Author Archives: Richard Asplund

Solar stocks settle back but longer-term industry trends remain bullish
 

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MAC-Solar-Sector-Update-May-2022

Solar Index Performance

The MAC Global Solar Energy Stock Index, the tracking index for the U.S.-based Invesco Solar ETF (NYSE ARCA: TAN) and the European-based Invesco Solar Energy UCITS ETF (ISUN LN, RAYS LN, SOLR GY, SOLR IM, SOLR SW), has fallen back in the past year since posting a 13-year high in January 2021. The Index is currently down by -21% on a year-to-date basis. That adds to the -26% decline in 2021 but doesn’t come close to reversing the extraordinary gains of 67% seen in 2019 and +245% seen in 2020.

The MAC Solar Index has fallen back this year as part of the downward correction seen in the overall stock market, caused by concern about high inflation, weaker global economic growth, and rising interest rates. Solar stocks are also seeing weakness due to the U.S. Department of Commerce’s tariff investigation, some minor disruptions to U.S. panel imports due to the new Xinjiang law, and the inability of Congress as yet to pass at least the renewable energy provisions in President Biden’s Build Back Better bill.

Despite the recent obstacles, bullish longer-term factors for solar stocks continue to include (1) the global dash to reduce carbon emissions as many countries are now adopting net zero emissions goals to add to their Paris climate agreement goals, (2) strong demand for solar by many global corporations that have recently adopted net zero emissions goals, (3) strong economic demand for solar now that solar is cheaper to build than fossil fuel or nuclear power in most of the world, (4) the pairing of solar with ever-cheaper battery systems to provide a 24/7 electricity solution, and (5) the increased focus by many nations to improve their energy security by building domestic electricity infrastructure such as solar, thus freeing themselves from the energy risk of importing fossil fuels from potentially hostile nations.

Solar stocks settle back but long-term industry trends remain bullish

Solar stocks have fallen in 2022 along with the rest of the stock market, which is seeing a post-pandemic correction caused by concern about high inflation, weaker global economic growth, and rising interest rates. The MAC Solar Index is currently down -21% year-to-date, which is less than the -24% year-to-date decline in the Nasdaq 100 index.

Yet solar stocks are still up by about 90% from their pre-pandemic level and the long-term prospects for the solar industry look very strong. Demand for solar is soaring across the world due to solar’s cost-competitiveness and the dash for net-zero emissions by many nations and global corporations. In fact, solar demand is so strong that it has far outstripped the supply of available panels, which means the solar growth rate would be much higher if enough panels were available. This demand will be met before long since many solar companies in recent months have announced massive manufacturing capacity additions.

The global solar industry in recent years has proven its resilience by adapting to rising demand and quickly shifting government policies. The solar industry was able to easily shake off the pandemic and showed very strong growth rates of +23% in 2020 and +27% in 2021, according to data from Bloomberg New Energy Finance. The long-term growth theme for the solar industry remains intact, with BNEF forecasting +33% yr/yr solar growth in 2022 and more than $4 trillion of solar spending through 2050.

Global solar growth is expected to show another strong year in 2022 as demand surges across the globe. Bloomberg New Energy Finance (BNEF) is forecasting that solar installs in 2022 will surge by another 33% to 246 GW, which would be the fourth consecutive year of double-digit growth.

In 2021, global solar growth soared by +27% to 184 GW, adding to the growth rates of +11% seen in 2019 and +23% seen in 2020, according to BNEF. New global solar installs grew by a compounded annual growth rate of +20% over the 5-year period through 2021.

Demand for solar has soared in the past several years as solar becomes cheaper than competitors and as nations and corporations are racing to meet net zero emissions targets. Many countries, especially in Europe, are also taking energy security more seriously and are focused on building domestic infrastructure such as solar to produce their electricity rather than relying on unreliable fossil fuels from foreign sources.

The solar industry over the past two years has shown very strong growth and has been able to shake off obstacles such as pandemic shutdowns, higher commodity prices, supply chain constraints, higher shipping costs, and trade/geopolitical barriers.

The long-term outlook for solar looks very bright. There will be a massive $4.2 trillion of spending on solar through 2050, according to BNEF’s 2020 New Energy Outlook.

BNEF forecasts that solar PV will account for 38% of world electricity capacity by 2050, up sharply from the 2019 world level of 11% and easily the largest source of electricity generation.

“I see solar becoming the king of the world’s electricity markets, Fatih Birol, executive director of the International Energy Agency (IEA), said in 2021 with the release of the IEA’s flagship World Energy Outlook report. In that report, the IEA forecasts that solar will easily become the largest source of electricity generation by 2040. The report goes on to say:

“Solar PV becomes the new king of electricity supply and looks set for massive expansion. From 2020 to 2030, solar PV grows by an average of 13% per year, meeting almost one-third of electricity demand growth over that period. Global solar PV deployment exceeds pre-crisis levels by 2021 and sets new records each year after 2022 thanks to widely available resources, declining costs and policy support in over 130 countries.”

Demand for solar should surge in the coming years as solar costs continue to decline and solar becomes even more competitive against fossil fuels and nuclear. Solar’s levelized cost has already plunged by an overall -85% since 2010 and by an average -8% per year over the last five years, according to Lazard (see p. 11).

China’s transition to subsidy-free solar is progressing well

The Chinese solar market remains strong as the country shifts toward a subsidy-free solar market and relies on solar to provide the power it needs to fuel rapid economic development, phase out coal, improve its air quality, and meet its emissions goals.

The Chinese government is relying heavily on solar to meet increasingly aggressive climate targets. In October 2021, the Chinese government adopted the goal for carbon emissions to peak before 2030 and for carbon-neutrality by 2060 as part of its National Determination Contribution (NDC) under the Paris Climate Agreement.

To meet its NDC goals, China has adopted a target of generating 25% of its electricity from non-fossil fuel sources by 2030. China also reiterated its target of achieving 1,200 GW of renewable energy capacity by 2030, with 619 GW of solar by 2030.

In order to help meet that dramatic renewables goal, China has begun work on a massive set of solar and wind projects in its desert regions. The first phase of 97 GW of solar and wind began in 2021 and has been running smoothly, leading the government to expand the project. The Chinese government has now announced another 455 GW of desert solar and wind projects, with 200 GW of that slated to be built by 2025 and another 255 GW to be built by 2030. The bulk of the generated electricity will be delivered to the populated eastern regions of the nation.

Turning to solar growth rates, Chinese solar installs in 2021 soared by +32% to a new record high of 68.6 GW, adding to the very strong growth rate of +57% seen in 2020 to 52.1 GW, according to BNEF. China’s solar surge is expected to continue in 2022 with BNEF forecasting growth of +48% to 101.4 GW.

Chinese solar growth was strong in 2020-21 despite the disruptions caused by the Covid pandemic and the transition in China to a solar market without national subsidies. Developers are showing strong interest in subsidy-free solar projects since they can still earn attractive internal rates of return. The Chinese government has also added benefits to subsidy-free projects, such as a guaranteed price for solar electricity output and priority on the grid. Solar projects can still qualify for subsidies at the local level.

The move away from national subsidies should be a long-term positive factor for the Chinese solar industry since the industry should be able to grow in a more predictable manner with more stable profit margins, as opposed to the boom-bust days of the past that were caused by erratic government subsidy policies.

Without subsidy distortions, the solar industry should be able to more closely match end-user demand, thus eliminating the small and less competitive players that can only compete when there are generous subsidies. The current trend should accelerate whereby the solar industry is dominated by large players with the best technology and the lowest production costs.

By contrast, the Chinese solar market in recent years has been buffeted by erratic subsidy policies that caused upheaval in the industry. For example, Chinese solar installs in 2017 soared by 76% to a record high of 53.0 GW as developers took advantage of very generous government subsidies.

However, in response to that 2017 install surge, the Chinese government, on May 31, 2018, announced a sharp cut in most of its solar subsidies, with utility-scale solar capped at 40 GW and roof-top distributed generation (DG) capped at 10 GW in 2018. China’s subsidy phase-out plan was referred to in the industry as the “China-531” order after the date of the announcement.

The government was forced into its China-531 action partly by the big backlog of unpaid subsidies that reached $23 billion by the end of 2018. The China-531 curtailment of subsidies caused a sharp drop in Chinese solar installs by -17% to 44.3 GW in 2018 and -25% to 33.1 GW in 2019.

Regarding Chinese labor issues, the U.S. government in June 2021 imposed a “withhold release order” that blocked the import of polysilicon products produced by five companies based in China’s Xinjiang province due to allegations the companies were involved with forced labor programs of the Uyghur Muslim minority. The Biden administration also placed those companies on the Treasury’s Entity List, which blocks U.S. exports to those companies.

At least one of the targeted companies strenuously denied the use of forced labor. In order to rebut the claims, the company hired a global auditor to study its workforce practices and opened its Xinjiang factory to tours by global equity analysts and investors.

The U.S. Congress in December then passed the Uyghur Forced Labor Prevention Act, which was signed into law by President Biden. The law bans the import into the U.S. of products made in Xinjiang unless the importer can prove that the products were not made with forced labor.

The global solar industry is adjusting to the Xinjiang labor issues by building new polysilicon plants outside Xinjiang and creating supply chain documentation. Factories in the Xinjiang region produced about 45% of the world’s solar-grade polysilicon in 2020, according to Bernreuter Research. Many companies have announced plans to build new polysilicon plants outside Xinjiang to make it easier to comply with the new U.S. rules.

The U.S. ban on importing non-documented solar products from Xinjiang has caused some supply-chain disruptions for U.S. solar developers, who have had shipments temporarily detained by U.S. Customs until they provided the necessary documentation.

However, the overall impact of the ban has been reduced by the fact that the U.S. only buys a small portion of China’s solar module output in the first place due to U.S. tariffs on Chinese solar products.

Also, the U.S. accounted for only 13% of global solar installs in 2021, which means that the impact of the U.S. ban on forced-labor products from Xinjiang has had only a minor impact on the overall global solar growth rate.

U.S. and global solar companies have been aware of the Xinjiang risk for the last two years and have already been taking steps to divert supplies away from Xinjiang and do a better job of ensuring transparency and documenting their supply chains.

The global solar industry, as a whole, is taking specific steps to address allegations of forced labor. About 175 solar companies from around the world signed a pledge sponsored by the Solar Energy Industries Association (SEIA) to ensure that their supply chains are free of any forced-labor products (see “Solar Companies Unite to Prevent Forced Labor in the Solar Supply Chain”). The SEIA also released a Supply Chain Traceability Protocol that helps companies prove that their supply chain is free of any products that are potentially connected with forced labor (see “New Traceability Protocol Allows Solar Companies to Ensure Ethical Supply Chain”).

U.S. solar demand remains very strong but panel supply is an issue

U.S. solar growth in 2021 saw continued strength with +28% yr/yr growth to a new record 23.9 GW, adding to the +62% yr/yr surge seen in 2020, according to BNEF.

