European solar markets in 2009 – getting into the disco

There´s been a number of year-end solar reviews that have done an admirable job of summing up the market in 2008 (Greentech Media had a nice article here) while providing a view on industry growth for 2009. 

From a financing perspective it seems fairly obvious that the liquidity crisis will have an adverse effect on new project development worldwide for months and quarters to come. 

But this same financial downturn has yielded a nice bumper crop of cheap, quality PV panels with manufacturers desperate to sell excess stock. However, where to put them and what markets to focus on will plague many international solar developers.

From a European viewpoint, some of the markets that were once large off-takers of PV panels are going to be fairly quiet in 2009, Spain being the obvious example. Its 500MW cap and complicated feed-in tariff system/performance bond probably means that the envelope may not even be filled in 2009. I would imagine that 2010 will see some kind of resurgence as the government re-calibrates its quotas while promoters become more comfortable with the high capital requirements associated with the bond.

Italy, by comparison, has consistently been represented as some kind of VIP-room in the solar disco, and to the extent that you have to be Italian in order to get in, it’s probably an apt analogy. Real Estate promoters, VC firms, and others who are hoping to match the Spanish returns of the 2007 heyday, refer to the 12-14% unleveraged project IRRs that are achievable in the south of the country. However, access to MWs will be a problem for many foreign companies as the competition for these high-return projects is intense (and if you´ve ever been to Italy you´ll know that Italians are not inclined to form orderly lines when waiting for something). Furthermore, the forecasts of six months ago in which 450MW of PV would be installed in 2009 may have been over-enthusiastic. Given the credit crunch and the country-wide financial difficulties (public debt is at 104% ) the explosive returns could be paired down by a financially stressed government.

Germany by comparison seems to have a fairly positive outlook on PV projects in 2009 though it seems unlikely that the year will bring the equivalent 1500MW that were added in 2008. Then again, maybe 2009 will be strong… If investor confidence has become eroded in traditional financial instruments, Germany may see a surge in investors seeking relatively safe investments before the additional tariff reductions are executed in 2010. By most counts, however, Germany is a mature market with an experienced and locally-grown industrial sector to support it. New international entrants will probably find the competition fierce.

France could be the dark horse of the European solar PV market. It recently re-issued its commitment to the feed-in tariff system thru 2010 and even added a commercial rooftop tariff of €0,45/kWh. Relatively speaking France seems to be a stable and viable alternative to markets in which stutter-steps and stumbles have been the norm. There is a large market opportunity for both ground-mounted and commercial rooftop installations that has not yet been utilized (there appears to be only one or two operating ground-mounted installations to date including a recently inaugurated 7MW installation). Speaking from personal experience, however, new project development is subject to heightened local sensitivities with regard to visual impact, job creation, and agri-enviro friendliness. As well, the grid is operated by a single French utility, EDF, making project success contingent on a promoters ability to manage a giant monopoly. It’s a complex environment where community integration and approval is even more profoundly important than in many other European countries.

Other markets like the Czech Republic and Bulgaria have made splashes in the last months, but as mounting public debt spurs on recession, there may be a backlash in the burgeoning solar sectors.  Greece may face similar issues…

Regardless of the country, my view is that successful project development in Europe really hinges on local connectivity and expertise. PV development is a relationship-driven industry with partners testing your permanence before committing to a long-term relationship. After all, if you want to drink in the VIP room it helps if the bartender knows who you are, likes your jokes, and trusts that you´ll pay the bill…