As 2022 drew to a close, trade body SolarPower Europe (SPE) released its “EU Market Outlook for Solar Power 2022-2026” report. Forecasting year-on-year expansion of 47%, SPE found that 41.4 GW of PV were installed last year. The association expects the 50 GW annual installation milestone to be surpassed this year, swelling to 85 GW in 2026.

As SPE remarks: “It is likely that Europe will remember 2022 as the year the solar age truly began.” And it is true that the numbers make for impressive reading. Indeed, with the forecasts made by SolarPower Europe, the International Energy Agency, and others having long underestimated solar’s potential, there is a considerable likelihood the 85 GW figure may be surpassed.

Broader geopolitical events that have set the stage for the emergence of the “solar age” in Europe and elsewhere in 2022 have highlighted the potential for solar and energy storage to meet the three demands of the “energy trilemma:” sustainability, affordability, and security of supply, as noted by SolarPower Europe.

However, it should be remembered that it is the incremental and stepwise progress made by solar innovators that has enabled our industry’s technology to meet those needs. We have delivered lower cost; higher power output; enhanced reliability; and a more stable, predictable energy supply.

This edition of pv magazine highlights such innovations in the seven categories of our 2022 Awards. The PV and energy storage solutions selected as worthy Award winners by our six independent juries do not represent any silver bullet to the many challenges of the energy trilemma. But they do demonstrate how relentless, incremental improvement can build unstoppable momentum. making solar and energy storage the extraordinary opportunity it is today.

While it appears that Europe, with war raging on its eastern flank, is truly awake to this opportunity, the hope is that other regions will come to the same realization – including the Middle East and North Africa region, which is in focus in this edition. As noted in the coverage, the potential of solar in the Middle East in particular is vast and it is my sincere hope that a “solar age” may dawn in that region soon.

The year 2022 was a watershed 12 months for energy storage and the massive increase in demand has left everyone clamoring for more. Scaling up supply proved to be a challenge and batteries became almost impossible to get hold of.

Despite the unprecedented reverse in the historic pattern of battery-pack price declines, analysts at BloombergNEF estimate demand reached 603 GWh in 2022, almost double the volume recorded in 2021. By the end of the decade, BloombergNEF expects annual energy storage installations to triple today’s levels.

Today, batteries are becoming a key grid asset, having demonstrated strength in supporting the electricity network even under challenging conditions. Innovation shows no sign of slowing and new features and business models are being explored.

Long-duration energy storage (LDES), the area in which today’s ubiquitous lithium-ion battery chemistry is least competitive, is the next frontier. Making LDES viable is no easy business. Solutions old and new are vying for market share, with some reporting more success than others.

Speaking of LDES, it comes as no surprise that the hydrogen hype continues. In this edition, we look into the pros and cons of the most promising electrolyzer technologies as well as considering Russia’s hydrogen export hopes and the plans the nation embarked upon – before its invasion of Ukraine – to convert its gas pipelines to carry hydrogen.

As a member of the pv magazine Global team, leading our energy storage coverage, it is a great pleasure to feature energy storage in such detail in these pages. The latest developments instill hope that the sector is finally taking off. Meanwhile, room is being made for alternative technologies to step up as energy storage assumes the role it is meant to play in the decarbonization of our electricity systems; an indispensable one.

Already, 2023 is bringing unprecedented development to the global PV market as forecasts for annual installations surge above the 300 GW mark. To meet this demand, manufacturing is ramping up across the solar supply chain. Encouragingly, the production capacity being added – plus existing lines being upgraded – are coming in the form of high-efficiency technology, driving solar’s competitiveness and resource utilization ever upwards.

Only a few short years ago, high-efficiency solar meant a passivated emitter, rear contact (PERC) upgrade or a switch from multicrystalline to monocrystalline wafers. Today, a wider array of technology is being pursued, in concert and in competition, as manufacturers vie for effective ways to deliver high-performance PV cells and modules while maintaining sustainable cost profiles.

This edition of pv magazine includes an update and overview of the high-efficiency PV landscape, from agenda-setting heterojunction developers to continued progress with perovskite tandem cells and insights into the mainstream manufacturers’ embrace of n-type (negatively-doped) technologies. Also, along the lines of a common pattern in PV technology – namely, “what is old is new again” – we consider the rapid development and adoption of interdigitated back contact (IBC) technology in and outside China.

The world of solar doesn’t exist in a vacuum. While international solar trade events are back on the agenda for many of us – a welcome return, most would say – they come against a background of heightened geopolitical tension and simmering trade disputes. Chief among these are mounting restrictions on the import of Asian solar modules to the United States and efforts to maintain solar supply chains free from the blight of forced labor and other unsustainable practices.

Against this backdrop of trade disputes, the generosity of the Inflation Reduction Act (IRA) in the US perhaps points to a more constructive example of international competition for solar jobs and development. With the IRA acting to pique the interest of investors, it will raise the stakes for other markets, such as Europe, as they look to lock in not only renewable energy security but also a sustainable clean energy future.

When faced with a crisis, speed is of the essence. At the SolarPower Summit in Brussels in March, International Energy Agency (IEA) Executive Director Fatih Birol delivered a “bravo” to EU member states, policymakers, and companies for what they had managed to achieve in the face of the energy crisis caused by Russia’s invasion of Ukraine. “And the IEA is very careful to give out ‘bravos,’” quipped Birol.

What had been rapidly achieved, the IEA head summarized, was a 38% decrease in Russian oil and gas revenues, a decline in Russian gas market share in the EU to 40%, a solar and wind deployment increase of 41%, an increase in heat pump sales by 40%, and an increase in EV sales by 15%. The “cherry on the cake” was that EU carbon emissions fell by 2.5% at the same time.

Given the need to continue deploying solar apace, it is fitting that the focus of this edition of pv magazine is solar projects. And there is much to make note of in the 2023 installation marketplace. There are innovative new ways in which solar can be coupled with other sectors, such as agriculture, and novel technologies are opening up previously unsuitable land to solar modules and trackers. Energy storage is also clearing the way for more renewable energy deployment and its growing role as an electricity transmission asset is encouraging.

Despite the positives, Birol noted that challenges still remain, not least the permitting time facing renewable energy project developers. Permitting could be eased by a more sophisticated, empathetic, and localized approach to gaining community approval. Other hurdles include the security of PV projects and the safety of components such as batteries.

On the solar manufacturing front, Birol noted that, “a big, big, big domination by one country,” poses the risk of replacing one energy dependency for another. The need for a more diverse PV production landscape has clearly been recognized by policymakers both in the US – with the Inflation Reduction Act – and now the EU, with the temporary relaxation of state aid rules. With new factories, however, comes new risk for product quality.

The April edition of pv magazine has, in recent years, been our “quality-focused” edition and the tradition continues this year across a range of articles. That is because while speed may be of the essence in this turbulent time, accuracy in execution is no less important across the whole solar and energy storage supply chain.

