Government initiatives and Socio‐political dimensions
The countries discussed in this study are at different phases of solar energy
development. Germany leads the nations in installations of solar panels (PV) with roughly half
the world’s installations and is the third largest producer of solar cells and modules, after Japan
and China. Government and people are enthusiastic in using solar energy and R & D is fuelling
new technologies and new companies.
Government and citizens of USA are trying and testing different technologies to
suit the vast requirement of energy. USA is the biggest consumer of energy in the world.
Incentives and aggressive programs in some states (especially southern states like Nevada,
Arizona, and California) are creating possibilities for various technologies to get tested (recently
Nevada One for CSP demonstration). Venture capital of around USD 3.4 billion was invested in
2007 alone in solar startups. Government is under pressure by interest groups like the solar
industry, green groups and green politicians to give a full hearted support. Oil industry has
created two pronged strategy of lobbying for more exploration opportunities in restricted areas
(Alaska), and on the other hand creating solar divisions within the companies to project a green
image and to take advantage of the growing solar industry.
India along with China is the fastest growing consumer of energy in the world.
With around 8 % GDP growth for last decade and burgeoning middle class, it is set to become
one of the largest market for energy, the gap between supply and demand is huge, and the
Indian Government having realized that has recently pushed for solar energy programs. The
Indian market is untapped, its solar industry is nascent, and with high insolation and an average
250 days of sunlight it can become the most attractive target for solar products in coming
decades.
Germany:
Factors driving the growth of German Solar Industry:
 Energy crisis: The fossil fuel ( Oil) energy crises of 1973‐74 and 1979‐80 with severe
economic impacts led to the emergence of renewable energy sources as potential risk
reducers.
 International initiatives: Kyoto protocol and commitment of Germany to reduce
greenhouse gases by 21 % from 1990 emissions levels within 2008‐2012.
 Promotion of Renewable energy technology: Start of government support in 1974 for
R&D for wind turbine development with initiative like GROWIAN (wind plant project).
This became a reference point for support for renewable energy program including solar
energy programs.
 Feed in tariff programs: Federal Electricity Feed Law (StrEG) adopted in 1991 became
the most important instrument for the promotion of renewable energy in Germany
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during the 1990s.The successor to StrEG , EEG program, aims to facilitate a doubling of
renewable energy’s 1997 share in the power generation fuel mix by 2010—to a
minimum of 12.5%. (see Appendix Government A). [ Feed-in tariff is an indirect subsidy to
the producers of solar energy by spreading the cost of production over all the consumers ]
 Political development: The election of Germany’s Red‐Green coalition government in
1998 brought with it additional policies and legislation promoting the growth of
renewable energy. For example, the 1999 Ecological Tax Reform (ETR) initially increased
the taxes on motor fuels, fuel oils, and natural gas, and also levied an electricity tax
across all sectors
Policies:
Germany has relied on a combination of five primary policy instruments for the promotion
of renewable energy:
• Direct investment in R&D;
• Direct subsidies;
• Government‐sponsored loans;
• Tax allowances;
• Subsidies for operational costs/feed‐in tariffs.
EEG : EEG was adopted in April 2000. The EEG aims to facilitate a doubling of renewable
energy’s 1997 share in the power generation fuel mix by 2010—to a minimum of 12.5%. Unlike
that of the StrEG, the EEG’s remuneration system is not based on average utility revenue per
kWh sold, but rather on a fixed, regressive feed‐in tariff for renewable sources. Low‐cost
renewable energy producers are compensated at lower rates than higher‐cost producers,
providing strong incentives for the development and operation of renewable energy
installations on lower‐quality sites. Also, under the EEG, grid operators are obligated to
purchase power from local producers; a nation‐wide equalization scheme has been
implemented to reduce the cost differentials paid by grid operators in different parts of the
country for the purchase of renewably‐generated electricity. Recent amendments for 2009 and
onwards has been passed as “sliding scale for digression” (see Appendix Government B for major
European countries).
Consumer preferences
 Increasing efficiency, hence lower cost per unit, of different technologies is a major
attraction for switching to solar energy. In addition grid parity is predicted to be reached
between 2012 to 2015 [ see feed‐tariffs appendix]
 Government’s incentives and subsidies are push factors for demand; they do not pull
more consumers as is generally thought of. So, consumer’s awareness becomes critical for
growth of the industry.
