Is utility-scale solar in Europe really ‘dead’?

More than 3.5GW of utility-scale PV was installed in Europe last year, but according to one of the sector’s leading analysts, this market is now in terminal decline.

“I have to say that large-scale solar in Europe is basically dead,” Bloomberg New Energy Finance’s (BNEF’s) head of solar, Jenny Chase, told SolarPower Europe’s recent Solar Market Workshop in Brussels, shocking and almost offending many of the senior industry executives present — although some in the audience nodded sagely in agreement.

So how could one of the industry’s greatest success stories be facing such an untimely end? And is BNEF’s view shared by the wider industry?

There is little doubt that Europe’s utility-scale PV market is shrinking. Feed-in tariffs (FITs) for large projects have been slashed in once-major markets such as the UK, Spain and Italy, or replaced altogether by government tenders in France and Germany.

“Outside the French and German tenders — which are pretty small potatoes in the grand scheme of things — there’s just no driver for utility-scale in Europe any more,” Chase tells Recharge. “Neither do we anticipate a driver, because we have power sector overcapacity. Newbuild [solar] in Europe is likely to have a behind-the-meter/self-consumption angle.

“I don’t think it is a crazy assumption that allowing people to make reasonable returns from self-generation (eg, with a low export tariff) will be more popular than increasing fixed charges for everyone to ensure that utilities and investors can build ground-mounted solar power plants. If you look around the rhetoric of FITs — most recently in the UK — you get the impression that no government really meant to subsidise ground-mounted solar at all.”

She adds that Europe’s peak demand (in evenings and during winter) does not suit solar power, therefore wind and other forms of clean generation will be more sought after from a utility-scale perspective.

But won’t large-scale solar also be necessary for European countries to meet their emissions targets?

“There are cheaper ways of reducing carbon dioxide-equivalent emissions, for quite a long time,” Chase says, pointing to energy efficiency, building insulation and rewilding (ie, expanding areas of wilderness to absorb more CO2).

Yet her assertion that the utility-scale PV sector in Europe is in collapse has been heavily criticised by some in the industry, who argue that her basic assumptions are flawed and that she is ignoring key market drivers.

“I think it’s an exaggerated statement,” says Josefin Berg, senior analyst at IHS. “It’s a new environment in Europe for utility-scale installations, but that doesn’t mean it’s dead.

“We believe that the utility-scale market in Europe will be somewhere around 1.4GW a year to 2020 on average. We expect other countries to follow France and Germany [by holding national tenders].

“We also have to remember that European countries still have [renewables] targets to meet by 2020.”

Christopher Burghardt, First Solar’s vice-president of business development and sales, told the Solar Market Workshop: “What we’re seeing in the market is largely that large-scale solar is coming back [after the current downturn]. And why? Because it plays a fundamental role in the energy mix and the future energy mix. And as we move and transition other energy sources out, solar, along with wind, is one of the bases of the future electricity mix and should therefore be seen more as baseload than as playing at any particular time of day.”

James Watson, chief executive of industry body SolarPower Europe, argues that governments actually prefer utility-scale PV to rooftop.

“Governments in general like large-scale power plants that are easier to control,” he tells Recharge.

“In the UK they thought: ‘we could do lots of renewables or we could make one nice big power plant [the proposed Hinkley Point C nuclear power station], so let’s make one big power plant, that’s nice and simple’. That’s really the mentality of most governments. It’s not something specific to the UK.”

Dirk Retzlaff, managing director of German wind and solar developer Juwi International, also criticises Chase’s assumption that governments prefer self-consumption to utility-scale PV.

“That’s a bit of a dead argument. Certainly, the investor that puts PV on his own roof is saving on the energy bill, but in the end, it will certainly lead to utilities increasing the electricity bills for everybody else to compensate for their loss [of revenue].”

And as Watson points out: “Large-scale is in fact cheaper, therefore it’s a better return on investment through the public purse.”

Stefan Muller, chief operating officer of German PV developer and EPC player Enerparc, agrees.

“Let’s be realistic,” he tells Recharge, “the reason why France is holding tenders now is not because they want to do something for renewables. The PPA [power-purchase agreement] rates in the last French tender in 2015 were €0.08 [$0.09] per kWh and we will see below €0.07 in the next tender. On a levelised-cost-of-energy basis, this is cheaper than everything.”