Utility-scale solar accounted for 73% of the U.S. solar installs in 2021, followed by 17% for residential solar, and 10% for commercial and community solar, according to Wood Mackenzie’s “U.S Solar Insight – 2021 Year in Review.”

Solar accounted for an impressive 46% of new U.S. electricity installs in 2021, which was a record high and up from 43% in 2020 and 40% in 2019, according to Wood Mackenzie. Solar accounted for only 3.9% of U.S. electricity generation in 2021, showing that there is plenty of headroom for massive solar growth in the coming decades.

Solar remained first among all the electricity generation technologies for the third straight year, beating the 44% share for wind and 10% share for natural gas. The share of new natural gas U.S. electricity additions fell further to 10% in 2021 from 18% in 2020 and from 57% as recently as 2018. Solar and wind together accounted for a combined 90% of new electricity capacity installs and shoved aside natural gas. Neither coal or nuclear registered any significant new installs in 2021, according to Wood Mackenzie.

U.S. solar growth in 2021 was driven by strong demand and overcame various obstacles such as the pandemic, supply chain disruptions, high commodity input prices, and U.S. trade and geopolitical barriers.

Solar installs in 2020 and 2021 saw support as developers sought to take advantage of the investment tax credit (ITC), which allows developers to receive a partial tax credit for solar installations.

The solar ITC of 26% in 2020 was due to step down to 22% in 2021 and 10% in 2022 for utility PV projects, non-residential, and third-party-owned residential solar projects (and to zero for direct-owned residential projects).

However, Congress in December 2020 extended the solar ITC as part of the combined passage of the $900 billion pandemic aid bill and the $1.4 trillion omnibus spending bill. The new legislation set the ITC at 26% for 2021 and 2022, with a step-down to 22% in 2023. In 2024, the ITC will be set at 10% indefinitely for large-scale solar projects and at zero for small-scale solar projects.

There is no doubt that there is very strong demand for solar in the U.S. from all sectors, including residential, distributed solar at commercial and community locations, corporate demand for solar power purchase agreements (PPAs) to meet net-zero emissions targets, and utility-scale solar.

However, there are questions about whether this demand can be met because of various actions by the U.S. government that have restricted the supply of solar panels available to U.S. developers. These restrictions include the new U.S. law on Xinjiang and a new tariff investigation by the U.S. Department of Commerce.

Specifically, the Department of Commerce in March 2022 opened an investigation into whether Chinese companies are circumventing the decade-old antidumping and countervailing (AD/CVD) tariffs with their factories in Malaysia, Thailand, Vietnam, and Cambodia. Those countries currently account for about 80% of the almost $7 billion of solar products that the U.S. imports annually, according to Bloomberg.

The probe was started due to a petition filed by a small U.S. solar company, Auxin Solar, which would benefit from extended tariffs by seeing less competition from Asian solar suppliers.

The DOC investigation has already sparked a flurry of order cancellations and project delays by U.S. developers, who are not willing to risk that large tariffs could be imposed retroactively by the DOC, thus dramatically increasing the costs of their projects.

The deadline for the DOC to make a preliminary determination on the investigation is August 2022, and final determination might not come until between January and April 2023. In the meantime, the Commerce Department has thrown the U.S. solar industry into turmoil with its antiquated investigation procedures that are based on a 92-year-old trade law.

In any case, there is a great deal of pressure on the Department of Commerce to get its investigation over with quickly. A group of 22 U.S. Senators sent a letter to President Biden pleading for a quick conclusion to the solar probe. Various clean energy organizations and companies are also applying pressure to get the investigation resolved as soon as possible.

U.S. Commerce Secretary Gina Raimondo, in early May 2022, indicated that her department would move as quickly as possible on the investigation by saying, “This case has my attention, we are focused on it, and we’re doing everything we can to move it as swiftly as we can in the confines of the law. Any place that we can accelerate within the bounds of the law, we are doing that.”

The good news for the global solar industry as a whole is that the U.S. investigation affects only U.S. solar installs, which represented only 13% of global solar installs in 2021. If the U.S. government wants to block certain panels from being imported into the U.S., those panels will quickly be snapped up by buyers in many other countries where demand is booming and the overall global solar install rate will remain strong. Moreover, the U.S. investigation will only have a temporary effect on U.S. installs, which can return to strong levels in line with demand once the uncertainty from the investigation passes.

Separately on the tariff front, the Biden administration in February 2022 extended former-President Trump’s Section 201 tariffs on imported solar panels at 14-15% for another four years. However, the administration allowed a continued exemption for bifacial panels and also doubled the import quota for duty-free solar cells to 5 GW.

The exemption for bifacial panels was considered a big win for solar developers and buyers since those panels are widely used by large utility-scale projects. The U.S. solar industry has already migrated to bifacial panels because they use-effective technology and have been exempted from tariffs the last two years because of a mistake made by the former Trump administration that it couldn’t correct before leaving office. Bifacial panels allow light to be absorbed by both the front of the panel and back of the panel as light bounces off the ground.

Regarding the history of the U.S. 201 tariffs, former-President Trump in January 2018 imposed a Section 201 tariff of 30% on imported solar cells and modules in an attempt to protect the few existing U.S. solar manufacturers. The initial Section 201 import tariff of 30% for 2018 stepped down to 25% in February 2019, 20% in February 2020, and 15% in February 2021. The tariff was set to expire in February 2022, but as mentioned earlier, President Biden then extended the tariff for another four years.

Elsewhere on the policy front, the solar industry continues to wait to see whether Congress, before the November 2022 mid-term elections, will pass any part of President Biden’s $1.7 trillion Build Back Better bill, such as the $550 billion of energy and climate spending.

The energy provisions of the Build Back Better bill contain an extension of the solar investment tax credit (ITC), and also a hike in the ITC rate to 30% from the current 26%. Also, the ITC proposal would have a “direct pay” provision, which would allow tax credits to be converted into direct payments from the federal government, rather than as an offset by investors against tax liabilities, which a shortage of tax equity can hinder. The Build Back Better proposal also has a production tax credit for U.S. solar manufacturers. The bill also has a new ITC for battery storage, which would give solar-plus-storage a big boost.

Those energy measures could be passed by Congress as separate legislation or as add-ons to must-pass legislation such as an omnibus spending bill to fund the U.S. government.

Since taking office in January 2021, the Biden administration has taken a number of executive actions on the climate front. President Biden, on his first day in office, announced that the U.S. would rejoin the international Paris Climate Accord. That confirmed that the U.S. would resume its global leadership position in trying to meet the Paris Climate Accord’s goal of keeping global warming to less than 2 degrees Celsius above the pre-industrial level, and preferably below 1.5 degrees Celsius. President Biden also pledged to reach a 100% carbon-free electricity sector by 2035 and to reach net-zero greenhouse gas emissions by 2050.

The Biden administration, in April 2021, announced a new “Nationally Determined Contribution” under the Paris Climate Agreement of a reduction in U.S. greenhouse gas emissions by 50-52% by 2030 from 2005 levels. That was nearly double the previous commitment made by President Obama of a 26-28% cut in greenhouse gas emissions by 2025 from 2005 levels. The NDC also included the target of the U.S. economy having net-zero carbon emissions by 2050.

In December 2021, President Biden signed an executive order to cut the federal government’s emissions by 65% by 2035 and make the government carbon neutral by 2050, the same year that carbon neutrality is targeted for the U.S. economy as a whole. As part of that order, the U.S. government is instructed to have 100% carbon pollution-free electricity by 2030, which is only eight years away.

Explaining the order, the White House said, “The federal government will work with utilities, developers, technology firms, financiers, and others to purchase electricity produced from resources that generate no carbon emissions, including solar and wind, for all its operations by 2030.”

European solar expected to show continued strong growth

European solar growth in 2021 grew sharply by +34% yr/yr to a new record high of 25.9 GW, according to the “EU Market Outlook for Solar Power” reported published by SolarPower Europe. That was the fourth consecutive year of very strong solar growth for Europe. Solar now produces 6% of Europe’s electricity, according to thinktank Amber.

In 2021, the largest European national solar install amounts were in Germany with 5.3 GW (+8% yr/yr), Spain with 4.6 GW (+50% yr/yr), Netherlands with 3.6 GW (+4% yr/yr), Poland with 3.2 GW (+21%), and France with 2.5 GW (+154%), according to BNEF.

European solar growth in 2020 and 2021 continued to see strong support from the spread of subsidy-free solar throughout Europe after the EU’s elimination in late 2018 of solar tariffs and the minimum-price scheme. Also, Europe is mandating increasing amounts of solar power to meet its aggressive targets for cutting emissions.

European solar growth improved significantly after the EU in September 2018 ended its anti-dumping duties against solar modules imported from China and ended the associated minimum import price (MIP) scheme. The EU’s MIP scheme had been in place since 2013 when the EU tried unsuccessfully to protect local European solar manufacturers from Chinese competition. The MIP scheme succeeded only in raising the cost of solar modules for European solar installers and causing many years of very slow solar growth in Europe.

The end of the MIP scheme, combined with the sharp drop in solar module prices seen in recent years, allowed solar to reach grid-parity in a growing portion of Europe. Many solar projects in Europe are now being installed on an unsubsidized basis.

European solar growth is also receiving a boost from the EU’s pandemic stimulus plan, approved in July 2020, which totaled 750 billion euros, since almost one-third of those funds were targeted for fighting climate change. That added to the EU’s 7-year budget that has 1 trillion euros of funding to help EU countries meet their EU’s Paris Agreement goals for reducing carbon emissions.

European solar growth is expected to show solid growth in the coming years due to the need to meet renewable energy targets. The European Parliament in 2018 raised the EU renewable energy target for 2030 to 32% from 27% and also made the target binding on EU members. The European Commission in July 2021, as part of its “Fit for 55” package, proposed raising that renewable energy target to 40%, with that proposal going to the European Parliament and its members for approval.

The EU is relying on its renewables target to meet its pledge under the UN Paris climate agreement to cut its greenhouse gas emissions by at least 55% by 2030 from 1990 levels, and for net zero emissions by 2050.

Europe was thrown into an energy emergency after Russia invaded Ukraine in February 2022 and Europe came under pressure to quickly slash its dependence on Russian oil and gas. The EU imports 90% of its natural gas consumption, and Russia provides about 45% of those gas imports, according to data from the European Commission. The Commission also notes that Europe depends on Russia for about 25% of its oil imports and 45% of its coal imports. Europe currently derives about 20% of its electricity from natural gas, according to PV Tech.

Sanctions on Russia’s oil and gas industries have driven natural gas prices sharply higher, which makes solar even more price-competitive against gas. That provides another reminder that solar is not only a good environmental solution, it is also a good economic solution as well. The UK’s secretary of state for Business, Energy and Industrial Strategy (BEIS), Kwasi Kwarteng, said, “Renewables are cheaper than gas. The more cheap, clean power we generate at home, the less exposed we’ll be to global gas markets.”

Russia’s invasion of Ukraine brought the importance of domestic energy security to the forefront once again, much as it was in the 1970’s when OPEC’s oil embargo caused long gasoline lines and a global recession. Fossil fuels tend to come from hostile and inhospitable places, making them an unreliable and risky source of energy for importers.