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 The high level of public awareness over greenhouse effect and global warming is
impacting the trend of usage and source of energy. This will be a major driver of growth in
renewable energy sector.
USA:
Factors driving the growth of the American Solar Industry:
 Soaring Oil costs: The prohibitive cost of oil (reaching $4 /gallon) in recent years and the
import bill of USA are the push factors for the US government to look at alternative
sources of energy, seriously. Though wind and solar programs and research started way
back in 1960’s, it was mainly confined to space application and demonstration
technologies.
 Costly alternative fuels: Bio‐fuel has been an option but the concerns about ethanol as
fuel (in particular, which was first used in Brazil) being too costly in terms of growing
cost, cost of land, lost nutrition in soil (due to extensive corn farming) and socio‐
economic cost of lost opportunities in developing countries (with less land area),
feeding USA’s requirement has become highly controversial and has forced the
government to look at wind and solar energy as alternatives.
Oil from bitumen, tar (Venezuela), Shale (propositioned by some like IHS’s Daniel Yergin) is not
recoverable practically. Mr.Yergin only points to capacity and not real recoverable oil.
Additionally, environmentalists are lobbying against exploration of oil in unexplored/virgin
territories (Alaska, Antarctica) and also from sources such as sand and tar .Oil from coal and
clean coal technologies are in laboratory experiments, unproven for production.
 Solar energy incentives and programs: USA federal governments and states
governments (specially six southern states) have incentives, tax breaks, loans, grants
and subsidies for solar energy installations for commercial and residential purposes (see
appendix). A bill has been introduced in US congress for 10 million solar roofs by 2018.
 Political pressure: Al Gore and many other politicians have started a campaign for
renewable energy. The move is supported by the renewable energy industry and
environmentally conscious public (realizing the high social and economic cost on the
nation, not to mention their own personal woes). The credit crunch and housing crises
have furthered the clout of these politicians.
(see Appendix Government C for Programs and incentives )
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Consumer preferences
 Rate of return on investment and no fuel requirement the driving costs for general
population in USA (even Massachusetts where average sunshine is less than 5 hours
on a yearly basis). Especially PV module with 25 years of guaranteed service is a major
pull.
 Social consciousness and “green” image [being seen as “forward thinking” symbol]are
major attractions for consumers but these have a long way to go.
 Tight government regulations and fines on industries are forcing industries to reduce
their carbon emission burden on environment as a precautionary measure. In the long
run, the industries are trying to reduce their fuel bill and build a green image in the eyes
of their employees and consumers. It is not merely CSR.
India
India Beckons: Factors driving growth for solar energy in India
 Government Policy: Recent announcements by the prime minister of India for NAPCC (
national action plan for climate change) include a National Solar mission. (See Appendix
government D for details). This has encouraged the industries to invest in solar energy.
 Insolation: High insolation (sunlight’s intensity) on majority of India’s land, its 400
million middle class and another 500 million people in rural areas make India as an
attractive solar investment destination. With an average of 250 days of sunlight and an
intensity of 4 to 7 kWh/m2 it is one of ideal locations suited for solar energy growth.
 High Oil import bill: India is dependent on other countries for oil. Its large population
and increasing GDP per capita have further contributed to its high consumption of oil.
This year it cost 6% GDP of India, to import the required oil (around 73 Billion $
estimated for 2007‐08 Fiscal year1).
 Cheap human resources and technical talent: Talent and cheap labor make India a very
attractive destination for solar energy.
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Following recent NAPCC announcements, big industrial houses like TATA Power, Reliance
Industries, and ADAG (Anil Dhirubhai Am200abni Group) have announced investments
worth USD 6 billion.
Consumer Preferences
 Rural citizens with little or no electricity and farmers could be the largest segment to
be tapped for off‐grid applications. Necessities like powering the water pump, light
bulbs, televisions can generate huge demand
 Solar water heating has the potential to pull in urban populace’s demand, which can
become a starting point for usage of solar technologies for house electricity
consumption
 Industries though aware don’t want to invest in green technologies as there is no
social pressure now. But the awareness of public and media is increasing, which can
be a push factor for industries to adopt solar technology. Brand image is another
factor which will force the industries to rethink their strategy
 Government itself is very big consumer and by adopting the technology itself, it can
pull the general consumers and push the industries (indirectly by creating pressure)
in adopting the solar technology.