There is nothing quite like the scale that China can, and has achieved. With vast human and financial resources available, the country has built many things with an urgency the world has never seen before – from tech giants, to high-speed train networks, and vast urban centers, through to innovative manufacturing companies. And it has changed the world in many ways in the process.

Having identified the opportunity presented by clean technology and solar more than two decades ago, today China has built a dominant solar manufacturing industry. In support of this industry, along with its wider clean energy and emissions-reduction goals, it has achieved the world’s first 100 GW(AC) market for solar energy. It is a truly remarkable achievement and rightly recognized throughout this edition of pv magazine.

Robust growth, innovation, and ever-expanding application opportunities are hallmarks of the solar industry in 2023. Yet rising geopolitical competition and concerns about energy security are resulting in fierce competition for clean tech investment. India, the United States, and now the European Union have all stepped up efforts to encourage the domestic production of renewable energy and energy storage technology.

If these market innovations bolster investor confidence and cash flows toward innovative technology, new production techniques, diverse manufacturing clusters, and high-performance products, this will surely be a good thing. However, if it results in tariffs and trade barriers, then clean energy deployment may be inadvertently decelerated.

The modern solar industry has a history characterized, at times, by trade barriers. While it is important to protect against practices such as dumping and IP infringement, the industry’s achievements – such as the recent milestone of 100 GW(AC) – have been built on free trade, international cooperation, and the rigors of fair competition.

With the dislocation and disruption of the Covid-19 pandemic, ongoing climatic upheavals as the result of global warming, and the crisis posed by Russia’s invasion of Ukraine, the opening part of this decade has been tumultuous. And yet, the solar and energy storage industries have thrived.

What’s more, at the midpoint of 2023, the solar industry and distributed energy resources of all flavors are prospering like never before. While previously considered disruptive at best, and destabilizing by some, PV was seldom thought of as a significant solution to the pressing problems facing the modern world. How things have changed.

This year is shaping up to be yet another banner 12 months for solar. Conservative global market predictions see annual installations topping 350 GW. Policymakers are coalescing around the narrative that PV is a key solution to the pressing problems of our times: security of energy supply, decarbonization of our economies, and a tool to combat runaway inflation.

In Brussels in March (pictured), at the SolarPower Summit, this shift in thinking was apparent. A suite of policy measures is being enacted to support solar and energy storage deployment and manufacturing. Funds are flowing to our technology and companies, as they did in the best of times. Countries throughout Europe are exceeding all expectations for solar deployment, surging past the 1 GW installation mark.

As the The Smarter E trade show returns this month, bigger than ever before, it will be an occasion to celebrate this development and pv magazine will be covering all aspects of the event in our liveblog – which I strongly encourage you to follow.

However, we should be mindful of the ongoing, bloody conflict that is gripping Ukraine. We have partnered with Solar Supports Ukraine, which looks to bolster the war-torn country. The appeal hopes to raise the achievable target of €300,000 ($323,000), to equip Ukranian hospitals and schools with solar and storage systems. At the time of writing, donations are far below this figure. We, as an industry, are thriving. Now is the time to share the benefits of our technology and the windfalls of our success.

With one terawatt of solar having been installed globally, a milestone that was reached last year, it should come as no surprise that many new people are coming into contact with our technology each and every day. And with the second terawatt destined to take only a handful of years to be achieved, it is a pattern that is set to repeat.

Each summer, at pv magazine we like to provide an edition that brings fresh perspectives to the solar and energy storage industries – in the form of our “In Conversation” interviews. This year, that mission is fulfilled quite literally, with our focus, “beyond solar,” involving fresh voices and perspectives from outside of our industry. And the insights are, like our technology, illuminating.

Yet, unfortunately, while solar’s breadth and scope is increasing, installations remain rather concentrated, on a geographical basis. Efforts to grow solar applications in equatorial regions, where sunshine is abundant, have brought mixed results. And in sub-Saharan Africa, where the impact would arguably be greatest, solar’s progress has been poor.

This edition brings insights into some of these markets, including in the mobility space, for green hydrogen production, and offgrid application. And there is little doubting that the opportunities of powering energy-hungry Nigeria and playing a role in alleviating the outright energy crisis in South Africa are enormous.

I hope you enjoy this northern hemisphere summer edition of pv magazine global – which brings together July and August editions. I would also like to acknowledge the contribution played by two departing editors, Blake Matich and Beatriz Santos, who both left our global editorial team this summer. Blake and Beatriz are talented young journalists and writers and we wish them all the best.

Fortunately, and like our industry, new opportunities are always just around the corner. At pv magazine we are growing and the diversity on this edition’s cover is evident among our global editors and support teams.

Large parts of the history of the modern solar industry have been written by China’s manufacturers. Key developments such as the achievement of vast scale in production; the lock-step development of material, equipment suppliers, and manufacturers; and the adoption of technology such as bifacial cells and modules, took place in China and have changed the industry forever.

The rapid transition from multicrystalline to monocrystalline technology is another notable and transformational development. It is fitting, then, as we investigate the massive expansion of PV manufacturing currently under way, that we hear from the founder of the company that drove the switch to mono and changed PV forever – Longi founder and Chairman Li Zhenguo. His current visionary efforts are expanding beyond pure PV.

Notably, the current expansion of PV manufacturing is not only a Chinese affair. While most believe that the country’s manufacturers are unlikely to be rivaled, there are new solar factories appearing in other parts of the world – namely India and the United States. While driven primarily by protectionist policies and supportive subsidies, a more diverse geographical production landscape will likely serve the global energy transition well.

The current expansion of production is coming at a difficult time. While there is market expansion far and wide, a module oversupply dynamic is apparent. How it will leave the current manufacturing base, and new arrivals, is yet to be seen. What remains true is that technological innovation will continue to form the basis of competitiveness and the continued expansion of solar installations – and the latest developments in module encapsulation, metallization, and high efficiency cell technologies – such as TOPCon (tunnel oxide passiavted contact) and perovskite tandem – are covered in detail in this edition.

The pendulum has swung back. PV module prices are falling rapidly once again. After a period of pandemic-disrupted supply chain and supply constraint – and resultant higher prices – intense competition on cost-per-Watt has re-emerged.

The development may have caught some by surprise and will likely lead to a painful period for many. But it is not unfamiliar to others and will bring about consolidation and another reshaping of the solar industry.

At the same time, the size and sheer importance of solar as a source of energy generation is causing governments to intervene in the market in many different ways. This too will bring about much change. Tariffs, duties, domestic content provisions, and generous subsidies are all a part of various solar marketplaces – bringing pitfalls and opportunity by various degrees.

Predicting when supply and demand will return to balance is difficult. What shape the solar world will take once this oversupply cycle comes to an end is equally unclear. Some early signs are emerging of a more geographically distributed production landscape, however.

