive programs, all signs point to a good year in 2010. Overall, AltaTerra Research anticipates a U.S. grid-tied PV market on the order of 1 GW (1,000 MW) in 2010.
This may leave some readers wondering why AltaTerra Research’s expectations for 2009 and 2010 are lower than most projections from other analysts--particularly those that are taking positions in relation to publicly-traded stocks. Part of the answer is that the information presented here is based on bottom-up analysis of the market, a much more data-intensive approach than the top-down approach used by many stock analysts.
For further details, you can find the complete presentation and archived recording from the web conference at AltaTerra Research’s website. The full conference included state-by-state market data, issues such as financing, module prices and project size growth, trends and connections to solar thermal markets, and key factors driving the market in 2010 (https://altaterra.yourmembership.com/store/view_product.asp?id=386598).
Jon Guice is Managing Director of Research at AltaTerra Research (www.altaterra.net), where Guice and his colleagues work with a variety of companies in the U.S. solar market entry. Guice has more than a decade of experience in early-stage product and market development and is a frequent speaker at national and international conferences in the solar industry.
REFERENCE
1) Source: Cleantech Group (http://cleantech.com/about/pressreleases/ 010609.cfm)
For more information, please send your e-mails to pved@infothe.com.
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