As a result of Russia’s attack on Ukraine, the EU is formulating a new plan called REPowerEU to reduce its dependence on Russian fossil fuels. The EU is planning to end most of its crude oil imports from Russia by the end of 2022 and reduce its natural gas imports from Russia by two-thirds by the end of 2022. In response to Russia’s invasion of Ukraine, Germany in February already scrapped the whole approval process for the Nord Stream 2 gas pipeline from Russia to the EU, putting the project into an indefinite freeze and forced the Gazprom-backed Nord Stream company towards insolvency.

A key strategy of REPower EU is to rapidly build new alternative energy capacity to replace the need for natural gas and coal to generate electricity. The RePowerEU proposal seeks to ensure that 420 GW of new solar is installed in the EU by 2030, which would bring installed capacity to 565 GW. That would require the average annual solar installation of 47 GW of solar over the next nine years, which is about 80% higher than the 2021 install level of 26 GW.

The EU’s climate policy chief, Frans Timmermans, said, “Let’s dash into renewable energy at lightning speed. Renewables are a cheap, clean and potentially endless source of energy, and instead of funding the fossil fuel industry elsewhere, they create jobs here.”

The REPower EU strategy includes several key measures for speeding the installation of solar, including larger government solar auctions, government help in identifying land sites, streamlining permitting, and streamlining solar Power Purchase Agreements (PPAs) to make them more attractive for small and medium-sized companies.

India’s solar demand expected to remain very strong

India’s government is pushing solar very hard as a means to modernize India’s infrastructure, boost its global business competitiveness, expand electricity access in rural areas, and meet its climate goals. India, at the COP26 conference in late 2021, announced national goals of 500 GW of renewable capacity by 2030 and net zero emissions by 2070.

India’s government has set an aggressive goal for installing 280 GW of cumulative solar capacity by 2030, which is more than four times the current installed level of 60 GW seen at the end of 2021. In order to reach that target, India would need to install an average of about 31 GW per year from 2022 through 2030, which would be more than double India’s 2021 annual install rate of 12 GW.

In 2021, India installed the third most solar of any country in the world behind China and the U.S. In 2021, India installed a record 12.4 GW of solar, recovering by +192% from 2020’s dismal install level of 4.2 GW that was caused in part by the pandemic, according to BNEF data. BNEF is forecasting that India’s solar growth rate will remain strong at a compounded annual rate of +14% over the next five years and more than triple to an annual install rate of 47 GW by 2030.

Solar is already big business in India, accounting for 62% of new power capacity additions and accounting for about 12.4% of India’s installed power capacity at the end of 2021, according to PV Tech. Solar also provides India’s largest source of alternative power, with solar representing 47% of total renewable power generation, ahead of 48% for wind, 10% for biopower, and 5% for small hydro, according to PV Tech.

Over the near-term, however, India has been running into obstacles as it tries to reduce its reliance on Chinese solar panels and encourage the construction of solar manufacturing plants located inside India. In 2020, India imported about 80% of its solar panels from China.

India is currently using a combination of steep tariffs on Chinese solar panels and domestic manufacturing subsidies to try to promote a homegrown solar industry. So far, India’s domestic manufacturing capacity of 8.8 GW for solar modules and 2.5 GW for solar cells is far below India’s 2021 annual solar install level of 12.4 GW, according to PV Tech. India’s solar manufacturers, therefore, remain woefully short of meeting India’s outsized demand. There are the additional problems that India-made solar panels tend to be expensive and do not utilize the latest solar technologies.

India’s government, in recent years, has made some progress on the domestic production front by using a variety of tariffs and incentives. However, demand for solar panels in India still far outstrips supply. In fact, some solar developers are currently curbing their solar building plans in India because of the shortage and the high price of the limited number of panels that are currently available domestically in India.

The Indian government’s new and more aggressive industrial policy plan, although it will take time, may have some success in weaning the country off Chinese modules. In the meantime, however, the Indian government’s policies are restricting the supply of reasonably-priced panels that are available to solar developers in India.

On the tariff side, India’s government, as of April 1, 2022, imposed a new basic customs duty of 40% on the import of solar modules and a 25% duty on cells. India also maintains an “Approved List of Models and Manufacturers” (ALMN) of solar panels that are approved for installation in India. That list that was originally designed as a minimum quality requirement, but there is now speculation that the list is being used as a non-tariff barrier against foreign panels because there are no non-India solar manufacturers on the list.

On the production side, India’s government in early 2022 announced a hefty $2.6 billion of funding for its solar PV manufacturing “Production Linked Incentive” (PLI) scheme. That added to the $617 million of funding already directed to the program. The program provides subsidies to companies that build large PV manufacturing plants in India.

The combined tariff and production incentive program will produce an additional 40 GW of cell and module production capacity, according to Indian rating company ICRA, a Moody’s Investors Services company. That would go a long way towards making India self-sufficient in solar production and allow the country to meet the massive domestic demand for solar products.

Japan’s solar slows but much of the rest of Asia/Pacific is soaring

Solar installs in Japan in 2021 fell by -25% to 6.5 GW, reversing most of the +28% surge seen in 2020 to a 5-year high of 8.7 GW, according to BNEF. Japan’s solar installs in 2022 will fall by another -24% to 5.0 GW in 2022, stabilize in the 4-5 GW area during 2023-25, and then resume solid growth during 2026-2030, according to forecasts by BNEF.

Japan’s solar growth is currently slowing due to the phase-out of some subsidies. Yet, the Japanese government’s subsidy support for solar will continue in the coming years. The government’s FIT (feed-in tariff) program will continue to support smaller-scale solar projects and the government in April 2022 launched a new feed-in-premium (FIP) support program for large-scale projects.

The new FIP program will provide solar electricity producers a premium over wholesale electricity prices as an incentive, as opposed to the old FIT system that specified a fixed electricity price. The goal of the new system is to transition the Japanese solar market to unsubsidized parity.

Aside from subsidies, the Japanese government is pursuing aggressive solar targets and is relying on solar to meet its emissions goals. In July 2021, the Japanese government almost doubled its solar target to a cumulative capacity of 108 GW by 2030. In order to meet that target, Japan would need to install 37 GW of solar by 2030, or roughly 4 GW per year. The government raised its solar target to help meet Japan’s carbon target of cutting greenhouse gas emissions by 46% by 2030 from 2013 levels.

Solar in Japan should also see support in coming years from Japanese corporations looking to sign solar power purchase agreements to meet their corporate renewable energy goals. Corporate demand is expected to drive the development of subsidy-free solar in Japan in the coming years.

Elsewhere in Asia/Pacific, Taiwan is expected to see strong solar installs in the coming years as the government promotes solar to meet its climate goals. Solar installs in Taiwan in 2021 fell by -4% to 1.6 GW, pausing after extraordinary growth rates of +109% in 2018, +91% in 2018, +41% in 2019, and +18% in 2020, according to BNEF. Taiwan’s solar installs will show strong growth in 2022 of +28% to 2.1 GW, according to BNEF.

Solar is seeing strong demand in Taiwan from corporations looking to meet their renewable energy goals. Also, there is rising demand for solar power in Taiwan to replace the coming closure of coal plants in order to meet its goal of net zero emissions by 2050.

Taiwan’s government is targeting a 25% renewable energy supply by 2025 and has announced an aggressive solar cumulative-capacity target of 20 GW by 2025, which would be four times the current cumulative capacity of about 5 GW.

South Korea is another bright spot for solar in Asia. Solar installs in South Korea grew sharply by a compounded annual growth rate of 35% in the 5-year period through 2021. In 2020, South Korea’s solar installs surged by +51% to a record 5.6 GW, although installs in 2021 then fell by -26% to 4.1 GW, according to BNEF.

Corporate demand for solar power is expected to grow sharply after South Korea’s government in January 2021 revised its electricity laws to allow clean energy developers to sell electricity directly to corporations with power purchase agreements. The South Korean government in February also raised its mandate to 25% from 10% for the amount of annual renewable energy that electric utilities must source by 2030.

In Australia, solar installs in 2021 grew sharply by +25% to 4.7 GW, capping a 5-year compounded annual growth rate of 39% seen during 2016-21, according to BNEF. Australia’s solar installs in 2022 will grow by +5% to 4.9 GW, according to BNEF.

Solar industry hits some temporary obstacles but longer-term industry trends remain bullish
 

Solar Index Performance

The MAC Global Solar Energy Stock Index, the tracking index for the Invesco Solar ETF (NYSE ARCA: TAN) and the Invesco Solar Energy UCITS ETF (London: ISUN LN), has settled back in recent months after posting a 13-year high in January 2021. The Index is currently down by -25% on a year-to-date basis, giving back some of the extraordinary +235% annual gain seen in 2020.

The MAC Solar Index in 2020 rallied sharply as the industry shook off the impact of the pandemic and looked ahead to more favorable solar policy support as Joe Biden won the November 2020 U.S. presidential election and Democrats took control of both the House and Senate.

The Index has since fallen back in 2021 as the solar industry hit some temporary obstacles caused by the pandemic, a polysilicon shortage, various supply chain disruptions and costs, and concern about the Biden administration’s ban on some solar products from China’s Xinjiang province. There has also been a slowdown in project planning due to higher solar costs. The markets are also getting impatient for Democrats to pass solar policy-support legislation contained in the Build Back Better bill, or pass those solar-support measures through other bills.

Despite the recent obstacles, bullish longer-term factors for solar stocks continue to include (1) expectations for a global dash to reduce carbon emissions now that the U.S. has reclaimed its leadership role in the global Paris climate effort, (2) the strong global solar demand picture that has resulted from the fact that solar has now reached unsubsidized grid parity in more than two-thirds of the world, (3) the pairing of solar with large-scale battery systems to provide a 24/7 electricity solution, (4) broadening solar growth in India, Turkey, Latin America, Middle East, and Southeast Asia, and (5) strong demand for renewable energy as countries seek to meet their carbon-reduction targets under the Paris COP21 global climate agreement.

Solar stocks settle back on temporary obstacles but long-term industry trends remain bullish

Solar stocks are sharply higher from their pandemic lows seen in spring-2020 due to (1) the overall recovery in global stocks seen since the pandemic-induced dip in spring 2020, (2) the realization that solar is emerging as a key solution to climate change as it becomes the cheapest source of new electricity generation and is paired with battery storage for 24/7 electricity, (3) the Biden administration’s clean energy push through executive actions and proposed legislation, (4) a big European renewable energy push to stimulate the pandemic-ravaged economy and meet its Paris climate goals, and (5) the recent announcement by China of massive solar and wind projects in its desert areas.

The recent obstacles for the solar industry are likely to prove temporary, allowing the bullish long-term secular trend for solar to continue. BNEF is forecasting that global solar installs in 2021 will be very strong at +28% despite this year’s problems. Moreover, BNEF is forecasting that 2022 will be another very strong year, with +25% solar growth. The solar industry already shook off the pandemic shutdowns in 2020 with very strong growth of 21%.