He continues: “Here in Germany, there is a huge pressure to get rid of coal. Our CO2 is increasing [due to nuclear plants being switched off and replaced by coal-fired power], and this is weird. There is a big debate now as to how to solve this contradiction.”

He also points out that France is considering reducing its reliance on nuclear power.

“There is no additional demand [for power in Europe], but a change in the energy mix is needed.”

Retzlaff describes BNEF’s stance as “a bit provocative, but I understand where they’re coming from”.

“[European utility-scale solar] is not such a big part of our business now due to the limited volumes that are on the market. There is little to no utility-scale demand [in Europe], except for Turkey.”

He explains, however, that he believes the market has stalled, rather than being dead. “But the price [of solar] keeps going down, electricity prices will increase, which we are seeing in some countries, then little by little, there will be a subsidy-free retail market for utility-scale solar in the centre of Europe.”

He believes that the near future of the segment in Europe lies in the sunnier southern countries, rather than the recently market-leading UK and Germany.

As the Spanish and Italian economies pick up, “even a slight increase in energy need will certainly fed by PV”, he says, due to the relatively low cost of solar in high insolation regions and its quick deployment with very little construction risk.

“Turkey will be the clear market leader for the segment in the coming years, with high net demand for power, and solar being among the cheapest and fastest options,” Retzlaff adds.

“The UK [market] I don’t believe really [will come back] because you have irradiation of around 1,000 [kWh per square metre per year]; the south of Italy has 50-60% more,” says Retzlaff. “And in France, the UK, as well as Germany, I cannot really imagine that the electricity need, the net need, will go up drastically.”

Chase may describe the French and German tenders as “small potatoes”, but Muller sees them rather differently.

“In Germany, we now have 500-600MW per year under PPA tenders and France looks like it will be the same. To be honest, a guaranteed €500m market per year is not so bad,” he says. “For sure, the market is down, but we grew up in such a dynamic market that if we don’t have a 50% increase per year, we are complaining vociferously.”

He acknowledges that many utility-scale developers and EPC companies may well go out of business, particularly in the UK, but that the larger, most experienced players can expand into other markets and continue to be successful.

Muller also tells Recharge that he believes subsidy-free solar in Europe is close.

“It’s not that we can’t do it [now], it’s more that we cannot get the financing for this. The banks that are now financing [utility-scale solar], they are used to feed-in tariffs, safe PPAs, government-secured, and they can’t justify this new risk [of backing subsidy-free projects]. They really don’t know how they can make a projection about energy prices and off-takers into the future.”

He says Enerparc is already looking into subsidy-free solar projects on the Spanish islands of Majorca and Menorca, which will be more likely to be financed by investment funds or private-equity groups than banks.

Muller also argues that if the EU’s anti-dumping tariffs on Chinese modules were removed, system prices would fall enough to make subsidy-free projects viable today. Retzlaff, however, believes that if the tariffs are allowed to expire, the Chinese would raise their prices slightly.

The European Commission (EC) energy directorate is among those campaigning for these duties to be removed, its renewables director, Marie Donnelly, told the Solar Market Workshop. Unfortunately, the decision rests with the EC’s competition commission.

Muller argues that even without the removal of the tariffs, the era of subsidy-free solar is not far away.

“In one or two years, we’ll see more reductions in inverter costs, we can probably install a bit faster, we have optimisation, interest rates will probably stay the same, then we are there.”

Other market drivers apparently disregarded by Chase include green energy demand from the corporate sector; the forthcoming energy market redesign, due to be unveiled by the EC by the end of this year; and the likely roll-out of further solar tenders.

“I would not be surprised if, in the next one or two years, there are other countries coming and they see this [tenders with PPAs] as an interesting model to reduce their CO2 footprint,” says Muller, describing this system as more “controllable” than FITs.

He believes Denmark and the Netherlands may be the next European countries to introduce large-scale PV tenders.

Watson also believes that further demand for utility-scale solar will come from the corporate sector.

“The mining sector is building these big PV parks alongside their mines because they said it’s actually cheaper in the long run than running diesel generators — even with oil as low as $30 a barrel.

“Yes, there is going to be a movement [in the corporate world] and it’s growing.

“Large-scale is going to happen. The deployment rate is reducing, it’s slowing down, it’s more controlled, but it’s not going to go away.”