This development appears encouraging as shipping bulky PV components across vast oceans to market is both carbon intensive and costly. A more disperse distribution of manufacturing jobs will also spread the wealth that the solar industry is creating.

What is decidedly clear is that PV installation must continue to accelerate – both for the climate and for the industry to return to balance. This month's edition of pv magazine has a particular focus on solar installations in their most innovative forms. High-penetration rooftop markets, applications in the agricultural sector, co-location with energy storage, and solar-wind hybrid projects are all showing promise – and it is gratifying to feature them here.

The Invesco Solar ETF (TAN) fell by 6.6% in December, while the S&P 500 fell by 5.6% and the Dow Jones Industrial Average decreased by 4.8%. The top five solar stocks in the US market include SolarEdge Technologies (7.3%), Array Technologies (4.0%), JinkoSolar Holding (-0.5%), ReneSola (-0.8%) and Applied Materials (-4.4%).

US markets were down in December due to fears the US Federal Reserve might continue to raise interest rates. On Dec. 15, the California Public Utilities Commission voted to adopt the Net Energy Metering 3.0 (NEM 3.0) proposal. As a result, solar stocks further underperformed, as the plan limits payments for feeding surplus rooftop solar to the grid. Our checks suggest California solar could still be up in 2023, given an expected dramatic pull-in of demand, offset by our view that the fourth quarter of 2023 and 2024 solar demand could fall 30% year over year.

Regarding the Uyghur Forced Labor Prevention Act (UFLPA), our checks suggest the solar callouts are not good news for the industry, given that the US House of Representatives is now under Republican control.

JinkoSolar Holdings’ (JKS) initial UFLPA release in early December should lead to a ramp-up of imports, which will likely take a substantial amount of time. The UFLPA sentiment may have shifted to a less negative outlook, but we would not be surprised to see Tier 2 and others get detained. Multiple industry contacts have said that JinkoSolar Holdings’ (JKS) first release was roughly 10 MW.

We continue to expect Sunnova (NOVA), Sunrun (RUN), and SunPower (SPWR) to gain share, given their mature battery offerings and seasoned dealers capable of selling the value of resiliency. Overall, US solar in 2024 is expected to be down, Enphase (ENPH) and SolarEdge (SEDG) are net beneficiaries, with net California revenues likely up under NEM 3.0 vs. NEM 2.0, given the substantial increase in storage attachment rates.

The Invesco Solar ETF (TAN) increased by 9.0%, while the S&P 500 increased by 3.5% and the Dow Jones Industrial Average increased by 0.7% in the month of January. The top five performing solar stocks in the US market include: JinkoSolar Holding Co., Ltd. (38.6%), Canadian Solar Inc. (35.6%), Sunworks, Inc. (35.4%), Daqo New Energy Corp. (22.6%) and ReneSola Ltd (15.7%).

The Invesco Solar ETF increased significantly on the announcement that South Korea-based Q Cells will spend $2.5 billion on a massive expansion of its solar power manufacturing facilities in the US state of Georgia. Q Cells investment is the largest solar power investment ever in the United States.

To highlight US utility-scale segment strength, a module vendor shared with us recently that a large volume of product was just contracted at more than $0.40/W for delivery in the latter half of 2025. On the flip side, a large module buyer said that contracts signed with Chinese module vendors often result in painful contract renegotiation. Many customers continue to want and prioritize certainty of execution, and as a result we expect this to remain a tailwind for First Solar (FSLR).

Checks with a large supplier with substantial residential solar market share in Europe suggest that the company is planning for approximately 100% year-on-year growth in 2023. That said, a European distributor shared with us that the company is expecting a potential slowing of orders.

Backlogs remain huge, around six months, but potential risk is seen at around 25% of the backlog with over-ordering as 2022 came to a close. Moreover, European power purchase agreement pricing fell 15% in December 2022, and European natural gas pricing has declined approximately 80% since August 2022 with the warmer-than-expected winter. We continue to expect European strength in 2023, but flag the potential for a slowdown.

The Invesco Solar ETF (TAN) fell by 6.3%, while the S&P 500 increased by 0.1% and the DJIA decreased by 0.8% in February. The top five solar stocks in the US market include Generac Holdings (5.1%), Applied Materials (3.5%), Sunrun (-4.1%), SolarEdge (-4.4%), and Atlantica Sustainable Infrastructure (-5.5%).

Our checks with two distributors suggest that the European inverter business will grow this year. One European distributor highlighted full order books for 12 months, with the market working on a six-month backlog and installers turning away customers. Distributors had positive remarks about Enphase (NASDAQ: ENPH) and share gains off a smaller base, while both see SolarEdge (NASDAQ: SEDG) losing share in Europe in 2023.

In the US residential segment, our checks continue to suggest a material shift to lease/power purchase agreements. A substantial installer was at 80% loan in September, then 65% loan in November, and is now seeing 45% loan in January and February. At 10% cash, this results in about 45% lease. The solar installer now expects this to sustain through 2023 with potential for lease to increase depending on ITC (investment tax credit) adders.

We’re starting to hear glimmers of loan providers seeing a recovery but this is likely very early and not across the board. We expect to see more bankruptcies among long-tail installers in the months ahead as some have challenges meeting payroll. Our checks suggest financiers and loan providers are aggressively managing risk by being much more selective with whom they work and requiring higher homeowner credit.

The industry is shifting rapidly from a “bill swap” sale to a “utility hedge” sale. We are looking for more of the industry to recover, potentially in September or Q4, after a summer of air conditioning shocks for homeowners with high utility bills. Our checks suggest utility pricing on a blended basis in the US is expected to be up 14%, year over year, in 2023.

The Invesco Solar ETF (TAN) decreased by 0.3% in March while the S&P 500 increased by 0.8% and the DJIA fell by 0.3%. The top five performing solar stocks in the US market include First Solar (23.7%), Daqo New Energy (12.1%), Canadian Solar (3.8%), Applied Materials (3.7%) and Array Technologies (-0.1%).

The Invesco Solar ETF decreased in March as liquidity tightened, lending standards rose, and the banking crisis developed. During the week of March 6, our checks suggested that the module release situation under the US Uyghur Forced Labor Prevention Act was becoming incrementally negative.

Some industry contacts believe that module releases are six weeks overdue. Our checks suggest that some JinkoSolar Holding (JKS) bill of materials’ may be down to just a one-week review time. This is encouraging for US module buyers. That said, our contact will “start to feel confident about that lasting when US Customs and Border Protection adds a new target.” This “implies [US Customs and Border Protection may] take the pedal off a previously detained tier 1” and potentially start expediting future shipments for at least one currently detained company. JKS may have access to 5 GW of non-Xinjiang polysilicon volume for Southeast Asia, vs. 12 GW in total. It appears the non-Xinjiang polysilicon modules are being “tested this month.”

During the week of March 13, the market reiterated that solar requires considerable leverage and the sector is being driven lower in a sell-first, don’t-ask-questions environment as liquidity tightens and lending standards rise.