The long-term growth story for the solar industry remains intact, with BNEF forecasting more than $4 trillion of solar spending through 2050.

Solar PV Growth Outlook

Global solar growth is expected to show another strong year in 2021 despite temporary disruptions from the Covid pandemic and higher solar costs. Bloomberg New Energy Finance (BNEF) is forecasting that solar installs in 2021 will grow by +28% to 183 GW from 143 GW in 2020.

In 2020, world solar growth soared by +21% to 143 GW, accelerating from the +9% growth rates seen in both 2018 and 2019, according to BNEF. Solar growth in 2018 and 2019 was hindered by a temporary pull-back in Chinese solar installs and two years of global retrenchment after two very strong global solar growth years in 2016 (+34%) and 2017 (+32%). Over the past five years (2015-20), global solar has grown by a very strong compounded annual growth rate of +21%.

Solar growth soared in 2020 despite the pandemic, which slowed planning, construction, and supply-chain deliveries. Solar is being installed at a torrid clip across the globe due to its low cost and attractiveness as a long-term solution for a sustainable energy future. Solar’s low cost means that it is now on a strong long-term growth path without the need for government subsidies.

Solar will account for 28% of all electricity capacity additions, and there will be a massive $4.2 trillion of spending on solar through 2050, according to BNEF’s 2020 New Energy Outlook. BNEF forecasts that solar PV will account for 38% of world electricity capacity by 2050, up sharply from the 2019 level of 11%.

Solar will easily be the largest source of electricity generation in 2050 at 38%, far outpacing wind at 20% and gas at 15%, according to BNEF. BNEF expects coal to fall to 7% of electricity generation by 2050 from 28% in 2019, and for nuclear to drop to 2% in 2050 from 5% in 2019.

“I see solar becoming the king of the world’s electricity markets, Fatih Birol, executive director of the International Energy Agency (IEA), said upon the release of the IEA’s flagship World Energy Outlook report. In that report, the IEA forecasts that solar will easily become the largest source of electricity generation by 2040. The report goes on to say:

“Solar PV becomes the new king of electricity supply and looks set for massive expansion. From 2020 to 2030, solar PV grows by an average of 13% per year, meeting almost one-third of electricity demand growth over that period. Global solar PV deployment exceeds pre-crisis levels by 2021 and sets new records each year after 2022 thanks to widely available resources, declining costs and policy support in over 130 countries.”

Demand for solar should surge in the coming years as solar costs fall and as solar becomes even more competitive against fossil fuels and nuclear. Solar’s levelized cost has already plunged by an overall -85% since 2010 and by an average -8% per year over the last five years, according to Lazard (see p. 10).

China’s transition to subsidy-free solar is progressing well

There is strong optimism about the Chinese solar market as it shakes off the Covid pandemic and shifts toward a subsidy-free market in the coming years.

The markets are also optimistic about the Chinese government’s intent to rely heavily on solar to meet increasingly aggressive climate targets. In September 2020, China’s President Xi surprised the world by announcing at the UN General Assembly that China intends to be carbon-neutral by 2060, which was the first time China had set such a target.

In December 2020, President Xi then announced a more specific target of 1,200 GW of solar, wind, and biomass capacity by 2030, which is nearly triple the current capacity of 450 GW. The Chinese government also proposed a new clean power mandate that would require grid operators, power retailers, and large consumers to source 25.9% of their output from solar, wind, or biomass by 2030. BNEF estimates that meeting that mandate would require 1,580 GW of cumulative capacity by 2030, or a third higher than President Xi’s earlier goal of 1,200 GW.

The Chinese government in March 2021 then announced a draft of the 14th Five-year Plan for 2021-2025. That plan reiterated the targets for carbon emissions to peak before 2030 and achieve carbon-neutrality by 2060. In October 2021, China adopted those goals in its National Determination Contribution (NDC) under the Paris Climate Agreement.

To meet its NDC goals, China has adopted a target of generating 25% of its electricity from non-fossil fuel sources by 2030. China also reiterated its target of achieving 1,200 GW of renewable energy capacity by 2030 and 619 GW of solar by 2030.

In order to meet that dramatic renewables goal, China has begun work on a massive solar and wind project in its desert regions. The first phase of 100 GW of wind and solar began earlier this year and has been running smoothly, leading to the government to plan a second phase. There are reports that the project total will be a massive 400 GW, with a target of being half-completed by 2025.

Turning to solar growth rates, Chinese solar installs in 2020 soared by +57% to 52.1 GW from 33.1 GW in 2019. The 2020 install level of 52 GW was just slightly below the record high of 53.0 GW posted in 2017.

Solar installs were undercut in early 2020 by the Covid pandemic but finished the year on a very strong note as developers sought to beat the expiration of some subsidies at the end of 2020.

BNEF is forecasting that Chinese solar installs in 2021 will have another strong year with growth of +19% to 61.8 GW. Strength in 2021 is expected to be driven in part by the completion of projects that were started in 2020 to qualify for subsidies.

Chinese solar installs are expected to remain strong even though the Chinese government is transitioning to a solar market without national subsidies. Developers are showing strong interest in subsidy-free solar projects since they can still earn attractive internal rates of return. The Chinese government has also added benefits to subsidy-free projects, such as a guaranteed price for solar electricity output and priority on the grid. Solar projects can still qualify for subsidies at the local level.

The move away from national subsidies should be a long-term positive factor for the Chinese solar industry since the industry should be able to grow in a more predictable manner with more stable profit margins, as opposed to the boom-bust days of the past that were caused by erratic government subsidy policies.

Without subsidy distortions, the solar industry should be able to more closely match end-user demand, thus eliminating the small and less competitive players that can only compete when there are generous subsidies. The current trend should accelerate whereby the solar industry is dominated by large players with the best technology and the lowest production costs.

In recent years, the Chinese solar market has been buffeted by erratic subsidy policies that previously caused upheaval in the industry. For example, Chinese solar installs in 2017 soared by 76% to a record high of 53.0 GW as developers took advantage of very generous government subsidies.

However, in response to that 2017 install surge, the Chinese government, on May 31, 2018, announced a sharp cut in most of its solar subsidies, with utility-scale solar capped at 40 GW and roof-top distributed generation (DG) capped at 10 GW in 2018. China’s subsidy phase-out plan was referred to in the industry as the “China-531” order after the date of the announcement.

The government was forced into its China-531 action partly by the big backlog of unpaid subsidies that reached $23 billion by the end of 2018. The China-531 curtailment of subsidies caused a sharp drop in Chinese solar installs by -17% to 44.3 GW in 2018 and -25% to 33.1 GW in 2019.

Regarding Chinese labor issues, the U.S. government in June 2021 imposed a “withhold release order” that blocked the import of polysilicon products produced by five companies based in China’s Xinjiang province due to allegations the companies were involved with forced labor programs of the Uyghur Muslim minority. The Biden administration also placed those companies on the Treasury’s Entity List, which blocks U.S. exports to those companies.

One of the targeted companies denied the use of forced labor. In order to rebut the claims, the company hired a global auditor to study its workforce practices and opened its Xinjiang factory to tours by global equity analysts and investors.

The markets were relieved that the U.S. order was narrowly focused and did not involve a blanket prohibition on the import of polysilicon from the Xinjiang region. Factories in the Xinjiang region produced about 45% of the world’s solar-grade polysilicon in 2020, according to Bernreuter Research. Polysilicon plants consume a large amount of electricity, which makes Xinjiang an attractive location for those plants due to the region’s cheap electricity prices.

There is concern that the ban could hamper the ability of U.S. developers to import solar products and raise the price of imported solar panels, thus curbing the U.S. solar growth rate. However, a Citigroup analyst quoted by Bloomberg said he expects the impact from the ban will be “mild” since the U.S. only buys a small portion of China’s solar module output. The U.S. in recent years has had tariffs on Chinese solar products, which means that U.S. imports of Chinese solar products are relatively small.

Also, the U.S. accounted for only 14% of global solar installs in 2020, which means that the impact of the U.S. ban is likely to have only a minor impact on the overall global solar growth rate even if it impedes the U.S. solar install rate.

Global solar companies have been aware of the Xinjiang risk for months and have already been taking steps to divert supplies away from Xinjiang and do a better job of ensuring transparency and documenting their supply chains.

The global solar industry as a whole is also taking steps to address allegations of forced labor. About 175 solar companies from around the world signed a pledge sponsored by the Solar Energy Industries Association (SEIA) to ensure that their supply chains are free of any forced-labor products (see “Solar Companies Unite to Prevent Forced Labor in the Solar Supply Chain”). The SEIA also released a Supply Chain Traceability Protocol that helps companies prove that their supply chain is free of any products that are potentially connected with forced labor (see “New Traceability Protocol Allows Solar Companies to Ensure Ethical Supply Chain”).

U.S. solar is seeing strong growth despite obstacles

U.S. solar growth is seeing strong growth despite recent obstacles. U.S. solar installs in 2020 soared by +64% to 18.9 GW, adding to 2019’s strong +15% growth rate. BNEF is forecasting another strong year for U.S. solar in 2021 despite recent obstacles with growth of +56% to 29.5 GW.

Solar accounted for an impressive 43% of U.S. electricity installs in 2020, which was a record high and up from 40% in 2019, according to Wood Mackenzie. Solar remained first among all the electricity generation technologies for the second straight year, beating the 38% share for wind and 18% share for natural gas. The share of natural gas electricity additions fell sharply to 18% in 2020 from 32% in 2019 and 57% in 2018 as solar and wind took the lion’s share of new installs and shoved aside natural gas.

Solar showed very strong growth in 2020 despite the pandemic, which turned out to have a minor impact on the overall install rates. The residential sector was negatively impacted by the pandemic in Q2-2020 but then came roaring back in the second half of the year and still showed strong yearly growth of +11% to 3.1 GW.

Solar installs in the non-residential sector (commercial, government, nonprofit, and community solar) showed a -4% decline in 2020 to 2 GW, according to Wood Mackenzie. Non-residential installs were undercut by the pandemic, which slowed development timelines and delayed project interconnections.

By contrast, U.S. utility solar installs in 2020 soared by +60% to a new record of just under 14 GW, according to Wood Mackenzie. Moreover, Wood Mackenzie expects strong growth to continue into 2021 due to a massive utility-solar pipeline of 69 GW. The firm expects utility solar to show continued strong growth due to “the expansion of state-level renewable energy targets, utilities’ self-enforced carbon reduction plans, a renewed focus on clean energy deployment at the federal level, and large corporate off-takers looking to meet net-zero carbon emissions goals.”

Solar installs in 2020 also showed strength as developers sought to take advantage of the previously-set 26% solar investment tax credit (ITC) in 2020 before it was to step down to 22% in 2021 and 10% in 2022 for utility PV projects, non-residential, and third-party-owned residential solar projects (but to zero for direct-owned residential projects).

However, the solar industry received a pleasant surprise in December 2020 when Congress extended the solar ITC for another two years as part of the combined passage of the $900 billion pandemic aid bill and the $1.4 trillion omnibus spending bill. The 2-year extension of the ITC caused Wood Mackenzie to increase its U.S. solar install figure by a total of +17% for its 2021-25 forecast.