Conclusion
Solar energy industry is a nascent industry with great potential to grow. The growth
can be propelled by initiatives and programs by governments, which can provide both pull and
push factors for demand. Feed‐in tariffs, green image and subsidies can drive the growth in
initial stages but long term sustainable growth is possible only with mainstream acceptance of
the technology. Acceptance will come from sustained government effort (such as tax
breaks/holidays), economical cost for end users, ease of use and awareness of ecological cost
amongst citizens and industries. Quota allotment and aggressive push by the government can
work for the short term (as in Spain) but long term growth is possible only by adoption by
citizens (Germany).
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Issues and Challenges for Solar energy Industry and Players
1. Cost: Grid parity or cost of solar energy equivalent to cost of current energy
resources is a major challenge. In august 2008, solar electricity cost was around 21.3 cents Kwh
1
, which is 5 times the normal price of electricity generated by fossil fuels. Even power
generated through CSP (proven) and CPV (unproven in the field) technologies is above8
cents/Kwh. This makes it unacceptable for most of the citizens of developing countries like India
and China, where most of the demand in future would be generated (India and China combined
energy needs would grow by 40 % by 2030, IEA Energy Outlook 2007). German citizens and
industry would feel the pinch as the subsidies and feed‐in tariff are reduced and cost will
increase. USA will remain the 2nd largest consumer of energy in 2030. So it becomes imperative
for cost of solar energy to be equivalent to cost of energy generated by fossil fuels. Economies
of scale (increased usage) and advancement in technology can achieve that objective. Balance of
system components (BOS‐ components which are not PV modules or Turbine/transmission
system in CSP/CPV) cost between 20‐70 % depending on technology and country. Efficiency and
economical integration of components like inverters, batteries become crucial.
1.1 Economies of Scale: This is a complex issue as it’s inter‐twined with cost of the system
or electricity generated. Increasing of the scale can reduce the cost and reducing of the cost will
increase the usage. It is a vicious circle.
1.2 Dependency on Government incentives: As it is a new industry and it started growing
in response to increasing cost of oil, more greenhouse gas emissions and climate change, the
government support is sustaining the industry now. If the cost of solar energy does not decrease
or cost of the oil goes down, the incentive for government and public support may go down,
leading to limiting the growth of the industry
2. Sunshine and Insolation: According to IEA area between 30˚ North and South of
equator, is the best for generation of solar energy. Insolation or amount and intensity of
sunlight vary across the globe and during seasons, Local conditions also are a major influence
factor. So each country and area needs to adopt different technologies for generation of
technology. Areas beyond 60˚ N & S have to depend on summer time for generation of
electricity.
3. Installation: Installation and integration with buildings, structures remain a major
challenge. Technology cannot be fully combined without sorting out issues like aesthetics, area,
degradation of cells/systems over time, trained personnel.
4. Integration with power grid: Integration with power grid is one of the challenges of PV
or upcoming technologies in rooftops/residential systems. This is because when power is
withdrawn or fed into the grid system frequency of the grid fluctuates, leading to destabilization
of the system.
5. Unproven Technology: Many technologies claimed as successful in lab has not yet been
proven in the field. The results in the filed can be different or not as positive as in lab.
Integration with other technologies and grid supply also can be challenges to the industry.
1 www.solarbuzz.com, august 2008
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6. Weak supply chain: Weak supply chain (especially in CSP) due to cyclical activity
development has led to dwindling of equipment vendors. To meet the projected demand,
manufacturing capacity has to be expanded (for CSP).
7. Lack of adequate land close to load centers: Lack of land for installation of solar farms
projects (especially in countries like India, where land is costly and unavailable) close to
consumption/population centers add to the cost of electricity. This is a major constraint in
development of solar farms, which has the potential to reach grid parity.
8. Lack of spending power and Financing options in developing countries is an impediment
to the growth of the solar industry in countries like India and china.