Our view is that this credit storm impacts the residential segment more than utility-scale solar, with bankruptcies expected as working capital tightens. Residential solar is more of a flow business, while utility scale is lumpy. Our hypothesis is that the Inflation Reduction Act gives developers/asset owners a fair internal rate of return cushion to offset rising funding costs.

The Invesco Solar ETF (TAN) increased by 0.9%, while the S&P 500 increased by 1.0% and the DJIA increased by 2.1% during the month of April. Within the US, the top five performing solar stocks were Enphase Energy, Inc. (7.0%), SunPower Corporation (6.1%), Sunnova Energy International Inc. (6.0%), SolarEdge Technologies, Inc. (3.7%) and Canadian Solar Inc. (2.4%).

The Invesco Solar ETF was largely unchanged due to uncertainty associated with originations and installations in the US residential solar market.

During the week of April 10, our checks indicate that the US residential solar market will stagnate or even decline. Our view, despite some encouraging signs for originations in the first quarter, is that the Silicon Valley Bank (SVB)-driven financial turmoil prompted residential solar to stagnate more than expected. As a result, there have been more consumer loan failures, at 30% to 35%, as opposed to the 20% to 25% which was previously forecast.

Checks on demand in the California residential solar market show that the Net Energy Metering 2 backlog will likely support strong volumes through Q3. In April, a majority of contractors have stopped selling Net Energy Metering 2. According to industry professionals, Q1 installation volumes should be up 20% to 30%, year-over-year, with Q2 and Q3 volumes similarly following.

Our research indicates that many medium-sized installers may have wait times of up to 10 months while the major California players may have an easier time, with backlogs of four months to six months. Many have not yet begun selling Net Energy Metering 3, given the lengthy backlogs and recent conditions. We might not see much origination activity until mid-June. For the Net Energy Metering 3 market, many companies, such as SolarEdge (SEDG) and Sunrun (RUN) have new products. We expect California solar installations to decline by at least 30% beginning in Q4 and continuing through most of 2024.

The Invesco Solar ETF (TAN) decreased by 0.9%, while the S&P 500 increased by 0.6% and the DJIA fell by 2.4% during the month of May. In the US markets, the top five performing solar stocks were Sunworks Inc. (55.4%), Array Technologies Inc. (19.3%), Generac Holdings Inc. (15.9%), Canadian Solar Inc. (13.2%) and Applied Materials Inc. (11.8%). The Invesco Solar ETF slightly declined due to a decrease in originations under Net Energy Metering 3.0 and the Fed’s interest rate increase.

Recent checks on residential PV demand in California suggest that the backlog of systems under the old net energy metering (NEM 2.0) rules will support volumes through the third quarter (perhaps even to October). Checks with large Californian residential solar players indicate that over the past few weeks, NEM 3.0 originations have decreased roughly 50% to 80% from the same period of last year.

US domestic content remains a contentious topic with uncertainty over whether modules produced in the US with cells from elsewhere may somehow be able to meet the requirement. Current Department of the Treasury guidance includes language for an “adjusted percentage rule.” While it seems possible to qualify without US-made cells, our checks suggest that this is highly improbable. A lack of US-made module components exists and suppliers “have to provide cost of goods sold to the buyer for a breakdown calculation,” according to one tier 1 vendor. The vendor added that “this is not practical.” Moreover, each subsequent year, the percentage required goes up by 5% until it reaches 55%.

Both module vendors and buyers, thus far, are pessimistic. As a result, we continue to think the recent domestic content rules disproportionately benefit First Solar (FSLR). Of the 12 balance-of-modules items, excluding the cell, we believe only three may currently be produced in the US – the backsheet, junction box pottant, and frame sealant.

The Invesco Solar ETF (TAN) increased by 2.1%, while the S&P 500 increased by 6.5% and the DJIA increased by 4.6% during the month of April.

Within the US markets, the top five performing solar stocks were Generac Holdings (36.9%), Emeren Group (13.1%), Daqo New Energy (10.4%), Applied Materials (8.4%), and Hannon Armstrong Sustainable Infrastructure (6.2%).

IRA demand

The Invesco Solar ETF increased due to a stellar first quarter in 2023 as new solar capacity broke records. The Inflation Reduction Act continues to increase demand.

During the month of June, our checks have indicated success with Net Energy Metering 3 originations; however, post-Net Energy Metering 2 sales in California have not been as robust.

Californian sales

Over the past few weeks, Californian sales have declined following Net Energy Metering 2's introduction. Freedom Forever saw only a 17% decrease in overall sales, whereas most of its competitors experienced decreases of 50% to 90%. Furthermore, 44% of its post-NEM2 sales were attributable to its SunRun (RUN) Shift product, which does not involve usage of backup power.

Tax credits

Our checks suggest that the recently issued Investment Reduction Act Direct Pay/Transferability Guidance could create potential opportunities for Real Estate Investment Trusts and other tax-exempt entities.

We anticipate that the sale of tax credits to tax-exempt entities has the potential to prominently increase the total addressable market for Solaredge Technologies (SEDG) and Stem Inc. (STEM), which will boost the uptake of commercial solar and storage systems.

In July, the Invesco Solar ETF (exchange-traded fund) TAN, under-performed relative to the S&P 500 and Dow Jones Industrial Average (DJIA). The Invesco Solar ETF fell 4% for July and 6% for the year to date (YTD) while the S&P 500 rose 3% for July and increased 20% YTD. The DJIA rose 3% during July and 7% YTD. Within the US, the top three performing solar stocks for July include Altus Power, at 26%; ReNew Energy Global, at 13%; and First Solar, at 9%.

Californian net-metering rules NEM3, the collapse of Silicon Valley Bank, higher interest rates, and excess inventory have weighed on residential solar stocks. Our industry assessments suggest a revision in the 2024 US residential solar outlook, to +5% year-over-year growth, compared to prior expectations of 15%-plus.

The outlook for US residential solar in the second half of 2023 and into 2024 has turned increasingly negative. Our checks indicate growing concern about bankruptcies among installers in the coming months. An equipment vendor recently conveyed that certain installers are struggling to meet their financial obligations.

Doubts about distributor stability have also emerged. Some are making choices that seem financially unwise, prioritizing short-term cash preservation over prudent business decisions. For instance, some are incurring restocking fees of 10% to 15% despite the possibility of needing to repurchase products within a couple of months.

Utility-scale solar has been mostly immune to these problems but there are growing challenges in securing financing. This could lead to project delays.

Over the past year, both the industry and Wall Street have held the view that the increasing rate environment could be counter-balanced through the renegotiation of power purchase agreements. This perspective remains valid. However, we believe that the constrained financial landscape might be causing some to face capital shortages, potentially leading to more significant effects. While not all are currently affected, we consider this a potential risk.