The ITC is currently set at 26% for 2021 and 2022. The ITC will then fall to 22% in 2023, and then in 2024 to 10% indefinitely for large-scale solar projects and to zero for small-scale solar projects.

Regarding the ITC, the markets are mainly waiting to see if Democrats can pass the $1.75 trillion Build Back Better bill, which contains a long-term extension of the ITC. Alternatively, Democrats could pass an ITC extension by appending it to other legislation.

The Build Back Better bill, currently under consideration in the Senate, contains an extension of the ITC and a hike in the ITC rate to 30% from the current 26%. Also, the ITC proposal would have a “direct pay” provision, which would allow tax credits to be converted into direct payments from the federal government, rather than as an offset by investors against tax liabilities, which a shortage of tax equity can hinder. The Build Back Better proposal also has a production tax credit for U.S. solar manufacturers.

Congress in November 2021 completed passage of the $550 billion bipartisan infrastructure bill that contained funds for clean energy research, power grid upgrades, and support for building a nationwide network of power charging stations for electric vehicles, some of which may be solar-powered. The bill included about $80 billion of funding for the energy transition, with $28 billion of that earmarked for grid enhancement.

Since taking office in January 2021, the Biden administration has taken a number of executive actions on the climate front. President Biden, on his first day in office, announced that the U.S. would rejoin the international Paris Climate Accord. That confirmed that the U.S. would resume its global leadership position in trying to meet the Paris Climate Accord’s goal of keeping global warming to less than 2 degrees Celsius above the pre-industrial level, and preferably below 1.5 degrees Celsius. President Biden also pledged to reach a 100% carbon-free electricity sector by 2035 and to reach net-zero greenhouse gas emissions by 2050.

The Biden administration in April 2021 announced a new “Nationally Determined Contribution” under the Paris Climate Agreement of a reduction in U.S. greenhouse gas emissions by 50-52% by 2030 from 2005 levels. That was nearly double the previous commitment made by President Obama of a 26-28% cut in greenhouse gas emissions by 2025 from 2005 levels. The NDC also adopts the target of the U.S. economy having net-zero carbon emissions by 2050.

In December 2021, President Biden signed an executive order to cut the federal government’s emissions by 65% by 2035 and make the government carbon neutral by 2050, the same year that carbon neutrality is targeted for the U.S. economy as a whole. As part of that order, the U.S. government is instructed to have 100% carbon pollution-free electricity by 2030, which is only eight years away.

Explaining the order, the White House said, “The federal government will work with utilities, developers, technology firms, financiers, and others to purchase electricity produced from resources that generate no carbon emissions, including solar and wind, for all its operations by 2030.”

The markets are waiting to see how the Biden administration handles the tariffs on the solar industry that were previously imposed by the Trump administration. There is concern that Mr. Biden will take a continued aggressive approach to China on solar tariffs. Indeed, the Biden administration in March argued in court that the Trump Administration’s reimposition of tariffs on bifacial solar panels was legal and should remain in effect.

The U.S. solar market in recent years has been negatively impacted by solar tariffs imposed by the former Trump administration. Mr. Trump, in January 2018, announced a Section 201 tariff of 30% on imported solar cells and modules, which hurt solar install growth because of the higher price of solar panels for U.S. solar projects. The markets are waiting to see if the Biden administration might raise or extend that tariff.

The initial Section 201 import tariff of 30% for 2018 already stepped down to 25% as of February 2019, 20% as of February 2020, and 15% as of February 2021. The tariff is set to drop to zero in February 2022, when it expires. The first 2.5 GW of solar imports are exempt from the tariff. Thin-film solar modules, such as those produced by First Solar, are exempt from the tariff even if those modules are imported from overseas factories. The only significant solar-producing countries that are exempt from the tariff are Turkey, Brazil, and South Africa. However, imports from those exempted nations are capped each year at 300 MW each and at 900 MW as a group.

The former Trump administration in June 2019 surprised the solar industry by exempting bifacial (two-sided) solar panels from the Section 201 tariff, which resulted in a surge in imports of those panels during summer 2019. The Trump administration then reversed its decision, but it took time to reimpose the tariff because of procedural requirements. More recently, a U.S. trade court in November 2021 reinstated that tariff exemption and ordered a return of tariffs paid by companies for bifacial panels.

On the tariff front, the U.S. solar sector is also dealing with some disruptions in the solar inverter market. Solar inverters are electrical devices that convert the direct current (DC) from solar panels into the alternating current (AC) used on the grid.

The Trump administration in May 2019 raised the tariff on inverters imported from China to 25% from the 10% level that was first imposed in September 2018 as part of the U.S. move to impose tariffs on $200 billion of Chinese products.

However, the inverter tariff is not having much direct impact on the U.S. solar sector because inverters can easily be sourced outside of China. Yet, the inverter tariff makes it difficult for the big Chinese inverter companies such as Huawei Technologies and Sungrow Power Supply to build their market share in the U.S.

On another tariff issue, the former Trump administration, on September 1, 2019, imposed a 15% tariff on about $110 billion of Chinese goods that included Chinese lithium-ion batteries. Before the tariff, the U.S. imported about 40% of its lithium-ion batteries from China, although most of those batteries were for end-markets other than grid storage.

China supplies less than 5% of the batteries used in large-scale U.S. energy storage products, according to BNEF, which means that the U.S. tariff on Chinese batteries did not have much impact on the U.S. solar-plus-storage market.

U.S. solar growth has been very volatile in recent years, mainly because of changes by the U.S. government in tax credits and tariffs. For example, solar growth in 2016 spiked higher by +92% to beat the scheduled expiration of the investment tax credit (ITC) at the end of 2016, although Congress in December 2015 then extended the ITC by 5 years. U.S. solar installs fell by -23% in 2017 and by -2% in 2018 on a let-down after the 2016 spike and on the solar tariffs imposed by the Trump Administration in January 2018.

In another episode, solar growth in 2020 soared by +64% on strong demand and the desire to beat the scheduled step-down of the ITC at the end of 2020. However, Congress in December 2020, extended the ITC for another two years.

European solar expected to show strong growth in 2021

European solar growth remained relatively strong in 2020 despite the pandemic. European solar installs in 2020 rose by +8.0% to about 16.6 GW from 15.3 GW in 2019, according to BNEF. That added to the extremely strong growth years of +48% in 2018 and +98% in 2019.

In 2020, the largest PV install amounts were in Germany with 4.9 GW (+22% yr/yr), Netherlands 3.0 GW (+19% yr/yr), Spain 2.8 GW (-45% yr/yr), France 875 MW (-9% yr/yr), and Italy 645 GW (-13% yr/yr), according to BNEF.

European solar growth in 2020 continued to see support from the spread of subsidy-free solar throughout Europe and the EU’s elimination in late 2018 of the minimum-price scheme. Also, Europe is mandating increasing amounts of solar power to meet its aggressive targets for cutting emissions.

Much of Europe’s solar install growth in 2020 was driven by auctions for utility-scale solar in Germany, France, and Poland. Solar growth in Spain is being driven by subsidy-free power purchase agreements with both utilities and corporations.

European solar installs are expected to show strong growth in the coming years, with BNEF forecasting a +25% rise to 20.8 GW in 2021 and a +9% rise to 22.5 GW in 2022.

A very large pipeline of subsidy-free solar projects in Europe will contribute to installs in 2021 and 2022. BNEF reports that there is a huge 37.2 GW pipeline of unsubsidized solar projects in Europe that are scheduled to be built, with 6.6 GW of that due in 2021. BNEF reports that there are particularly large pipelines in Spain and Portugal.

European solar growth should receive a solid boost in coming years after the EU in July 2020 approved a big pandemic stimulus plan of 750 billion euros since almost one-third of those funds are targeted for fighting climate change. That added to the EU’s 7-year budget that has 1 trillion euros of funding to help EU countries meet their EU’s Paris Agreement goals for reducing carbon emissions.

European solar growth improved significantly after the EU in September 2018 ended its anti-dumping duties against solar modules imported from China and ended the associated minimum import price (MIP) scheme. The EU’s MIP scheme had been in place since 2013 when the EU tried unsuccessfully to protect local European solar manufacturers from Chinese competition. The MIP scheme succeeded only in raising the cost of solar modules for European solar installers and caused several years of very slow solar growth in Europe.

The end of the MIP scheme, combined with the sharp drop in solar module prices that resulted from the China-531 order in 2018, allowed solar to reach grid-parity in a growing portion of Europe. Many solar projects in Europe are now being installed on an unsubsidized basis.

European solar growth is expected to show solid growth in the coming years due to the need to meet renewable energy targets. The European Parliament in 2018 raised the EU renewable energy target for 2030 to 32% from 27% and also made the target binding on EU members. The European Commission in July 2021 proposed raising that renewable energy target to 40%, with that proposal going to the European Parliament and its members for approval. The EU is relying on its renewables target to meet its pledge under the UN Paris climate agreement to cut its greenhouse gas emissions by at least 55% by 2030 from 1990 levels, and to become carbon neutral by 2050.

India’s solar expected to recover after weak 2020

India’s government is pushing solar very hard as a means to modernize India’s infrastructure, boost its global business competitiveness, expand electricity access in rural areas, and meet its climate goals.

The Indian government has set a goal of installing a cumulative 100 GW of solar by 2022, consisting of 60 GW of large-scale solar and 40 GW of rooftop solar. However, India is unlikely to meet that goal due in part to the pandemic disruptions in 2020 and 2021. The 100 GW target is more than twice India’s cumulative installed solar capacity of 48 GW as of the end of 2020. India has set a climate target of achieving zero carbon emissions by 2070.

India’s solar installs in 2020 slowed sharply by -63% to 4.2 GW from 11.6 GW in 2019, according to BNEF. India’s solar installs in 2020 were hurt mainly by the Covid pandemic, which caused planning and construction delays and supply-chain disruptions. Also, solar developers pulled back due to the poor financial condition of electric utilities and their delayed payments to developers.

However, India’s solar installs are expected to show a major recovery in 2021 and 2022 as delayed projects come on line and as the government continues to push hard for more solar. India’s solar installs in 2021 will grow by +186% to 12.1 GW, and will then grow by another 7% in 2022 to 13.0 GW, according to forecasts by BNEF.

India’s solar sector has seen serious disruptions over the past several years from the government’s use of tariffs to encourage the development of domestic solar panel manufacturing capacity. The government tariff has made it difficult for solar installers to obtain reasonably-priced solar panels to meet their installation plans. However, the tariff has been sidestepped to some extent by sourcing panels from non-tariffed countries and by having solar plant owners pay the tariff for imported panels to get their plants finished on schedule.

The Indian government first implemented the 25% safeguard tariff on July 30, 2018, covering modules imported from developed countries, China, or Malaysia. The 2-year tariff started at 25% for the first year (30-Jul-2018 to 29-Jul-2019) but then stepped down to 20% for the next 6-month period (30-Jul-2019 to 29-Jan-2020) and to 15% for the next 6-month period (30-Jan-2020 to 29-Jul-2020).

