Behavioral economic theory holds that human interactions are complex
and that economic motivations include nuance beyond that of maximizing
utility. This is certainly true of the global solar industry as
throughout its history it has interacted within a context of
here-one-day-gone-the-next incentives and subsidies, expectations of
significant price drops, competition with well-subsidized conventional
energy technologies as well as a continuing perception among many that
solar remains a science experiment.
Solar industry participants have a preference for very big numbers and forecasts
as well as for optimistic outlooks for the future. Any deviation from
the celebration of really big numbers or any notion that strays from the
optimistic status quo is typically ignored. Cherry-picking facts — be they optimistic or pessimistic — to make a
point without considering context and nuance, will almost always lead to
poor decision-making.
Market research is about the study of behavior over time using data
and should consider luck, happenstance, nuance, unexpected events both
positive and negative as well as herd mentality and individualism. When
market research does not consider these things it is marketing.
A Little Behavior Cementing PV Industry History
During its more than 40-year history as a terrestrial source of
electricity, the global photovoltaic industry has existed in an energy
ecosystem in which demand for grid connected installations is driven by
incentives, while demand for off grid installations operates almost
entirely under free market conditions.
As PV industry incentives are inherently unreliable,
the effect has been to form an industry personality profile that will
engage in available demand even when this demand is not profitable.
Figure 1 presents global PV industry shipment, average module prices and cost behavior from 1974 through 2015.
Figure 1: Global PV Industry Shipments, ASPs and Costs, 1974-2014
The 1974-1984 timeframe represents the beginning of terrestrial PV
deployment and was dominated by off grid applications as well as
consumer indoor (calculators, watches, etc.). In particular, government
demonstration projects into grid connected applications as well as
consumer indoor growth dominated PV deployment. During this period,
grid connected application growth was 100 percent driven by one-off
utility and government demonstration projects.
From 1984-1994 there were relatively few government and utility
demonstration projects and few incentives. As a result, photovoltaic
crystalline and thin film manufacturers (primarily a-Si) priced modules
below cost and showed a willingness to continue producing and shipping
at negative margins.
The 1994 through 2004 period saw an increase in government legislated
incentives beginning with capacity based incentives and culminating
with the beginning of the feed in tariff incentive in Europe.
In the late 1990s capacity based (primarily rebates) incentives in
California, USA, Germany (100,000 roofs) and Japan (residential rooftop
program) drove accelerated demand for photovoltaic installations.
Germany’s program was accompanied by zero interest financing. In
Germany, the offer of zero interest financing encouraged demand for
residential installations to surge.
During the mid to late 2000s, the European Feed in Tariff incentive
drove demand to gigawatt levels and did it fast; too fast for an
industry used to start/stop incentives to do more than react to a
suddenly strong market. This period did not afford PV industry
participants time for planning or attention to quality and those who had
available capacity benefited while the rest played catch up. Prices
for all technologies increased and long-term contract prices for
polysilicon, wafers, cells and modules increased significantly.
Profitability was a new experience for PV industry participants and with
crystalline modules in short supply thin films became the hope for
future under the simple assumption that a-Si, CdTe and CIGS/CIS
technologies would be less expensive to manufacture. The turnkey
manufacturing model, primarily for tandem junction amorphous silicon,
gained popularity during this period under the, again simple, assumption
that it would allow new entrants with little to no PV manufacturing
experience to rapidly commercialize their products.
In the early 2000s, driven by incentives in California, Japan and
Europe, the industry transitioned from off grid to grid connected
deployment. One hundred percent of grid connected deployment during
this period required incentives. This period also saw the beginning of
multi-megawatt (utility scale) investor driven deployment.
From 2004 through 2008, the European feed-in tariffs (FiTs) drove global demand
with Europe’s share of deployment rising to over 80 percent of the
global total. The FiT incentive proved expensive to support and
governments eventually began instituting retroactive changes and rapid
reductions. The retroactive changes disappointed investors while the
rapid reductions in FiT rates cemented industry participant behavior,
that is, once a reduction was announced, participants would deploy at an
even more rapid rate, accepting lower margins as a necessary cost of
continued deployment. During this period the global photovoltaic
industry settled into a frenetic and often unprofitable behavior
pattern.
2015 to?
It is worth noting that the grid connected application continues to
require incentives. For the residential application in the US, the
no-money-down solar lease deploys a marketing come-on similar to used
car sales to attract customers. The point is that an economic stimulus
of some sort, even an illusory one, is still necessary to stimulate the
market for PV installations. The PV industry’s reliance on incentives
has created and fomented a specific behavior among the demand and supply
participants (manufacturers and those who buy and install modules).
When an incentive such as the ITC is set to time out or decrease
installation activity increases significantly. In the specific case of
ITC-driven projects that have a long development timeline deployment of
systems >50-MWp are stalling while deployment into the residential
and small to mid-commercial application, that is, systems that can be
installed by the end of 2016, is accelerating. The acceleration of
smaller system deployment gives the false impression that demand is
organically increasing.
Concerning pricing, PV industry participants have made promises of
rapidly decreasing prices for modules and systems that cannot always be
profitably kept. Forecasts in unstable and vulnerable industries such as solar are
highly uncertain and are prone to unexpected upsets and manipulated
outcomes via government action. Expectations for escalating deployment
have become so engrained that envisioning slower, healthier and
potentially more profitable growth has become an anathema to industry
participants and stakeholders – though privately the industry’s
traditionally low margins are not celebrated.
Near term outcomes are reasonably clear. The market for photovoltaic
deployment in the US will accelerate through the beginning of Q4 2016,
unless the ITC is extended at 30 percent. As incentives time out in
Europe, deployment will continue slowing while lawsuits over retroactive
changes to FiTs will continue accelerating. In Japan, rule changes and
the decreasing FiT is already slowing the market. The real question
about Japan is whether the landing will be hard or soft. In China, the
government may well tire of supporting the demand and supply sides of
its photovoltaic market. Demand in Latin America, for a variety of
economic and political reasons, has never been as strong as projected.
And so on and so forth … and yet, despite all the obstacles and
challenges, the global solar industry continues in part because of a
closely held belief that it is the right thing to do.
Government market and price manipulation, addiction to incentives and
optimistic forecasts aside, this last characteristic of the global
solar industry is not an illusion.
http://www.renewableenergyworld.com/articles/2015/06/behavioral-economics-and-the-solar-pv-industry.html