The Invesco Solar ETF fell 13% in August and declined 20% for the year to date while the S&P 500 fell 2% for the month and rose 17%, year to date. The DJIA fell 3% during the month and rose 5% for the year to date. In the United States markets, the top three performing solar stocks for August included Array Technologies (up 32%), ReNew Energy Global (1%), and Daqo New Energy (3%).

Under-performing solar stocks for the month of August included Maxeon Solar Technologies (-34%), SolarEdge Technologies (-32%), and SunPower (-28%). Residential solar stocks decreased 22% for the month of August and decreased 38% for the year to date. Residential stocks have declined another 19% in September due to poor market conditions. Utility scale solar stocks have not been as heavily impacted as the residential sector and have decreased 10% for the month of August and increased 5% year to date.

After RE+

Following the RE+ trade conference, held in Las Vegas in September, our assessment revealed a notably pessimistic outlook for the 2024 United States residential solar market.

This can be accredited to the continuation of poor results from last month and the overall slowdown in the stock market that can be attributed to the prolonged period of elevated interest rates. Both the residential and utility scale solar sub-sectors drastically under-performed and the outlook for 2024 is being reconsidered.

Utility scale solar is facing a new risk factor – the ability to secure working capital and construction finance, a lack of which can lead to project delays. This can also be attributed to consolidation among developers. Over the past year, the industry has operated on the assumption that challenges from rising interest rates could be addressed through the renegotiation of power purchase agreements. Our checks show that strict monetary conditions might be restricting access to capital. This could lead to more significant repercussions. However, it is not the case for all industry players.

In 2022 deliveries for inverters, and to a lesser extent battery storage systems, was delayed due to a shortage of raw materials and the overall chip shortage. This snag seems to have cleared up. Goods that have been ordered are arriving again, and in large quantities. Manufacturers are now shipping lots of products that buyers have waited a year for, but dealers lack the distribution capacity to cope with the flood of stock. Even after this influx has cleared, there may still be issues in meeting the generally high demand on time.

The shortage of electronic components has forced many manufacturers to redesign their products. But since this also necessitates additional tests and certification procedures, it inevitably results in delays and increased costs. Inverter and storage customers will feel the effects of this throughout 2023. Nevertheless, the availability of most products, including new launches, should normalize by the second quarter, provided there are no more unforeseen disruptions. Component prices will also remain stable for the time being, following isolated increases, but a turnaround does not look likely until 2024 at the earliest. Huawei has also changed its purchasing strategy to longer term, fixed purchase agreements to better counteract crisis-related fluctuations in availability in the future.

The situation with solar modules is quite different. Currently, large quantities are still in Rotterdam and other European ports. Due to the ongoing political uncertainty regarding how profits from electricity generation will be handled, as well as the significant delay in inverter deliveries, many customers jumped ship towards the end of 2022 or pushed their projects further into 2023. Hardly any want to be saddled with the burden of overly large inventories during the cold season, when installation work can only be carried out under more difficult conditions. As a result, manufacturers are in danger of being left sitting on their modules and are currently undercutting each other with special prices.

The key question now is if this trend will continue or whether it will just be a flash in the pan before module prices rise again. To answer this, we need to look at both the supply and demand sides of the equation, as well as the drivers and bottlenecks in between. The consensus is that the lack of installation capacity will keep us busy for a long time to come. However, there is already a discernible shift from conventional electricians and other roof-related trades toward the solar industry. Some companies that had turned their backs on this work years ago when demand suddenly collapsed are now returning to PV. Nevertheless, the existing workforce will scarcely be able to cope with the solar boom that is expected in 2023, especially in the retail sector. A lack of in-house sales and logistics staff will ensure that order processing and material distribution speeds will fall short of customer expectations for a long time to come.

Overview of price points by technology in December 2022, as of Dec. 12, with changes over the previous month.

Jan Brunner, CSO at Krannich Solar, is currently seeing a decline in module shipments from China. This indicates slackening demand, or market participants are reluctant to add to the already large stocks of panels amassed in Europe before first emptying their warehouses, as has been the case in previous years. At the same time, consumer interest continues unabated, at least for small and medium-sized PV systems. The desire for independence from fossil fuels and the associated cost control it brings, even in the long term, apparently outweigh the need to save money and concerns many have about their livelihoods.

Investor money is still plentiful and gravitating towards sustainable products, especially as potential returns on PV installations are still good, even in the commercial sector, given the right marketing model for the electricity. Early material planning is advisable to avoid the same supply problems experienced in 2022. All market players would do well to submit reliable forecasts to their suppliers well ahead of time.

On the supply side in particular, the market for modules will again soften considerably over the course of 2023, and there may even be excess supply, according to Frank Niendorf, general manager for Europe at JinkoSolar. At present, silicon prices are declining markedly again. The costs for container shipments are also almost back to pre-covid levels. In addition, the EUR-USD exchange rate has again moved in favor of the euro – and these are all factors that influence module and system prices.

Although some materials are still in short supply, some of these factors are only impacting the production price for now. It often takes months before the reduced costs reach the end customer.

Nevertheless, all indications are that solar panel prices will not rise in 2023, but instead will tend to fall steadily from the second quarter onwards, at the latest. We will not know how exactly the Asian producers will price their products until after the Lunar New Year at the end of January.

About the author: Martin Schachinger has a degree in electrical engineering and has been active in the field of photovoltaics and renewables for more than 20 years. In 2004, he started his own business and founded the internationally known online trading platform pvXchange.com, where wholesalers, installers and service companies can purchase solar panels, standard components and inverters that are no longer manufactured but are urgently needed to repair defective PV plants.

There was a slight distortion in the module market in early 2023 because of a recent patent infringement lawsuit in the Regional Court of Düsseldorf, brought by Hanwha Q Cells against Trina Solar. Hanwha and Trina announced, on Friday, Feb. 17, 2023, they had reached a settlement in the dispute enabling “both parties to use each other’s solar patents and respectively drop all pending cases between the two companies,” as reported by pv magazine.

With this settlement, the disruption has been resolved and Trina continues to pull out all the stops to ramp up its production of TOPCon [tunnel-oxide passivated contact] products.

New year expectations

Stefan Kutscher, managing director of the wholesaler and installation company SK Solar, believes that recent amendments to Germany’s Renewable Energy Act (the Erneuerbare-Energien-Gesetz, or EEG) do not go far enough to resolve challenge present in the German PV market. He still views the time-consuming procedure for getting required plant permits as a major obstacle, although the time pressure has been eased somewhat. Instead of radically simplifying overly complex regulations, the authorities have in some cases introduced new ambiguity and formulations that leave a great deal of room for interpretation. The best example of this is the sales tax adjustment for small private systems. For months, the industry has been puzzling over how the new regulation in the annual tax law is meant to be implemented. At least there has now been an initial attempt at clarification from Germany’s finance ministry.