The safeguard tariff was imposed to prevent the “threat of serious injury” to domestic solar module producers from import competition. Prior to the tariff, India imported 90% of its modules from China and Malaysia.

The government then extended the tariff for another year at 14.9% for the 6-month period of July 30, 2020 to January 29, 2021, stepping down slightly to 14.5% for the next 6-month period of January 30, 2021 to July 29, 2021. In addition to developed countries and China, the 2020-21 tariff also applied to Thailand and Vietnam. India dropped Malaysia as a country covered by the tariff.

The government’s current plan is to have no import tariffs from July 2021 through March 2022. However, the government then plans to impose a large 40% basic customs duty on solar modules, and a 25% duty on solar cells, starting in April 2022. That duty will be a further attempt to promote the development of solar panel and cell manufacturing capacity within India. However, India’s solar manufacturing base remains far smaller than solar demand, meaning the duty is likely to hurt solar installers’ ability to find enough reasonably-priced solar panels to meet the strong demand.

Japan’s solar sees strong growth in 2020

Solar installs in Japan in 2020 rose sharply by +20% to 8.1 GW from 6.7 GW in 2019, according to BNEF. Solar growth was strong as developers sought to meet project completion deadlines in 2020 and 2021 to qualify for the solar feed-in-tariff (FIT), which is progressively stepping down.

Solar installs in Japan are expected to be negatively impacted by the phase-out of the government’s generous FIT program for large-scale solar projects in 2022. BNEF is forecasting that Japan’s solar installs will fall by -13% to 7.1 GW in 2021 and by -35% to 4.6 GW in 2022.

However, the Japanese government’s support for solar will continue in the coming years. The government’s FIT program will continue to support smaller-scale solar projects while the government is developing a new feed-in-premium (FIP) support program for large-scale projects starting in 2022.

The Japanese government in July 2021 almost doubled its solar target to a cumulative capacity of 108 GW by 2030. In order to meet that target, Japan would need to install 37 GW of solar by 2030, or an average of 3.7 GW per year. The government raised its solar target to help meet Japan’s carbon target of cutting greenhouse gas emissions by 46% by 2030 from 2013 levels.

Solar in Japan should also see support in coming years from Japanese corporations looking to acquire solar power purchase agreements to meet their corporate renewable energy goals. Corporate demand is expected to drive the development of subsidy-free solar in Japan in the coming years.

Elsewhere in Asia, Taiwan is expected to see strong solar installs in the coming years as the government promotes solar to meet its climate goals. Solar installs in Taiwan grew sharply by +41% to 1.4 GW in 2019 but then fell by -22% to 1.1 GW in 2020, according to BNEF.

Solar is seeing strong demand in Taiwan from corporations looking to meet their renewable energy goals. Also, there is rising demand for solar power in Taiwan to replace the coming closure of coal and nuclear plants. Taiwan’s government is targeting a 25% renewable energy supply by 2025 and has announced an aggressive solar cumulative-capacity target of 20 GW by 2025, which would be four times the current cumulative capacity of about 5 GW.

South Korea is another bright spot for solar in Asia. Solar installs in South Korea grew sharply by +70% in 2018 and +62% in 2019, before tailing off to +5% growth in 2020 to 3.8 GW, according to BNEF.

Corporate demand for solar power is expected to grow sharply after South Korea’s government in January 2021 revised its electricity laws to allow clean energy developers to sell electricity directly to corporations with power purchase agreements. The South Korean government in February also raised its mandate to 25% from 10% for the amount of annual renewable energy that electric utilities must source by 2030.

Solar stocks settle back on industry bottlenecks but see support from strong growth and policy prospects; 2021 solar growth seen at over +20%
 

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Solar Index Performance

The MAC Global Solar Energy Stock Index, the tracking index for the Invesco Solar ETF (NYSE ARCA: TAN), has settled back in recent months after posting a 12-year high in January 2021. The Index is currently down by -14% on a year-to-date basis, giving back some of the extraordinary +235% annual gain seen in 2020.

The MAC Solar Index in 2020 rallied sharply as the industry shook off the impact of the pandemic and looked ahead to more favorable solar policy support as Joe Biden won the November 2020 U.S. presidential election and Democrats took control of both the House and Senate. The Index has since fallen back as solar stocks hit some short-term roadblocks caused by a temporary polysilicon shortage and various pandemic-related supply chain disruptions and costs.

Bullish longer-term factors for solar stocks include (1) expectations for a global dash to reduce carbon emissions now that the U.S. has reclaimed its leadership role in the global Paris climate effort, (2) the strong global solar demand picture that has resulted from the fact that solar has now reached unsubsidized grid parity in more than two-thirds of the world, (3) the pairing of solar with large-scale battery systems to provide a 24/7 electricity solution, (4) broadening solar growth in India, Turkey, Latin America, Middle East, and Southeast Asia, and (5) strong demand for renewable energy as countries seek to meet their carbon-reduction targets under the Paris COP21 global climate agreement.

Bearish factors for solar stocks include (1) the temporary increase in polysilicon and solar module costs being caused by polysilicon factory disruptions and pandemic-related supply chain shortages and costs, (2) the transition in China to unsubsidized solar, (3) the continued negative effect on U.S. solar from the Section 201 tariff on imported cells and modules that took effect in February 2018, and (4) temporary obstacles to India’s solar growth from the pandemic and the government’s solar tariffs.

Solar stocks settle back on industry bottlenecks but see support from strong growth and policy prospects

Solar stocks are sharply higher from their pandemic lows seen in spring-2020 due to (1) the overall recovery in global stocks seen since the pandemic-induced dip in spring 2020, (2) the realization that solar is emerging as a key solution to climate change as it becomes the cheapest source of new electricity generation and is paired with battery storage for 24/7 electricity, (3) the Democratic sweep of Washington in the November 2020 election and expectations for a strong solar push from Washington, (4) the extension of the solar ITC by two years in December 2020, and (5) a big European renewable energy push to stimulate the pandemic-ravaged economy and meet its Paris climate goals.

Global solar installs in 2020 grew at a very strong rate of +21% despite the pandemic, according to Bloomberg New Energy Finance (BNEF). Moreover, global solar growth is expected to have an even bigger year in 2021 with growth of +28%, according to forecasts by BNEF.

Solar growth is currently running strong in China, the U.S., Europe, and many other countries around the world. China’s solar installs in 2021 will grow by +32%, U.S. solar installs will grow by +39%, and EU installs will grow by +23%, according to BNEF forecasts. India’s solar installs in 2021 are expected to soar by +137% on a recovery from 2020’s slump of -63%.

Global solar growth is expected to show another very strong year in 2021 despite ongoing disruptions from the Covid pandemic. Bloomberg New Energy Finance (BNEF) is forecasting that solar installs in 2021 will grow by +28% to 182 GW from 143 GW in 2020.

In 2020, world solar growth soared by +21% to 143 GW, accelerating from the +9% growth rates seen in both 2018 and 2019, according to BNEF. Solar growth in 2018 and 2019 was hindered by a temporary pull-back in Chinese solar installs and two years of global retrenchment after two very strong global solar growth years in 2016 (+34%) and 2017 (+32%). Over the past five years (2015-20), global solar has grown by a very strong compounded annual growth rate of +21%.

Solar growth soared in 2020 despite the pandemic, which slowed planning, construction, and supply-chain deliveries. Solar is being installed at a torrid clip across the globe due to its low cost and attractiveness as a long-term solution for a sustainable energy future. Solar’s low cost means that it is now on a strong long-term growth path without the need for government subsidies.

Solar will account for 28% of all electricity capacity additions, and there will be a massive $4.2 trillion of spending on solar through 2050, according to BNEF’s 2020 New Energy Outlook. BNEF forecasts that solar PV will account for 38% of world electricity capacity by 2050, up sharply from the 2019 level of 11%.

Solar will easily be the largest source of electricity generation in 2050 at 38%, far outpacing wind at 20% and gas at 15%. BNEF expects coal to fall to 7% of electricity generation by 2050 from 28% in 2019, and for nuclear to drop to 2% in 2050 from 5% in 2019.

“I see solar becoming the king of the world’s electricity markets, Fatih Birol, executive director of the International Energy Agency (IEA), said upon the release of the IEA’s flagship World Energy Outlook report. In that report, the IEA forecasts that solar will easily become the largest source of electricity generation by 2040. The report goes on to say:

“Solar PV becomes the new king of electricity supply and looks set for massive expansion. From 2020 to 2030, solar PV grows by an average of 13% per year, meeting almost one-third of electricity demand growth over that period. Global solar PV deployment exceeds pre-crisis levels by 2021 and sets new records each year after 2022 thanks to widely available resources, declining costs and policy support in over 130 countries.”

Demand for solar should surge in the coming years as solar costs continue to fall and as solar becomes even more competitive against fossil fuels and nuclear. Solar’s levelized cost has already plunged by an overall -85% since 2010 and by an average -11% per year over the last five years, according to Lazard (see p. 9).

China’s transition to subsidy-free solar is progressing well

There is strong optimism about the Chinese solar market as it shakes off the Covid pandemic and shifts toward a subsidy-free market in the coming years.

The markets are also optimistic about the Chinese government’s intent to rely heavily on solar to meet increasingly aggressive climate targets. In September 2020, China’s President Xi surprised the world by announcing at the UN General Assembly that China intends to be carbon-neutral by 2060, which is the first time China has set such a target.

In December 2020, President Xi then announced a more specific target of 1,200 GW of solar, wind, and biomass capacity by 2030, which is nearly triple the current capacity of 450 GW. The Chinese government also proposed a new clean power mandate that would require grid operators, power retailers, and large consumers to source 25.9% of their output from solar, wind, or biomass by 2030. BNEF estimates that meeting that mandate would require 1,580 GW of cumulative capacity by 2030, or a third higher than President Xi’s earlier goal of 1,200 GW.

The Chinese government in March 2021 then announced a draft of the 14th Five-year Plan for 2021-2025. That plan reiterated the targets for carbon emissions to peak before 2030 and achieve carbon-neutrality by 2060. The plan also contained some details on how those targets will be met. One of the key targets in the plan was a goal of generating 20% of its electricity from non-fossil fuel sources by 2025, which is just a few years away. The 20% target was up from the previous target of 15.9%.

Turning to solar growth rates, Chinese solar installs in 2020 soared by +57% to 52.1 GW from 33.1 GW in 2019. The 2020 install level of 52 GW was just slightly below the record high of 53.0 GW posted in 2017.

Solar installs were undercut in early 2020 by the Covid pandemic but finished the year on a very strong note as developers sought to beat the expiration of some subsidies at the end of 2020.

BNEF is forecasting that Chinese solar installs in 2021 will have another big year with growth of +32% to 69.0 GW. Strength in 2021 is expected to be driven in part by the completion of projects that were started in 2020 to qualify for subsidies.