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Strategy Challenges for Solar Energy Players
“Global energy system is on increasingly an increasingly unsustainable path. Challenge
for all countries is to achieve transition to a more secure, low carbon energy system.” –World
Energy Outlook 2007, IEA. Different scenarios predict world’s installed solar energy growth to
35Gw to 40 Gigawatt by 2015.
In 2007, world installed 3.5 Giga watt of solar energy , 47 % of installation was in
Germany, Spain 23%, USA 10% and rest of the world 20%. India’s total growth was a meager 20
Mw out of total generation of close to 100,000Mw. Supply of PV systems in the world especially
polysilicon PV will be significantly more than the expected demand for three or four years
because of three factors. Huge capacity addition in manufacture of PV quality silicon (in
response to earlier shortage) in 2009, drop in growth rate of Spain’s demand due to end of
government’s enforced PV energy program (in September 2008) and uncertainty in US
government’s solar energy policies.
The above information is not a cause of concern but a cause for optimism for solar
energy industry as medium term opportunities are huge. Economic, social and ecological
consequences of past energy usage pattern would force the countries and their populace to
change their habits thus even impacting big energy players (companies and consortiums like
OECD). So what could be the strategy challenges for present and future solar energy players in
this age of rapid change and uncertainties?
Countries
Germany: The growth rate of nearly 25% is not sustainable after 3‐5 years due to two
factors. As Germany has been a leader the huge growth in solar installation means that the
demand will not be at the same level as previously. 25‐30% of demand by 2015 would be
generated by Germany.
USA: The uncertainties of government policies in USA have been a dampener in the growth
of different solar technologies and growth of demand. Yet, some political initiatives like Million
solar roofs “program creates long term optimism. The increased insecurity of USA due to
changing geopolitics of Oil would lead it to support energy self reliant policies. Different
intensities of sunlight generate possibilities of deployment of different technologies, thus
increasing power generating potential. Rising concern over CO2 emissions is another push factor
for development of demand for clean energy. 10‐15 % share of potential demand would come
from USA by 2015.
India: The country’s recent program of 1 Gig watt/year installation shows that the second
largest populated country is accepting the fact that its own resources of coal and hydro power is
insufficient for its power needs, where there is a demand supply gap of 14% at peak loads.
Secondly, amount of insolation and “sun‐days” (average 270 days) are big natural drivers for
growth of technologies like CPV, CSP and PV. Rising number of litigations over hydro power
projects, low quality of coal high, air pollution, deforestation and increasing oil dependency of
the country are push factors for generation of clean energy. Off grid usage in water pumps for
agriculture, rural electrification; demand for water heating in urban areas are pull factors in
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India. India has the potential to consume around 7‐10 % of demand if it starts fulfilling its target
of installing 1 Gigawatt of solar energy, by 2015.
45% of demand would come from the rest of the world; so which would be the other
potential consumers of solar energy? China with its huge energy demand, France with its shift
towards renewable and moving away from the last coal‐based plants , Greece and Italy ( wsj
august 2008)2 due to abundant sunlight, Australia with opposite seasons as northern
hemisphere and good amount of sunlight ( specially in south and west), Japan with commitment
to greenhouse gases would be other major consumers.
Strategy Scenarios of Players
Due to rapidly rising demand, different usages, and uncertainties arising due to government
support and high cost, solar energy players have to adopt strategies supporting their long term
and short term goals. Grid parity will remain the most important concern for any technology.
Now we look at strategy scenarios of three broad segments of solar technology.
Mono and Poly silicon photovoltaic players
Silicon technologies will remain the biggest players until 2015, though their share would
decline due to advancements in other technologies (like CSP) and cost reduction.
1) Geographical expansion‐‐‐‐ Cost of PV modules have also been high due to low economies
of scale. Geographical expansion into new markets like Australia, India, and Greece etc
would allow low cost and price and thus further penetration.
2) Alliances across the value chain‐‐ Alliances of companies across the value chain (from
silicon ingots to wafers to systems to installations and services) would build a strong
supply chain and create stability in the industry.
3) Consolidation ‐‐‐ Consolidation of the industry with 1) mergers and acquisitions 2)
melting away of different technologies and companies due to obsolescence and low
economies of scale, would benefit the mono and poly silicon manufacturers.
