In the pursuit of net-zero emissions, countries across the globe are adopting renewable energy, with solar power accounting for the lion’s share. By end 2021, the world had installed 940 GW of operational solar energy. During the year, solar power installation surpassed all other conventional and non-conventional energy sources installed globally, according to a report by SolarPower Europe. Of the total 300 GW of new renewable energy capacity installed in 2021, over 56 per cent was constituted by solar (168 GW). However, despite significant growth over the past decade, solar energy roughly meets just 4 per cent of the global electricity demand, while over 70 per cent demand continues to be met by fossil fuels.
Supply chain constraints amid the Covid pandemic shifted the global political sentiment towards self-sufficiency and security in key industries such as energy and food. The recent geopolitical developments and soaring gas prices have further reiterated the criticality of energy security and energy independence for countries, worldwide. As a result, transition to renewable energy has become a priority for global economies not only as a means to meet domestic power demand but to also strengthen their economic and political position. Solar power is taking the lead in this regard. Over the past few years, while countries such as China and the US have maintained their leadership positions in the solar market, others such as India and Spain are increasingly becoming competitive.
This article identifies the frontrunners in global solar deployment, the key drivers of growth and the outlook for the sector…
Drivers of growth
Global policy orientation has witnessed a stark shift towards carbon neutrality over the past decade, leading to increasing impetus on renewable energy. The frequency of extreme weather conditions has increased and the rising likelihood of severe heatwaves across the globe has reiterated the need for reducing the dependence on fossil fuels and greening the grid. Power outages have also become more prominent. As a result, many countries have committed to achieving carbon neutrality. Achieving this does not only involve the greening of the power grid but also the greening of industries that use fossil fuels, both as a source of power and as a raw material. As a result, many companies are adhering to environmental, social and governance targets to reduce their carbon footprint.
While decarbonisation has been a primary driver for bolstering solar power, the sector has a larger role to play. Solar energy is versatile in nature and can be deployed in the form of rooftop solar, distributed solar, floating solar and agri-PV, thereby, providing power generation in rural and remote areas. Solar power can also improve grid resilience by using flexible automated grid operations supported by means of energy storage. Moreover, the cost efficiency of solar power has been another key driver for the sector’s growth. As per a recent report by the International Renewable Energy Agency (IRENA), the levelised cost of electricity (LCOE) of new utility-scale solar panels has dropped by over 88 per cent over the past decade. The cost reduction has been so severe in some regions that solar power has become cheaper than conventional sources of power generation and nuclear energy. Record-breaking bids have also been achieved in solar auctions. In recent months, higher fossil fuel prices, supply disruptions and geopolitical fluctuations amid the Russia-Ukraine war have highlighted the importance of renewable energy in improving a country’s energy security. Fossil fuel prices are also more vulnerable to market fluctuations as compared to solar prices, making solar an attractive option for potential investors.
China is leading the world, both in terms of the total solar power installations and manufacturing capacity. Chinese solar installations continue to be at an all-time high, with the country adding almost 55 GW of solar PV capacity in 2021, twice as much as the solar power capacity installed by the US, the second-largest solar market. According to REN 21 Renewables 2022 Global Status Report, distributed solar PV accounted for 53 per cent (29.3 GW) of the total installations in 2021, while the remaining 25.6 GW was attributed to centralised solar PV. In the first half of 2022, the country installed roughly 31 GW of new solar power capacity, bringing the total installed capacity to 340 GW as of June 2022.
China is well endowed with the key resources required to manufacture components across the solar supply chain. Its solar supply chain has evolved over the years, with the country possessing an 80 per cent share in all the key manufacturing stages of solar panels, according to the International Energy Agency (IEA). The Feed-in-Tariff Policy, introduced in 2013, has been a key driver for China’s solar energy growth. Moreover, the 12th Five-Year Plan of the country emphasised a green strategy to boost low carbon industries. Being home to the majority of big suppliers of PV manufacturing equipment in the world, China’s share of global polysilicon, ingot and wafer production is expected to reach almost 95 per cent. The IEA further states that until 2025, the world will almost completely be dependent on China for solar panel production. The country is also investing heavily in research and development vis-à-vis other nations. According to the National Renewable Energy Laboratory (NREL), in 2021, 10 Chinese companies spent over $7 billion in R&D, several times the amount invested in R&D by leading companies in the US.