Chinese solar installs are expected to remain strong even though the Chinese government is transitioning to a solar market without national subsidies. Developers are showing strong interest in subsidy-free solar projects since they can still earn attractive internal rates of return. The Chinese government has also added benefits to subsidy-free projects, such as a guaranteed price for solar electricity output and priority on the grid. Solar projects can still qualify for subsidies at the local level.
The move away from national subsidies should be a long-term positive factor for the Chinese solar industry since the industry should be able to grow in a more predictable manner with more stable profit margins, as opposed to the boom-bust days of the past that were caused by erratic government subsidy policies.

Without subsidy distortions, the solar industry should be able to more closely match end-user demand, thus eliminating the small and less competitive players that can only compete when there are generous subsidies. The current trend should accelerate whereby the solar industry is dominated by large players with the best technology and the lowest production costs.

In recent years, the Chinese solar market has been buffeted by erratic subsidy policies that previously caused upheaval in the industry. For example, Chinese solar installs in 2017 soared by 76% to a record high of 53.0 GW as developers took advantage of very generous government subsidies.

However, in response to that 2017 install surge, the Chinese government, on May 31, 2018, announced a sharp cut in most of its solar subsidies, with utility-scale solar capped at 40 GW and roof-top distributed generation (DG) capped at 10 GW in 2018. China’s subsidy phase-out plan was referred to in the industry as the “China-531” order after the date of the announcement.

The government was forced into its China-531 action partly by the big backlog of unpaid subsidies that reached $23 billion by the end of 2018. The China-531 curtailment of subsidies caused a sharp drop in Chinese solar installs by -17% to 44.3 GW in 2018 and -25% to 33.1 GW in 2019.

Regarding Chinese labor issues, the U.S. government in June 2021 imposed a “withhold release order” that blocked the import of polysilicon products produced by five companies based in China’s Xinjiang province due to allegations the companies were involved with forced labor programs of the Uyghur Muslim minority. The Biden administration also placed those companies on the Treasury’s Entity List, which blocks U.S. exports to those companies.

One of the targeted companies denied the use of forced labor. In order to rebut the claims, the company hired a global auditor to study its workforce practices and opened its Xinjiang factory to tours by global equity analysts and investors.

The markets were relieved that the U.S. order was narrowly focused and did not involve a blanket prohibition on the import of polysilicon from the Xinjiang region. Factories in the Xinjiang region produced about 45% of the world’s solar-grade polysilicon in 2020, according to Bernreuter Research. Polysilicon plants consume a large amount of electricity, which makes Xinjiang an attractive location for those plants due to the region’s cheap electricity prices.

There is concern that the ban could hamper the ability of U.S. developers to import solar products or raise the price of imported solar panels, thus curbing the U.S. solar growth rate. However, a Citigroup analyst quoted by Bloomberg said he expects the impact from the ban will be “mild” since the U.S. only buys a small portion of China’s solar module output. The U.S. in recent years has had tariffs on Chinese solar products, which means that U.S. imports of Chinese solar products are relatively small.

Also, the U.S. accounted for only 14% of global solar installs in 2020, which means that the impact of the U.S. ban is likely to have only a minor impact on the overall global solar growth rate even if it impedes the U.S. solar install rate.

Global solar companies have been aware of the Xinjiang risk for months and have already been taking steps to divert supplies away from Xinjiang and do a better job of ensuring transparency in their supply chains.

The global solar industry as a whole is also taking steps to address allegations of forced labor. About 175 solar companies from around the world signed a pledge sponsored by the Solar Energy Industries Association (SEIA) to ensure that their supply chains are free of any forced-labor products (see “Solar Companies Unite to Prevent Forced Labor in the Solar Supply Chain”). The SEIA also released a Supply Chain Traceability Protocol that helps companies prove that their supply chain is free of any products that are potentially connected with forced labor (see “New Traceability Protocol Allows Solar Companies to Ensure Ethical Supply Chain”).

U.S. solar is seeing blockbuster growth

U.S. solar growth is seeing blockbuster growth due to its low cost and strong policy support. U.S. solar installs in 2020 soared by +64% to 18.9 GW, adding to 2019’s strong +15% growth rate to 11.5 GW. BNEF is forecasting another strong year for U.S. solar in 2021 with growth of +39% to 26.2 GW.

Solar accounted for a hefty 43% of U.S. electricity installs in 2020, which was a record high and up from 40% in 2019, according to Wood Mackenzie. Solar remained first among all the electricity generation technologies for the second straight year, beating the 38% share for wind and 18% share for natural gas. The share of natural gas electricity additions fell sharply to 18% in 2020 from 32% in 2019 and 57% in 2018 as solar and wind took the lion’s share of new installs and shoved aside natural gas.

Solar showed very strong growth in 2020 despite the pandemic, which turned out to have only a minor impact on the overall install rates. The residential sector was negatively impacted by the pandemic in Q2-2020 but then came roaring back in the second half of the year and still showed strong yearly growth of +11% to 3.1 GW.

Solar installs in the non-residential sector (commercial, government, nonprofit, and community solar) showed a -4% decline in 2020 to 2 GW, according to Wood Mackenzie. Non-residential installs were undercut by the pandemic, which slowed development timelines and delayed project interconnections.

By contrast, U.S. utility solar installs in 2020 soared by +60% to a new record of just under 14 GW, according to Wood Mackenzie. Moreover, Wood Mackenzie expects strong growth to continue into 2021 due to a massive utility-solar pipeline of 69 GW. The firm expects utility solar to show continued strong growth due to “the expansion of state-level renewable energy targets, utilities’ self-enforced carbon reduction plans, a renewed focus on clean energy deployment at the federal level, and large corporate off-takers looking to meet net-zero carbon emissions goals.”

Solar installs in 2020 also showed strength as developers sought to take advantage of the 26% solar investment tax credit (ITC) in 2020 before it was to step down to 22% in 2021 and 10% in 2022 for utility PV projects, non-residential, and third-party-owned residential solar projects (but to zero for direct-owned residential projects).

However, the solar industry received a pleasant surprise in December 2020 when Congress extended the solar ITC for another two years as part of the combined passage of the $900 billion pandemic aid bill and the $1.4 trillion omnibus spending bill. The 2-year extension of the ITC caused Wood Mackenzie to increase its U.S. solar install figure by a total of +17% for its 2021-25 forecast.

The ITC is currently set at 26% for 2021 and 2022. The ITC will then fall to 22% in 2023 and then in 2024 to 10% indefinitely for large-scale solar projects and to zero for small-scale solar projects.

The U.S. solar industry received even better news in March 2021 when the Biden administration announced that its $2.25 trillion infrastructure plan includes a proposal for a 10-year extension of the ITC and a hike in the ITC rate to 30% from the current 26%. Also, the ITC proposal would have a “direct pay” provision, which would allow tax credits to be converted into direct payments from the federal government, rather than as an offset by investors against tax liabilities, which a shortage of tax equity can hinder. The solar industry is waiting to see whether Congress will pass the 10-year solar ITC as proposed by the Biden administration.

The Biden infrastructure proposal also contains $100 billion for the electricity sector and energy programs over the next eight years. The program included tax credits for storage and for grid modernization that would benefit the solar industry. The program also designated $180 billion for climate-related research, pilot projects, and other R&D efforts in advanced technologies.

The Biden infrastructure plan also contains a Clean Energy Standard (CES) proposal that would require a 100% zero-carbon U.S. electricity sector by 2035. The federal Clean Energy Standard would be similar to the state-level CES standards that already exist in thirty states, which are used to pressure utilities to move towards clean electricity and reduce their emissions.

The markets are waiting until autumn 2021 to see exactly what clean energy legislation Congress will pass. The Senate in early August 2021 passed a $550 billion bipartisan infrastructure bill that contained funds for clean energy research, power grid upgrades and support for building a nationwide network of power charging stations for electric vehicles, some of which may be solar-powered. However, House Speaker Pelosi said that the Senate’s infrastructure bill will not receive a vote in the House until the Senate passes the $3.5 trillion reconciliation bill.

The bulk of the Democrats’ clean energy legislation is expected to be contained in the $3.5 trillion reconciliation bill, which Congress will consider this autumn. The Democrats do not need to gain any support from any Republican Senators for that bill because it is being considered under the special budget reconciliation rules that do not allow a filibuster by the minority party.

The Biden administration has already taken executive actions on the climate front. President Biden, on his first day in office, announced that the U.S. would rejoin the international Paris Climate Accord. That confirmed that the U.S. would resume its global leadership position in trying to meet the Paris Climate Accord’s goal of keeping global warming to less than 2 degrees Celsius above the pre-industrial level, and preferably below 1.5 degrees Celsius. President Biden also pledged to reach a 100% carbon-free electricity sector by 2035 and to reach net-zero greenhouse gas emissions by 2050.

Mr. Biden named former Senator John Kerry as his Presidential climate envoy. Mr. Kerry said that meeting the current Paris emissions goals is not enough and that tighter restrictions are needed. Mr. Kerry said that even if every country delivered on its current commitments, there would still be a warming of planet Earth of about 3.7 degrees Celsius, which he said would be “just catastrophic.”

The Biden administration in April 2021 announced a new target for the U.S. to reduced greenhouse gas emissions by 50-52% by 2030 from 2005 levels. That is nearly double the previous commitment made by President Obama of a 26-28% cut in greenhouse gas emissions by 2025 from 2005 levels.

The BIden administration made the announcement of the new U.S. “Nationally Determined Contribution” ahead of the highly-important United National Climate Change Conference (COP26), which will be held this November in Glasgow.

The markets are waiting to see how the Biden administration will handle the tariffs on the solar industry that were previously imposed by the Trump administration. There is concern that Mr. Biden will take a continued aggressive approach to China on solar tariffs. Indeed, the Biden administration in March argued in court that the Trump Administration’s reimposition of tariffs on bifacial solar panels was legal and should remain in effect.

The U.S. solar market in recent years has been negatively impacted by solar tariffs imposed by the Trump administration. Mr. Trump, in January 2018, announced a Section 201 tariff of 30% on imported solar cells and modules, which hurt solar install growth because of the higher price of solar panels for U.S. solar projects. The markets are waiting to see if the Biden administration might raise or extend that tariff.

The initial Section 201 import tariff of 30% for 2018 already stepped down to 25% as of February 2019, 20% as of February 2020, and 15% as of February 2021. The tariff is set to drop to zero in February 2022, when it expires. The first 2.5 GW of solar imports are exempt from the tariff. Thin-film solar modules, such as those produced by First Solar, are exempt from the tariff even if those modules are imported from overseas factories. The only significant solar-producing countries that are exempt from the tariff are Turkey, Brazil, and South Africa. However, imports from those exempted nations are capped each year at 300 MW each and at 900 MW as a group.

The former Trump administration in June 2019 surprised the solar industry by exempting bifacial (two-sided) solar panels from the Section 201 tariff, which resulted in a surge in imports of those panels during summer 2019. The Trump administration then reversed its decision, but it took time to reimpose the tariff because of procedural requirements.

On the tariff front, the U.S. solar sector is also dealing with some disruptions in the solar inverter market. Solar inverters are electrical devices that convert the direct current (DC) from solar panels into the alternating current (AC) used on the grid.