4) Integration with players in conventional and renewable energy segments: Combination of
solar technology with other renewable energy segment (like wind) or/and conventional
energy companies like coal and hydropower would result in more acceptability and
growth.
5) Creating new opportunities with different industries: Powering industries like telecom
and sea water purification could create applications in a wider dimension leading to
spread, image and growth.
6) Taking different solar technologies in their fold: Big silicon PV player could think of taking
different technologies into the fold of the company to cater to different geographies and
usages.
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Thin Film players
Besides geographic expansion and alliances with conventional and non conventional
energy players thin film could consider any or combination of strategies:
1) Target segment focus: Targeting a narrow segment (like commercial buildings or less
intense sunlight area of the world) could give the thin film players two advantages; a)
Avoid direct competition with established technologies like silicon PV, b) Establishing
the industry in a new field .
2) Creating new products: Thin films have flexibility, this property can be used to create
new product segment such as low power devices, military applications and integration
with mode of transportation such as ships, planes and automobiles.
3) Competing with Silicon based players: The third scenario could be direct competition
with silicon players in the big domains like residential and commercial space. Specially,
commercial users would like to have more energy (Kwh) rather than high cost of
installation ($/watt).
Concentrated solar power (CSP) and Concentrated Photovoltaic (CPV)
These technologies are centralized power productions oriented and can be integrated
easily with current power production elements of the system such as turbine (Rankine cycle,
such as Stirling dishes for CSP) and existing power grid.
1) Power purchase agreements: One of reasons of high cost of CSP and CPV technologies
are their huge project development costs and a few installations, leading to high
components cost. When these technologies would be implemented on a larger scale,
they have the potential to produce electricity at grid parity. Long term power purchase
agreements would propel these technologies to be cost effective and also attract more
financing options.
2) High solar insolation areas as markets: As CSP and CPV depend upon high intensity of
sunlight, the companies should concentrate on geographies which have high insolation
and have large areas for installation. In future it can be built on land earlier used by
fossil fuel power plants.
Emerging Technologies
Emerging technologies like Nanofilms ( Nanosolar) , Organic PV ( Konarka Tech), XCPV,
Micro CSP have the potential to create new standards in the field.
1) Applications and integration: The main strategy of new emerging players would be to
play on different applications other than electricity generation on large scale.
Organic PV or nanofims cannot generate large scale electricity like solar farms. So
applications like electricity windows, façade, etc and integration with the structures
or substrates become critical factors.
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2) Micro CSP and X‐CPV: Low Cost and integration with the existing power generating
system would be major factors in their acceptance. It may take 4‐5 years to develop
these technologies to be compatible with the existing infrastructure.
Utilities
Utilities have the potential to be partners for big scale power (solar farms) generating
players and technology (like CSP, PV and CPV).
Utilities by the virtue of their existing infrastructure could be very active partners
with Silicon PV and Thin film players, by entering into installation and integration and utilizing
the relationship with the end users.
Players should also focus on lowering barriers of entry through 1) development and
training of future solar energy professionals 2) develop and disseminate standard codes
and best practices to facilitate installation of solar technologies.
Partnering with industries and cities to promote installation could be a potent strategy,
which would also increase visibility and economies of scale of different technologies.
Conclusion
Strategy challenges in the rapidly evolving market and unclear government support makes
solar industry very uncertain for at least 4‐5 years but also poses a great expansion
opportunity, specially if the cost is brought down to conventional fuels and methods of
production. Emerging technologies such as organic PV, X‐CPV and Micro CSP have the
potential to transform the whole energy game with low cost, flexible design and ease of
use. Installation and ruggedness of the systems would be always critical factors in growth
of the solar energy industry. Public awareness and high carbon emissions are pushing the
government and industries to look at alternatives but low cost of oil (comparatively with
solar energy, despite the recent rise to unprecedented level) easy availability, established
industries centered on the production of fossil based fuel (like power plants, refineries),
high investments add to inertia against new sources of energy.
Next 4‐5 years would be very crucial for solar energy industry as it would decide what path
it choose to be an established source of energy for the world along with wind energy ( not
in competition with).
Right now the question is wide open and we have to wait and watch the one of the
greatest turns of history after information revolution. The energy revolution!
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