Monday, February 27, 2012

Global Solar Installations Set New Record Amid Creative Destruction

Torrents of media accounts about solar bankruptcies or declining solar subsidies suggest the solar industry is collapsing.  Indeed, the Wall Street Journal editorial page has run columns for years predicting the industry's demise and is still doing so in 2012. As with the end of times, the end of the solar industry is often predicted.

But 2011 was another bad year for earthly and solar doomsayers.  World solar installations boomed once again, reaching an impressive 27,700 megawatts, up from 16,600 megawatts in 2010, according to the European Photovoltaic Industry Association's 2011 Market Report.  See

To understand how big the world annual solar build is, consider that the US typically builds 10,000 to 20,000 megawatts of new power plants of all types in a year.  In short, the global solar market is approaching twice the size of the total US new power plant market.

So what about the stories about solar company bankruptcies and declining solar subsidies in some European countries?  Both are real, but their real meaning is misunderstood.

The solar bankruptcies and declining solar subsidies are both parts of the enormous global solar growth.  As solar installations soar and prices of solar power plummet, not too surprisingly some European countries are decreasing solar feed in rates.  Why? Solar projects simply require less subsidy, because their costs are declining sharply and are already at grid parity in some utility service territories in the USA and around the world.

The competition to supply and build solar projects is intense, and there are losers in the intensely competitive solar market.  But the intense competition, at the very same time as it destroys some companies, expands the solar market, by creating declining solar prices that makes more private capital move into solar power.  What is going on in the solar industry is capitalism's process of creative destruction, with the twist that capitalism as practiced in most of the world features public-private partnerships.

The global capacity to produce solar modules has increased 12 times in 5 years and stands at approximately 38,000 megawatts per year.  Consequently, companies that cumulatively can manufacture 38,000 megawatts of solar power per year are chasing orders that are rising sharply but reached 27,700 megawatts in 2011.

The intensely competitive solar manufacturing market will be a fact of life for years to come and that means both solar manufacturing bankruptcies and still lower solar panel prices ahead.

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