The Trump administration in May 2019 raised the tariff on inverters imported from China to 25% from the 10% level that was first imposed in September 2018 as part of the U.S. move to impose tariffs on $200 billion of Chinese products.

However, the inverter tariff is not having much direct impact on the U.S. solar sector because inverters can easily be sourced outside of China. Yet, the inverter tariff makes it difficult for the big Chinese inverter companies such as Huawei Technologies and Sungrow Power Supply to build their market share in the U.S.

On another tariff issue, the Trump administration, on September 1, 2019, imposed a 15% tariff on about $110 billion of Chinese goods that included Chinese lithium-ion batteries. Before the tariff, the U.S. imported about 40% of its lithium-ion batteries from China, although most of those batteries were for end-markets other than grid storage.

China supplies less than 5% of the batteries used in large-scale U.S. energy storage products, according to BNEF, which means that the U.S. tariff on Chinese batteries did not have much impact on the U.S. solar-plus-storage market.

U.S. solar growth has been very volatile in recent years, mainly because of changes by the U.S. government in tax credits and tariffs. In 2016, solar growth spiked higher by +92% to beat the scheduled expiration of the investment tax credit (ITC) at the end of 2016, although Congress in December 2015 then extended the ITC by 5 years.

However, U.S. solar installs then fell by -23% in 2017 and by -2% in 2018 on a let-down after the 2016 spike and on the solar tariffs imposed by the Trump Administration in January 2018.

In 2019, U.S. solar growth showed a more stable growth rate of +8.0% after the volatility seen in the previous several years. Solar growth in 2020 then soared by +64% on strong demand and the desire to beat the scheduled step-down of the ITC at the end of 2020.

European solar expected to show strong growth in 2021

European solar growth remained relatively strong in 2020 despite the pandemic. European solar installs in 2020 rose by +8.0% to about 16.6 GW from 15.3 GW in 2019, according to BNEF. That added to the extremely strong growth years of +48% in 2018 and +98% in 2019.

In 2020, the largest PV install amounts were in Germany with 4.9 GW (+22% yr/yr), Netherlands 3.0 GW (+19% yr/yr), Spain 2.8 GW (-45% yr/yr), France 875 MW (-9% yr/yr), and Italy 645 GW (-13% yr/yr), according to BNEF.

European solar growth in 2020 continued to see support from the spread of subsidy-free solar throughout Europe and the EU’s elimination in late 2018 of the minimum-price scheme. Also, Europe is mandating increasing amounts of solar power to meet its aggressive targets for cutting emissions.

Much of Europe’s solar install growth in 2020 was driven by auctions for utility-scale solar in Germany, France, and Poland. Solar growth in Spain is being driven by subsidy-free power purchase agreements with both utilities and corporations.

European solar installs are expected to show strong growth in the coming years, with BNEF forecasting a +23% rise to 20.4 GW in 2021 and +12% to 22.7 GW in 2022.

A very large pipeline of subsidy-free solar projects in Europe will contribute to installs in 2021 and 2022. BNEF reports that there is a huge 37.2 GW pipeline of unsubsidized solar projects in Europe that are scheduled to be built, with 6.6 GW of that due in 2021. BNEF reports that there are particularly large pipelines in Spain and Portugal.

European solar growth should receive a solid boost in coming years after the EU in July 2020 approved a big pandemic stimulus plan of 750 billion euros since almost one-third of those funds are targeted for fighting climate change. That added to the EU’s 7-year budget that has 1 trillion euros of funding to help EU countries meet their EU’s Paris Agreement goals for reducing carbon emissions.

European solar growth improved significantly after the EU in September 2018 ended its anti-dumping duties against solar modules imported from China and ended the associated minimum import price (MIP) scheme. The EU’s MIP scheme had been in place since 2013 when the EU tried unsuccessfully to protect local European solar manufacturers from Chinese competition. The MIP scheme succeeded only in raising the cost of solar modules for European solar installers and caused several years of very slow solar growth in Europe.

The end of the MIP scheme, combined with the sharp drop in solar module prices that resulted from the China-531 order in 2018, allowed solar to reach grid-parity in a growing portion of Europe. Many solar projects in Europe are now being installed on an unsubsidized basis.

European solar growth is expected to show solid growth in the coming years due to the need to meet renewable energy targets. The European Parliament in 2018 raised the EU renewable energy target for 2030 to 32% from 27% and also made the target binding on EU members. The European Commission in July 2021 proposed raising that renewable energy target to 40%, with that proposal going to the European Parliament and its members for approval. The EU is relying on its renewables target to meet its pledge under the UN Paris climate agreement to cut its greenhouse gas emissions by at least 55% by 2030 from 1990 levels, and to become carbon neutral by 2050.

India’s solar expected to recover after weak 2020

India’s government is pushing solar very hard as a means to modernize India’s infrastructure, boost its global business competitiveness, expand electricity access in rural areas, and meet its climate goals.

The Indian government has set a goal of installing a cumulative 100 GW of solar by 2022, consisting of 60 GW of large-scale solar and 40 GW of rooftop solar. However, India is unlikely to meet that goal due in part to the pandemic disruptions in 2020. The 100 GW target is more than twice India’s cumulative installed solar capacity of 48 GW as of the end of 2020.

India’s solar installs in 2020 slowed sharply by -64% to 4.2 GW from 11.6 GW in 2019, according to BNEF. India’s solar installs in 2020 were hurt mainly by the Covid pandemic, which caused planning and construction delays and supply-chain disruptions. Also, solar developers pulled back due to the poor financial condition of electric utilities and their delayed payments to developers.

However, India’s solar installs are expected to show a major recovery in 2021 and 2022 as delayed projects come online and as the government continues to push hard for more solar. India’s solar installs in 2021 will grow by +137% to 10.0 GW, and will then grow by another 27% in 2022 to 12.7 GW, according to forecasts by BNEF.

India’s solar sector has seen serious disruptions over the past several years from the government’s use of tariffs to encourage the development of domestic solar panel manufacturing capacity. The government tariff has made it difficult for solar installers to obtain reasonably-priced solar panels to meet their installation plans. However, the tariff has been sidestepped to some extent by sourcing panels from non-tariffed countries and by having solar plant owners pay the tariff for imported panels to get their plants finished on schedule.

The Indian government first implemented the 25% safeguard tariff on July 30, 2018, covering modules imported from developed countries, China, or Malaysia. The 2-year tariff started at 25% for the first year (30-Jul-2018 to 29-Jul-2019) but then stepped down to 20% for the next 6-month period (30-Jul-2019 to 29-Jan-2020) and to 15% for the next 6-month period (30-Jan-2020 to 29-Jul-2020).

The safeguard tariff was imposed to prevent the “threat of serious injury” to domestic solar module producers from import competition. Prior to the tariff, India imported 90% of its modules from China and Malaysia.

The government then extended the tariff for another year at 14.9% for the 6-month period of July 30, 2020 to January 29, 2021, stepping down slightly to 14.5% for the next 6-month period of January 30, 2021 to July 29, 2021. In addition to developed countries and China, the 2020-21 tariff also applied to Thailand and Vietnam. India dropped Malaysia as a country covered by the tariff.

The government’s current plan is to have no import tariffs from July 2021 through March 2022. However, the government then plans to impose a large 40% basic customs duty on solar modules, and a 25% duty on solar cells, starting in April 2022. That duty will be a further attempt to promote the development of solar panel and cell manufacturing capacity within India. However, India’s solar manufacturing base remains far smaller than solar demand, meaning the duty is likely to hurt solar installers’ ability to find enough reasonably-priced solar panels to meet the strong demand.

Japan’s solar sees strong growth in 2020

Solar installs in Japan in 2020 rose sharply by +20% to 8.1 GW from 6.7 GW in 2019, according to BNEF. Solar growth was strong as developers sought to meet project completion deadlines in 2020 and 2021 to qualify for the solar feed-in-tariff (FIT), which is progressively stepping down.

Solar installs in Japan are expected to be negatively impacted by the phase-out of the government’s generous FIT program for large-scale solar projects in 2022. BNEF is forecasting that Japan’s solar installs will fall by -31% to 5.6 GW in 2021 and by -34% to 3.7 GW in 2022.

However, the Japanese government’s support for solar will continue in the coming years. The government’s FIT program will continue to support smaller-scale solar projects while the government is developing a new feed-in-premium (FIP) support program for large-scale projects starting in 2022.

The Japanese government in July 2021 almost doubled its solar target to a cumulative capacity of 108 GW by 2030. In order to meet that target, Japan would need to install 37 GW of solar by 2030, or an average of 3.7 GW per year. The government raised its solar target to help meet Japan’s carbon target of cutting greenhouse gas emissions by 46% by 2030 from 2013 levels.

Solar in Japan should also see support in coming years from Japanese corporations looking to acquire solar power purchase agreements to meet their corporate renewable energy goals. Corporate demand is expected to drive the development of subsidy-free solar in Japan in the coming years.

Elsewhere in Asia, Taiwan is expected to see strong solar installs in the coming years as the government promotes solar to meet its climate goals. Solar installs in Taiwan grew sharply by +41% to 1.4 GW in 2019 but then fell by -22% to 1.1 GW in 2020, according to BNEF.

Solar is seeing strong demand in Taiwan from corporations looking to meet their renewable energy goals. Also, there is rising demand for solar power in Taiwan to replace the coming closure of coal and nuclear plants. Taiwan’s government is targeting a 25% renewable energy supply by 2025 and has announced an aggressive solar cumulative-capacity target of 20 GW by 2025, which would be four times the current cumulative capacity of about 5 GW.

South Korea is another bright spot for solar in Asia. Solar installs in South Korea grew sharply by +70% in 2018 and +62% in 2019, before tailing off to +5% growth in 2020 to 3.8 GW, according to BNEF.

Corporate demand for solar power is expected to grow sharply after South Korea’s government in January 2021 revised its electricity laws to allow clean energy developers to sell electricity directly to corporations with power purchase agreements. The South Korean government in February also raised its mandate to 25% from 10% for the amount of annual renewable energy that electric utilities must source by 2030.

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MAC Solar Index June 2021 Quarterly Review Changes
 

As part of the regular quarterly Index review process that takes effect after the close of business on June 18, 2021, the following stocks will be added to the Index: Shoals Technologies Group, Inc. Class A (SHLS US) and O.Y. Nofar Energy Ltd (NOFR IT). The following stocks will be dropped from the Index: Clearway Energy Inc Cl C (CWEN US), Fastned BV (FAST NA), SHINSUNG E & G Co LTD (011930 KS), and Xinte Energy Co Ltd – H Shares (1799 HK).

S&P Dow Jones Indices becomes the benchmark administrator for the MAC Global Solar Energy Index
 

Effective Monday, May 24, 2021, S&P Dow Jones Indices became the benchmark administrator for the MAC Global Solar Energy Index. The latest Index methodology and other key information can be found on the S&P website at: https://www.spglobal.com/spdji/en/custom-indices/mac-indexing-llc/mac-global-solar-energy-index-net-total-return/#overview.