The solar PV industry is forecast to reach 49 GW globally in 2014, representing strong growth compared to 36 GW in 2013. However, the 49 GW total addressable market (TAM) is really the combination of two distinct served addressable markets (SAMs): small and large-scale solar installations.
In this, the first part of a two-blog release from NPD Solarbuzz, the details of the small-scale segment are reviewed and discussed. The second part will deal exclusively with the large-scale SAM.
Defining the served markets for solar
Small and large-scale solar PV projects are differentiated in component supply (modules and inverters) and project build-out (developers, installers, downstream channels to market).
Most companies choose to optimise internal operations and sales/marketing efforts towards one of these segments, and often have different strategies within certain regions, countries or ‘states’. In fact, even companies that span both small and large-scale solar segments typically separate out product offerings and sales channels to account for the different ways that these segments do business.
Once residential demand is removed from country (or state level) market sizes, one route is to divide up the non-residential demand into commercial and utility. This has value in understanding the driving factors in non-residential deployment (project financing, use of electricity generated, payment terms, and conditions for operations/maintenance), but falls short in providing component suppliers and downstream companies a clear definition of their served opportunities.
For example, commercial and utility projects can be located either on rooftops or on the ground (an essential categorisation for inverter and mounting suppliers), and can vary from a few hundred kilowatts to tens of megawatts.
Historically, there was a tendency to compartmentalise utility-scale solar purely on a ‘size’ basis, at either >5 MW or >10 MW. This type of segmentation has limited value to the industry, other than to filter purely by project size, regardless of the location or mounting arrangement.
So, let’s return to the reason for non-residential market segmentation, before fixing the categories used. And let’s recall that the main reason for splitting up the TAM of the PV industry is to identify the SAMs on offer to the hundreds of suppliers and developers/installers active in the solar PV industry today.
Generally, residential segments have their own component supply-chains and installer networks. On the supply side, components are typically spread across all component tier groupings and often go through wholesalers, with end-customers more concerned with installed system pricing than supplier bankability.
In fact, the residential market segment is further fragmented at the regional level, with local installers often confined to the cities and states covered by their sales and service presence.
By default, the residential segment is, broadly speaking, comprised of small PV installations (generally below 10 kW), forming a large part of what falls under the banner of small-scale solar PV. The other part of the small-scale solar PV segment (the small non-residential rooftop segment) includes many of the supply and installation features common to the residential segment.
The small non-residential rooftop segment includes agricultural buildings, educational institutes, medical centres, and the SME (small and medium size enterprise) or small business community. There are various other ‘customer’ categories that make up the small rooftop segment.
Therefore, when looking at the supply and installation SAMs for the solar PV industry, we can break out the following top-level groupings:
– Small-scale: Residential and small non-residential rooftops (≤100 kW).
– Large-scale: Large non-residential rooftops (>100 kW) and all ground-mount installations.
This segmentation also helps in splitting out the markets served by module supplier technologies.
Generally, c-Si modules dominate the small-scale segment (further diversified by brand and non-brand variants, or tier 1 to tier 3 offerings). The small-scale market also has a relatively strong contribution from mono c-Si modules, driven by space-constrained limitations particular to small rooftop installations.
Large-scale is predominantly the domain of bankable (or tier 1) component supply, often dictated by insurance company preferences or project-developer/supplier relationships. The large-scale segment is also served by either c-Si or thin-film modules, with multi c-Si often dominating over mono c-Si today. (Large-scale trends will be covered in detail in part two of this blog series.)
Figure 1 shows the split between small-scale and large-scale solar PV between 2010 and 2013, with a forecast out to the end of 2014.
The increased share from the large-scale segment has been the key factor in driving growth in the solar PV industry during the past few years. The large-scale segment will continue to gain market-share over the next few years as the industry passes through the 50 GW annual demand milestone. During 2014, large-scale solar will account for approximately 75 per cent of global PV demand. Growth of the solar PV industry during 2013 and 2014 is being driven by the increased market-share towards large-scale solar PV installations.
Figure 1: Small-Scale and Large Scale PV Demand from 2010-2014
Source: NPD Solarbuzz Marketbuzz
Small-scale solar in 2013
The growth in small-scale solar PV installations between 2010 and 2012 was driven by feed-in-tariff policies within Europe, with approximately three-quarters of all small-scale solar PV deployed in Europe.
This is shown clearly in Figure 2, with the decline in the global small-scale SAM in 2013 caused by the reduced rooftop PV installed across key European markets (Germany and Italy). 2014 contributions from Europe are forecast at just above 40 per cent of the global small-scale SAM. Having driven the small-scale solar market until 2012, Europe’s contribution was below 50 per cent during 2013; a trend that will continue also in 2014.
Figure 2: Small-Scale Solar PV from 2010-2014
Source: NPD Solarbuzz Marketbuzz
Figure 3 provides further details of the small-scale solar PV segment during 2013. Japan was the clear leader in the small-scale segment with almost 40 per cent of global demand. Collectively, Japan and Germany accounted for over half of the global capacity installed.
During 2013, seven of the top-10 countries for small-scale solar PV were European, illustrating that there are still relatively few countries globally that have managed to create a sustainable residential and small commercial solar PV market.
Aside from Japan and Europe, only the US and Australia provided any appreciable levels of demand to the small-scale segment during 2013. Excluding Japan, Europe accounted for 72 per cent of the small-scale global PV market in 2013.
Figure 3: Small-Scale Solar PV in 2013 by Country
Source: NPD Solarbuzz Marketbuzz
What’s next in 2014?
Enabling both small-scale and large-scale markets at the country-level is widely regarded as a key deliverable in creating sustainable long-term growth. However, this has been a challenge to administrators for some time now.
In particular, having a vibrant small-scale market offers the scope for local installers, focused on relationship-driven sales activity with repeat business often secured through customer referrals. Annual deployment levels at the megawatt level for small installers are often sufficient to sustain this part of the market, with steady business being the key issue (as opposed to boom-and-bust cycles that result in staffing levels changing rapidly with demand).
The small-scale segment globally is not without its challenges however, including competing sales models related to upfront capital and rooftop ownership variants, threats to net-metering and distributed generation arrangements, and policies that can change quickly based upon local elections or fiscal budget alterations.
Therefore, suppliers of key components (modules, inverters and mounting) require greater market visibility when selling into the small-scale PV market, compared to the large-scale segment (characterised by a smaller number of project developers that assume ownership of sales pipelines). Deciding which countries, or states/territories, should be prioritised in 2014 will once again be essential for success.
Finlay Colville is vice-president of NPD Solarbuzz. Originally published by NPD Solarbuzz. Reproduced with permission.