Efforts to find real solutions to problems of grid access, connection conditions and certification of medium to large systems have been in vain so far, says Michael Reck, project developer at GME clean power AG. Developers still face major hurdles that can hinder the rapid implementation of planned projects and call into question their economic viability. Nevertheless, he thinks that improved availability of the required components and falling module prices will leave enough profitable projects in the pipeline for the next few years. Expected average construction costs would, he believed, ensure remuneration rates between €0.08 ($0.09*)/kWh and €0.10/kWh in most cases – sufficient to give investors an adequate return over the calculated 20- to 25-year plant service life. A moderate cap on remuneration, even for unsubsidized plants, or the threat of the government skimming additional revenues should therefore do little to diminish the attractiveness of larger solar projects.

Overview of price points by technology in January 2023, as of Jan. 10, with changes over the previous month.

Reck’s colleague Gerald Wotruba, CSO at GME clean power, speculates that the elimination of a verification requirement at the module level will increase the potential for repowering existing projects with below-average energy yields. As a result, sites that are already developed could be better utilized and the output of existing plants could be increased within certain limits. He sees an ongoing string-inverter shortage, which will probably only slowly resolve itself in the second half of the year. In addition, there is a shortage of skilled workers, particularly evident among nationally active EPCs.

Installation crews traveling all over Germany or even Europe are now hard to find. What little installation-team capacity is available has to be locked in early and for an extended period.

Florian Meyer-Delpho, CEO of installion GmbH, agrees that there is an urgent need to remedy the labor situation. Meyer-Delpho is part of a delegation of energy industry representatives that recently informed German Chancellor Olaf Scholz of the acute need for skilled workers as part of the Alliance for Transformation and, in cooperation with the ministries and associations involved, aim to develop solutions to the acute shortage of skilled workers.

The problem has at least been recognized. The next step is to provide sufficient budget, suitable infrastructure and find training providers. What worked well in Germany recently in the acute emergency situation with vaccination centers or refugee reception centers could certainly also be organized to tackle the shortage of installers, if the political will is there.

Overall, the market outlook is positive. Demand for small systems in particular will continue for quite some time and offer work for installers. The days of panic buying and consumers blindly accepting quotations, as we saw last year, are probably over.

As far as installers are concerned, more competition will revive business and make it more transparent, and system prices will stabilize. But industry representatives also see growth in medium to large PV projects, especially in non-subsidized systems. With forward-looking component purchasing, sound costing and quality-conscious implementation, investors can look forward to rising returns and commercial businesses to a lasting reduction in energy costs.

*Currency translation correct on 30/01/23.

About the author: Martin Schachinger has a degree in electrical engineering and has been active in the field of photovoltaics and renewables for more than 20 years. In 2004, he started his own business and founded the internationally known online trading platform pvXchange.com, where wholesalers, installers and service companies can purchase solar panels, standard components and inverters that are no longer manufactured but are urgently needed to repair defective PV plants.

The good news is that winter is behind us in Europe and there have been no blackouts or emergency rationing of natural gas and other fuels. The bad news is that Europe has a multitude of challenges going forward, starting with more expensive energy, poor positioning in key energy technologies, and the growing threat to European industry from the US Inflation Reduction Act (IRA).

Together, these factors threaten to undermine Europe’s competitiveness and living standards. To combat these risks, Europe needs to respond rapidly with a long-term, joined-up strategy.

Back in August of 2022, as prices for electricity, coal, diesel, and natural gas hit all-time highs, it was not clear whether Europe would be able to get through the winter without significant damage to its economy. Energy users reacted to high prices by reducing demand and by moving away from natural gas to alternatives such as coal, wood, and oil; averting part of the economic impact.

The weather gods were also kind. Europe had a warm winter, including record temperatures in December and January across many regions. France also did a stellar job, considering that in August more than half of its nuclear reactors were down for repairs and not expected to be back online in time for the winter months. That would have caused a significant risk of blackouts. Instead, by the start of January, almost three-quarters of the French nuclear fleet was up and running.

Natural gas storage levels across Europe are very high now thanks to lower demand for the fuel and the aggressive purchase of liquefied natural gas (LNG) under order from the European Commission. Add the fact that Germany and Finland have now opened a handful of floating storage and regasification units and – in the worst-case scenario – Europe can do without any Russian gas, going forward.

Despite these successes, the continent is still facing high gas prices in future as well as increased volatility of power prices and risks. Replacing low-cost Russian pipeline gas with more expensive LNG means that European consumers are going to face higher prices in the months ahead. The silver lining is that customers will be forced to become more efficient and move to cleaner alternatives such as heat pumps.

Facing gas prices that will remain substantially higher than they have been in the past will cause competitive problems for European heavy industry, however. To add to these worries, US President Joe Biden’s IRA incentives will reduce the cost of power for US electricity buyers, which will increase the nation’s energy-cost advantage. The IRA also incentivizes local production of key decarbonization technology, such as batteries and solar panels, and it will help the United States reindustrialize around these key future-growth technologies.

Meanwhile, back in Europe, there is not one manufacturer of lithium-ion batteries or solar panels in the top 10 worldwide, and the traditionally European-led wind industry is in tatters, with massive, billion-euro losses at industry leaders Vestas and Siemens-Gamesa. This begs the question: What should be done about the situation?

What not to do is very clear. Most crucially, procrastination and endless discussion must be avoided because every day of delayed decisions lessens Europe’s ability to regain competitive advantage or even parity. The second scenario that should be avoided is European countries trying to go it alone as the scale of the challenge can only be met with joint and unified European efforts. The European Union thus needs to be willing to collectively invest in its own future by funding R&D and new infrastructure and by taking more risks.

Companies such as the Swedish electric vehicle battery champion Northvolt provide an example of success where European private and public efforts are combined to quickly scale up new production facilities. To compete with China, which has shown itself much better at scaling up production facilities than Europe, there needs to be a concerted effort led by governments of EU member states such as Germany and Italy, as well as by the European Commission, to incentivize and ensure swifter policy alignment across all member countries. Coordination and reaching consensus at a quick pace have always been a sore point for the EU. It is the toughest goal to achieve, as it requires compromises from large and small nations, both wealthy and less affluent.

To be successful, European countries need to commit to the energy transition and to an open dialogue with all citizens. Member states must also take a more active role in international affairs, particularly around key raw materials and energy fuels. The big question is whether Europe can do it. The answer is yes and by doing so, Europe will not only break its addiction to fossil fuels but also help create jobs and economic progress in future-oriented clean industries.

About the author: Gerard Reid is a co-founder and partner at Alexa Capital. He has spent more than 20 years working in investment banking, on equity research, fund management, and corporate finance, with a focus on the energy transition and the digital energy revolution. Prior to founding Alexa Capital, he was MD and head of European cleantech research at Jefferies & Co.

Anyone who has followed the solar market for more than a decade is experiencing déjà vu, thanks to a shortage of inverters. While small, 10 kW hybrid products typically used with energy storage in small systems are again available, larger, 60 kW to 100 kW units are sufficiently scarce to prompt project developers and engineering, procurement, and construction service providers to desperately comb the market.

