The global electric power industry is evolving from a financial and engineering model that relies on large centralized power plants owned by the utilities to one that is more diverse – both in sources of generation and ownership of the generation assets.
A new report from Pike Research details how the global electric power industry is evolving from a financial and engineering model that relies on large centralized power plants owned by the utilities to one that is more diverse - both in sources of generation and ownership of the generation assets.
Renewable distributed energy generation (RDEG) technologies represent a growing part of the new model for the electric power industry. Like any emerging industry, new policies and standards must be developed and practiced before the market can mature. Worldwide, utility companies and policy makers are testing programs and business models to support this industry.
RDEG stands in contrast to the traditional one-way power supply, as well as the traditional relationship utilities have with their customers. The transition to a more distributed system of power generation will require the evolution of both technologies and business practices.
Overall, RDEG makes up a very small part of the current global electric power generation capacity but has the potential to play a much larger role in the future. While Europe and the United States are the largest markets for RDEG today, there is a growing movement to developing countries where electricity costs are high large percentages of the populations are without access to electricity.
Pike Research's analysis indicates that Europe will continue to be the largest market for RDEG during the 2012-2017 forecast period, but Asia Pacific will see the most rapid market growth across the three technologies covered in this report.
The year 2011 was one of tremendous growth for RDEG with 20.6 GW installed, representing $66.5 billion in revenues worldwide. More RDEG installations occurred in Europe than in the rest of the world combined. The impending reduction of lucrative feed-in tariffs (FITs) scheduled for 2012 in Italy and Germany, combined with record low solar PV installed costs, resulted in a record number of installed RDEG capacity for the region.
Together, Italy and Germany accounted for 58% of global RDEG installed capacity in 2011. The year 2011 marked the first boom year for domestic distributed solar PV installations in China, which accounted for 49% of all RDEG installations in the Asia Pacific region. The Asia Pacific region was home to an estimated 94 megawatts (MW) of fuel cell installations and Japan and South Korea are expected to lead growth during the forecast period.
The North American market was driven by the growth in popularity of solar lease models in the United States, Ontario's FIT, and historically low solar PV installed costs for commercial-scale installations, which resulted in the region's strongest showing yet. Despite the import duties on imported Chinese solar modules into the U.S. market, the country is expected to continue its growth in 2012.
In many ways, the overall momentum is shifting to RDEG sources that inherently provide consumers more control over the electricity they consume and generate. But in order to reach its full potential, RDEG will require new business models, technology development, utility participation, and investment in an uncertain economic climate.
Key Trends in RDEG
The global electric power industry is evolving from a financial and engineering model that relies on large centralized power plants owned by the utilities to one that is more diverse - both in sources of generation and ownership of the generation assets.
The following is a list of emerging trends that will shape the trajectory of RDEG technologies:
Growing awareness of RDEG technologies - A worldwide awareness of alternative sources of electric power is growing. This is particularly important to the development of RDEG markets because an investment in an RDEG technology is usually a personal choice made by the home or property owner (as opposed to the development of utility-scale generation). Lack of awareness of RDEG technologies is one of the biggest barriers to growth.
Price drops - Solar PV manufacturers have largely delivered on their promise to drive down costs and scale up production. Worldwide solar PV module production capacity reached an estimated 50 GW by the end of 2011 with approximately 60% of that total capacity added since the beginning of 2010. Module costs have dropped from roughly $4/watt (W) in 2006 to $1/W in 2011. Lower prices are opening up new markets for distributed PV, while helping the technology reach grid parity more quickly in high-cost retail electricity markets. The small wind industry should start to see turbine prices drop over the analysis period of this report, as manufacturing shifts toward Asia Pacific.
Leasing programs - Innovative financing options are emerging in RDEG markets that will make the technology available to more homeowners. Solar leasing companies, such as SolarCity, SunRun, and others are offering homeowners the option to have solar PV installed on their rooftops with little to no upfront investment.
Utility ownership - Utility-driven distributed solar PV installations are an emerging dynamic in the RDEG industry. The scale and ownership structure is different from the traditional rooftop market, and it has the potential to create significant additional market expansion.
Third-party ownership - Power purchase agreements (PPAs) are similar to leasing programs, but operate on a much larger scale. Developers enter into a contract with a local utility to purchase a specified amount of renewable energy. The developer leases commercial rooftop spaces and installs solar PV systems, essentially creating a distributed power plant that is connected to the grid. In these installations, the power is not generated for use at the host site. This type of business model represents a growing portion of the PV and RDEG markets and has the advantage of lower costs associated with larger-scale installations.
Community ownership - In the wind industry, a business model exists that is called community wind and is similar to the third-party ownership model. Community wind refers to wind generation assets that are owned by a group of local people - usually farmers and business people, and sometimes the municipality - who enter into a PPA with the local utility to sell the power. Common in parts of Europe, community wind is emerging in rural, windy areas of the United States as a vehicle for economic development.
It should be noted that a significant number of community wind projects, to date, have deployed utilityscale wind turbines as opposed to small wind turbines. This model is also gaining momentum in the United States with community solar PV installations being led by companies such as Tangerine Solar.
Governments rein in financial incentives - Like most energy technologies, RDEG technologies are reliant on incentives from the government in some part of the value chain. As RDEG technologies have become more cost effective, and amid a backdrop of government budget cuts, many governments are reining in popular FITs in leading markets. Germany, Italy, and China, have all retooled their FITs, often placing greater emphasis on on-site generation, which will have an effect of avoiding overheated markets. The industry is fully aware that lucrative financial incentives will not be around forever.
As a result, many companies see 2017 (the year after solar PV investment tax credits expire in the United States) as the year that solar PV will be able to stand on its own without subsidies.
More details on the Pike Researdh Report and information on ordering the full report is available at www.pikeresearch.com
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