China set an ambitious target of deploying 1,200 GW of cumulative solar and wind capacity by 2030. However, reports suggest that the country is all set to achieve this target well before the defined timeline. Under the recently implemented 14th Five-Year Plan, the country has approved massive GW-scale hybrid plants with solar PV and wind energy which will reach fruition between 2023 and 2030. Moreover, leading Chinese developers have committed a cumulative solar production capacity over 350 GW to be achieved over the coming year or so. However, the sector may face delays in execution due to the zero-Covid policy implemented amid the rising cases in China, at present.
The United States
The US is the second largest market for solar power in the world. The country is rapidly advancing in its renewable energy journey with remarkable growth in solar installations over the past two years. In 2021, the US witnessed a 43 per cent year-on-year growth in solar installations with new installations amounting to 27.3 GW, a bulk of which can be attributed to utility-scale projects. In the previous year, it had installed roughly 23.6 GW of solar capacity, reflecting a 19 per cent increase in 2021 vis-à-vis 2020. By 2030, the country aims to establish a domestic solar manufacturing capacity of 50 GW. Furthermore, the Biden administration has announced the country’s ambition to meet 40 per cent of the total electricity demand with solar power by 2035.
Solar energy is also receiving a major push from big corporates in the US as a result of the rising impetus on corporate responsibility and ESG norms. Estimates from the Solar Energy Industries Association (SEIA) suggest that US corporate firms installed roughly 19 GW of solar capacity in the first half of 2022, with Meta installing the highest capacity at 3.6 GW.
Moreover, the country is currently witnessing a major policy shift in favour of renewable energy. This is evident in the passing of the Inflation Reduction Act, in August 2022. The act entails $369 billion in spending and green-energy related tax credits. This landmark act is expected to play a key role in supporting the domestic solar supply chain in the country. However, the implications of the act may be moderate in the short term due to certain ongoing supply chain disruptions in the US solar market. The Uyghur Forced Labour Prevention Act has played a key role in this regard. According to a recent report by SEIA and Wood Mackenzie, these disruptions are likely to cause a 23 per cent reduction in solar installations in the US in 2022, as compared to the previous year.
Yet, despite a near-term decline in solar deployment, the US is expected to remain sturdy in the global solar market. As reflected in EY’s latest renewable energy country attractiveness index, the country continues to hold its position at number one for being the most attractive site for overall renewable energy investments in the world.
Japan was once a frontrunner in adopting green energy for power generation. However, the recent economic downturn and policy fluctuations have reflected negatively on the country’s renewable energy growth. At present, Japan is the third largest market for solar power globally. However, estimates by Ember suggest that solar installations reached their peak in Japan in 2015 with 11 GW in installations during the year. Since then, the country has witnessed a sharp decline in solar deployment with only 4.4 GW of solar energy installed in 2021. High costs, supply chain issues, weaker currency and grid connection constraints are key drivers of this trend. Estimates by BloombergNEF show that the LCOE for solar power in Japan is the second most expensive in the world, primarily due to high costs associated with land, labour and construction. The move from feed-in-tariff to feed-in-premium has also not worked in favor of the solar industry.
Moreover, in the aftermath of the nuclear calamity in 2011, the country has become largely dependent on fossil fuels to meet power demand. Concerns regarding destruction of habitat and deforestation have also created barriers for establishing new large-scale solar projects in the country. Subsidies for gas have also been introduced to meet power demand while containing the soaring price of gasoline. Nonetheless, the country is taking steps to promote distributed and decentralised solar installations. Recently, in a first-of-its-kind effort by the country, Tokyo’s local assembly passed a new regulation wherein all new residential establishments built in the capital by large real estate builders after April 2025 will have to install solar power panels to reduce residential carbon emissions.
Over the past 30 years until 2020, greenhouse gas emissions in Japan have decreased by 10 per cent. However, a major chunk of this reduction is attributed to Japan’s economic slowdown and shrinking population. The share of renewable energy remains low. Currently, solar energy holds a 10 per cent share in the country’s overall power generation. Nevertheless, Japan aims to make 36-38 per cent of its grid green by fiscal year 2030. The country has also set a target to become carbon neutral by 2050. Going forward, to deploy solar power more rapidly over the coming years, it will be crucial for Japan to address the factors responsible for the high cost of solar energy in the country. Meeting a large part of the country’s energy needs through solar power would require land which in all likelihood exceeds the amount of land available for solar installations in the country at present. However, alternative sources of solar power such as rooftop solar and floating solar may be deployed to meet the country’s energy demand while ensuring the greening of the grid.