The European market for large string inverters is virtually exhausted, with no short-term supply in sight. Speaking to inverter market players and project developers, explanations range from conjecture with little factual basis to wild conspiracy theories.

When it comes to module prices, as expected, price declines have slowed or halted. Some big manufacturers are again making small upward price adjustments in response to rising silicon prices. Although, inventories and the volume of products already being shipped to Europe is slowing upward pressure. A comparison of European project and wholesale prices suggests there is still space for module prices to fall.

Module prices

The direction prices move in the coming weeks will depend on actual demand at the start of the installation season. If large inverters continue to be unavailable, that will likely have a negative impact on purchasing behavior among project customers and cause module prices to fall even further.

So what is causing the poor supply situation in large-scale equipment for low- and medium-voltage products? Here are a few thoughts on the subject. Whereas the bottleneck was blamed, a few months ago, on a general shortage of chips – triggered, among other things, by increased demand from the automotive industry – the current problem is a lack of the key power electronics components needed to produce inverters. The name Infineon keeps coming up in this context.

Infineon, together with two or three other Western semiconductor manufacturers, apparently produced certain IGBT modules – electronic switching elements – which are urgently needed for all high-power inverters and which Chinese manufacturers are unable to produce themselves. Opinions differ as to whether this is a politically-induced artificial shortage or whether production capacity is simply too low to meet the high demand.

European inverter manufacturers feel at a disadvantage because the components or assemblies they need can only be obtained from China, with very long delivery times. The presumption among the affected stakeholders is that the domestic Chinese industry is being served first and thus being given preferential treatment.

Overview of price points by technology in March 2023, as of March 16, with changes over the previous month.

On the other hand, the West-facing microelectronics producers are being accused of trying to squeeze out Chinese manufacturers. So is this an economic cold war between the United States and China, being fought on the backs of the solar industry? It is hard to believe that there is some larger plan behind it. It is probably more of an interplay of supply and demand with the highest bidders for the most sought-after semiconductor components getting first dibs. In any case, the automotive industry has an advantage and other sectors can often pay more than the energy sector, which is used to bargain prices.

Next-generation

Both sides are working hard to make themselves independent of the other economic area and are developing their own technology and components. It can take several months, if not years, however, before a new generation of inverters is developed, tested, and certified ready for operation. Currently, it looks as if the new devices from Asian manufacturers will be available in the second half of the year at the latest, and certified with standards such as VDE-AR 4105 and VDE-AR-N 4110.

Customers that cannot wait that long will have to switch to smaller devices or alternative products from unknown manufacturers. Many installers turn their noses up at these options, however. Some still have a bad taste in their mouth from experiences they had 10 years to 12 years ago with the products from Asia produced during a similarly severe supply bottleneck. No sooner had the demand for alternative manufacturers died down than these companies disappeared, leaving their customers to deal with equipment problems on their own.

Some project developers are also switching from the much-hyped string inverter concept back to central inverters, which seems to make sense, at least for installations north of the megawatt limit. This may require a somewhat larger lead time and planning effort but subsequent operations are then quite economically attractive and reliable. Should problems and failures arise, it is not necessary to send complete units around the world and it is sufficient to replace individual assemblies. With some spare parts management on the part of an operation-and-maintenance partner, this does not even have to mean longer downtimes for a PV farm operator.

At inverter maker SMA, delivery times for its Sunny Central series are not quite six months while new customers may have to wait eight months to 12 months for the large string inverters – from 100 kW upwards – from the same company.

About the author: Martin Schachinger has a degree in electrical engineering and has been active in the field of photovoltaics and renewables for more than 20 years. In 2004, he started his own business and founded the internationally known online trading platform pvXchange.com, where wholesalers, installers, and service companies can purchase solar panels, standard components, and inverters that are no longer manufactured but are urgently needed to repair defective PV plants.

The renewables transition has been remarkable, particularly when it comes to solar. In 2010, the best-in-class capital expenditure costs for a megawatt of solar generation capacity was approximately $3 million. Today, those costs have dropped by more than 80%, reaching a new low of just $500,000 per megawatt.

The performance of installed megawatts has also improved thanks to technology developments, operational and maintenance improvements, and significant installation learnings. It has been a similar story with wind, with a levelized cost of energy (LCOE) falling from $110/MWh in 2010 to $40/MWh in good locations.

As a result, renewables have become the most cost-effective way of adding new electrical generation capacity across most of the world, with LCOEs well below alternatives such as coal, gas, or other low carbon sources including nuclear and geothermal. This is significant because electricity is the most important energy source today as all digital devices – and the software that runs them – need electricity.

Electrifying transport and heat production is the most effective way to decarbonize the existing energy system which means we need increasing amounts of clean, low-cost electricity, the bulk of which will be from solar and wind.

Different era

To date, most renewables have been financed and built thanks to generous government regulations such as feed-in-tariffs or tax credits that have almost guaranteed stable returns for investors. However, variable renewable energy is causing stress to the power system, particularly around capacity and network adequacy and frequency and voltage stability, with costly consequences in terms of increasing grid-integration costs. Today’s electricity grids were designed in a different era – for fossil-fuel-reliant power generation – and require substantial and costly upgrades.

Another challenge facing renewable energy investors is the issue of “cannibalization.” During periods of high solar or wind generation, such as the middle of a summer day, electricity becomes very cheap and is sometimes even sold at negative prices, which means paying consumers to take surplus power.

The problem of cannibalization is only going to get worse as countries expand renewables generation. This leads to the question of who is going to finance that new generation when they know that they may receive zero income for their power on sunny or windy days?

One possibility is to continue subsidizing the renewables build-out. However, that may cause the system to reach breaking point, driving energy costs to the point that industry relocates and jobs are lost.

Flexibility reigns

There is an alternative and that is to embrace flexibility. The latter is a state of mind that implies a readiness to abandon old ways of thinking and embrace new ones, such as creating new market mechanisms that enable technologies such as batteries, hydrogen, and vehicle-to-grid transmission to be effectively used. Flexibility is about the ability, supported by technology, of participants to dynamically interact among themselves to maximize resources, minimize cost and increase resilience, energy security, and safety.

The power grid is a crucial arena for deploying flexibility. One of the primary responsibilities of grid operators is to maintain the stability and balance of the electricity system. Traditionally, grid companies have utilized tools such as spinning reserve to enable generation to respond quickly to changes in demand.

In recent years, however, grid operators have had to incorporate new tools and approaches to manage the challenging task of keeping networks stable. While some markets, particularly islands such as Ireland and Hawaii, have made significant progress in reinventing their practices, others are still on an incremental pathway. As renewable energy’s share in the electricity system increases, flexibility services will become more prevalent globally.

Such services represent a massive growth opportunity for renewable power generators, particularly if they can provide dispatchable renewable power. Achieving this requires renewable energy asset owners to move from being passive subsidy recipients to active power traders with a diverse portfolio of assets across different countries and a variety of generation technologies. These may include not only solar and wind but also hydro, biofuels, geothermal, and storage technologies such as pumped hydro reservoirs, lithium-ion batteries, and even backup generators such as gas peakers.

There is also a need for demand to follow supply to optimize the use of natural resources. This means consumption should be focused when power is abundant and inexpensive, and reduced or delayed when it is not. Renewables generators can work with clients on the demand side to use whatever flexibility they have, such as electric vehicles, and to reconfigure their assets and usage processes to make their electricity consumption even more flexible. Power purchase agreements with end customers can also help asset owners better manage revenue risk.

Asset managers who embrace flexibility and become power traders can benefit from better returns and lower risks, while driving renewables adaptation, accelerating the transition to net-zero, and creating a next-generation renewables utility that delivers well-managed returns. Those who fail to do so may not last long in the renewable energy business.

About the author: Gerard Reid is the co-founder and partner of Alexa Capital. He spent more than 20 years working in investment banking, on equity research, fund management, and corporate finance, with a focus on the energy transition and the digital energy revolution. He was previously MD and head of European cleantech research at Jefferies & Co.

At the beginning of the year, module manufacturers – predominantly Asian – announced the prospect of lower selling prices for newly produced goods. It took a good two months, however, for these goods to arrive in Europe. Now, at least on the spot market, offers are already circulating with prices that are up to 20% below last year’s values.

That means pressure from solar installers has been building, slowly but surely, on wholesalers to make downward price corrections as well. In business models built on secure availability and longer-term planning, however, rapid adjustment to a lower price level does not usually work without incurring financial losses.

First, the more expensive purchased goods must be sold off at old prices before there is room for the new, cheaper goods. Since selling at rates above the current market price is always difficult and requires a lengthy process, at some point the decision has to be made to reduce prices at the expense of margins. This has apparently happened at many wholesalers in May.

Demand will continue to rise through the year, especially now that some inverter and storage manufacturers want to sell their products at lower prices again. This should be the last clearly visible downward price adjustment for the time being.

My discussions with various module manufacturers so far give no indication of a continuing falling trend in prices. Rather, there is talk of a shortage of cells of the latest-generation technology.

Apparently, the higher module conversion efficiencies that have been announced with great enthusiasm may not be achieved to a sufficient extent, so customers may have to make do with the currently existing performance classes for the time being.

About the author: Martin Schachinger studied electrical engineering and has been active in renewables for more than 20 years. In 2004, he founded the pvXchange online trading platform, through which wholesalers, installers, and service companies can purchase components, including out-of-production solar modules and inverters.

By 2030, power generation in South Africa is expected to increase by more than 40%, soaring from approximately 210 TWh, currently, to 300 TWh by the decade’s end. Although significant investments have been made in advancing renewable energy capacity and paving the way for a cleaner power mix, the current pipeline, of onshore wind projects especially, is unlikely to support its ambitious targets.

At present, coal dominates South Africa’s power mix, accounting for more than 80% of electricity generation. As well as being polluting, South Africa’s reliance on aging coal power plants has led to frequent breakdowns and maintenance problems, triggering widespread blackouts across the country.

Natural gas and battery storage are obvious choices but come with their own challenges. Gas turbines, with their fast ramp-up rates and relatively low costs, provide flexibility in supplying power when renewable sources are not available. Large-scale battery storage can also play a pivotal role in storing excess energy for use when demand spikes. These technologies will be essential for ensuring a reliable and stable power supply as South Africa seeks to increase the share of renewables in its generation mix.

Renewables and clean technologies hold the potential for reshaping South Africa’s energy landscape, contributing to a more sustainable future. By diversifying power generation and addressing immediate challenges, the country can pave the way for a resilient energy sector that aligns with its environmental goals and ensures a brighter future. But South Africa faces an uphill battle and significant hurdles in achieving its goal.

Coal’s crucial role

South Africa’s heavy reliance on coal is further compounded by the fact that state power utility Eskom’s coal power plants have exceeded their projected 40-year lifespan. This poses a significant issue in terms of both energy security and decarbonization.

As outlined in its current five-year Nationally Determined Contribution (NDC) under the Paris Agreement, South Africa aims to reduce greenhouse gas emissions to between 350 million tons and 420 million tons of carbon dioxide equivalent (Mt CO₂e) by 2030, a reduction of 10% to 25% from current levels. Continuing with its aging coal fleet would impede progress toward these targets and South Africa’s commitment to decarbonization.

While its Renewable Independent Power Producer Procurement Program (REIPPPP) has been instrumental in driving renewable energy development, South Africa is currently reviewing applications for a substantial capacity of solar and onshore wind projects, many of which include battery storage.

Despite the increased focus, South Africa is projected to generate only about 20% of its power from renewables by 2030, falling short of its target. In contrast, South Africa’s coal fleet is expected to expand with the emergence of new units at Kusile.

Transmission improvements

To facilitate the deployment of renewables, South Africa is working on improving its transmission infrastructure. Inadequate transmission capacity has been a major hindrance in effectively integrating renewable technologies into the grid. The government has approved a bill that promotes private generation projects and power trading, aiming to reduce dependence on Eskom and encourage participation from the private sector. This approach will enhance competition and is expected to lower power prices for end users over time.

When it comes to addressing the energy crisis, South Africa has taken several measures to expedite the authorization and connection of power projects. Environmental authorization timelines have been halved and grid connection clearances are now provided within six months. Additionally, Eskom plans to build solar and battery storage plants at various locations, including Komati, Lethabo, Majuba, and Sere.

While renewables hold promise, South Africa must consider the role of gas in its energy mix. The National Department of Transport has granted access to gas-fired power ships as emergency supply and there are plans to develop and utilize gas-to-power plants. Developing gas resources, such as the Luiperd and Brulpadda fields, could significantly contribute to meeting the country’s power demand.

Battery storage is also crucial for South Africa to meet its energy demands and decarbonization goals. If gas-to-power is not pursued, the existing coal-based capacity, including new Kusile units, would need to stay online constantly, straining the electricity system. In this case, battery storage would provide a viable alternative but would also require more overall capacity in comparison to gas-to-power, and potentially higher costs. Nonetheless, integrating more intermittent capacity, whether through batteries or gas solutions, would help reduce reliance on coal-based power, especially during periods of limited solar and wind availability.

With coal power’s limitations becoming increasingly evident, the integration of renewable energy sources, complemented by flexible gas power and battery storage, is emerging as a viable path forward. As South Africa aims to diversify its generation mix and reduce greenhouse gas emissions, proactive measures to improve transmission infrastructure and facilitate project authorizations will be essential.

About the author: Nivedh Das Thaikoottathil is a renewables and power analyst for Rystad Energy. An engineer by training, Thaikoottathil joined Rystad in 2021. As a student, he worked as an engineer for Ashwa Racing, India’s, student-design Formula SAE team.