Over the past few years, India has managed to establish itself as a leading global solar power market, with over 61 GW of total solar installations at present. In EY’s recent Renewable Energy Country Attractiveness Index, India was ranked as the most attractive destination for PV investment, followed by China and the US. Moreover, the solar sector in India is rapidly diversifying with increasing investments and projects in rooftop solar, distributed solar, floating solar and agri-PV, in addition to utility-scale solar power. The C&I and residential segments are also picking up with the introduction of innovative opex-based business models.
Over the past decade, the scale of solar auctions has also drastically changed, with many large-scale auctions successfully conducted over the past two years. The tariffs discovered in these auctions have been remarkably competitive and often much lower than those in wind auctions. The lowest realised bid over the past year was Rs 2.17 per kWh in Solar Energy Corporation of India’s auction in December 2021.
The country has recently implemented certain tariff and non-tariff barriers to strengthen the domestic solar market. In April 2022, a basic custom duty of 40 per cent and 25 per cent was implemented on the import of solar modules and solar cells, respectively. The Approved List of Models and Manufacturers (ALMM) was introduced as a non-tariff barrier, wherein, only the models and manufacturers from the ALMM are allowed in projects supplying power to the government and other government-assisted projects. While both these barriers have been implemented in the right spirit to bolster domestic production capabilities and establish a thriving domestic solar market, the current limitations in the Indian manufacturing sector may not allow developers to reap full advantage of these barriers in the short term. Going forward, more enabling policies, innovative financial models, research and development as well as a well-equipped workforce will go a long way in ensuring India’s hold on the global solar market.
The European Union
Renewable energy has been regarded as a means to an end, that is, decarbonisation. However, now more than ever, it is also being seen as a key to energy security among European states, amid the ongoing gas crises and the Russia-Ukraine war. The REPowerEU proposal has set a target of achieving 1,236 GW of renewable energy capacity and increasing the share of renewables in final energy consumption to 45 per cent by 2030. Meeting these targets would entail the installation of roughly 600 GW of solar PV by the end of the decade. Furthermore, the European Commission has proposed a solar rooftop mandate for all commercial and public buildings by 2027, and for new residential buildings from 2029.
According to the European Market Outlook 2022 – 2026 Report by SolarPower Europe, Germany established 7.9 GW of solar capacity in 2022 and is Europe’s top solar market. The success of solar power in Germany has been attributed to attractive feed-in premiums and demand generated by self-consumption, in addition to soaring electricity prices and increasing competitiveness of solar power. With 7.5 GW of solar capacity installed this year, Spain is the second largest solar market in the EU. The rise in installations has been primarily driven by the utility-scale segment.
Poland ranks third with new capacity additions of 4.9 GW in 2022. A key driver in Poland has been the shift from net-metering to net billing. The Netherlands is the fourth largest solar market with 4 GW installed in 2022 and the residential sector taking the lead. The country has the highest PV capacity per capita in the EU. France, Italy, Portugal, Denmark and Greece are also among the top solar markets of the region.
Growth in Europe’s solar market has not been at par with the scale of growth in China and the US. Supply chain constraints, shortage in key components such as inverters, high module prices and heavy dependence on imports continue to be crucial challenges. According to Ember, despite the EU legislation permitting grants for renewable projects within two years, solar projects in the EU have witnessed delays up to four years. Despite such limitations, the current economic and geopolitical scenario seems to be in favour of rapid solar power deployment in Europe.
Globally, solar energy is driving the transition towards renewable energy. The outlook for the segment seems positive owing to the current geopolitical situation in Europe, soaring gas and fuel prices, and global climate commitments. However, at present, only a few countries have the capacity to manufacture/install solar power at a large scale. While China is likely to remain the leading solar manufacturer over the coming years, it would be interesting to see how the rest of the world catches up.
Facilitating funding pathways through various investment models will be crucial in this regard, especially due to the increasing significance of investing in R&D and technological advancements to maintain the competitiveness of the sector. Identifying materials which reduce the dependence of solar manufacturing on minerals such as silver would be a huge advantage going forward. Ensuring the recyclability and sustainable disposal of solar PV components at the end of a project’s life cycle is also crucial. Moreover, increasing automation and establishing smart grids may give rise to new cybersecurity challlenges, creating the need for robust cybersecurity infrastructure as the sector grows further. n