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Global Solar PV Market Report

Regional PV Overview

Penetration and Growth

Globally, a disparity in solar PV development is observed in both capacity and penetration parameters. In terms of installed capacity, the Asia-Pacific region, primarily due to China, takes the lead, followed by the Americas (largely due to the US) and Europe. In terms of penetration, however, a different set of countries lead the way. As the latest IEA estimates indicate, the global average solar PV penetration stands at 6.2% of total grid- based energy generation. The world’s top two countries in solar PV capacity – US and China – are not among the leading countries in solar PV penetration. This emphasizes the challenges in replacing conventional energy sources within a country’s grid power mix.

The Leading Countries in Solar PV Penetration

Note: Penetration is meant to convey share in total grid-based power generation

Source: IEA

The policy-led drive towards energy transition also contributes to the increase in solar PV penetration. One noteworthy aspect in this regard is how energy procurement practices are established across regions. It is evident that policy-led procurement, whether through administratively set tariffs or competitively bid auctions, accounts for the majority (60%) of this trend. The auction-based approach is prominent for utility-scale solar PV projects in the European and Asia-Pacific regions (excluding China). In China, the practice involves tariffs set at the provincial benchmark electric price level, as feed-in tariffs have been phased out. In such a setup, market-based power procurement holds a relatively small but rising and promising share (17%). This is primarily led by corporate power purchase agreements. Presently, the US leads globally in this model, followed by Brazil, Australia, Spain and Sweden, among others. Merchant power purchase agreements constitute a minority portion of this sector but are gaining traction due to the potential opportunities in wholesale power market participation. The recent episode of European power market volatility serves as an illustrative example.

Primary Procurement Type across Regions over 2023-2024

Policy thrust is perhaps one reason why four European countries are among the top-10 globally in solar PV penetration. As of March 2023, the European Union reached a provisional agreement on higher renewable energy share targets, aiming for 42.5% by 2030, up from the previous target of 32%. Regional policymakers are thus actively promoting rapid capacity expansion to meet these goals. The urgency in adopting renewable energy was further heightened by the energy crisis resulting from the Ukraine conflict and inflationary pressures. Progressively, solar PV has emerged as the preferred technology choice in this context due to its relatively lower development phase and a mature technology configuration. Data from the research agency Ember indicates that solar power generation contributed to Europe’s energy savings worth €10 billion during 2022.

The increase in policy-level priority was evident in 2022. Emerging markets such as Poland, which traditionally relied on a coal-based energy mix, added about 4GW in capacity. The Netherlands had the highest share of total new capacity in the region. New measures were implemented to expand the market.

For instance, in April 2023, the European Union launched the first cross-border tender, inviting bidders to establish new solar PV projects with a combined 400MW capacity in Finland. Permitting procedures were reviewed to expedite the projects, and, for the first time, regulatory authorities gave prime attention to addressing bottlenecks.

The steps on energy transition are also underway in the otherwise hydrocarbon-rich Middle East region. Solar PV plays a significant role in the region’s energy shift, thanks to its abundant solar resources and the declining costs in utility-scale projects, which attract investors’ interest. Cumulative solar PV capacity in the Middle East region increased by 35% year-on-year in 2022, with new capacity additions growing by 42% during the same period. Recently, there has been an increase in solar auctions in the Middle East, with projects awarded to Independent Power Producers – the most commonly used model for energy projects within the Gulf Cooperation Council. Approximately three-quarters of the region’s capacity is distributed among Israel, UAE and Jordan.

Top Countries

The Chinese market maintained its leadership in solar PV throughout 2022, adding over 86GW in capacity. This is about five times the capacity added during the same period by its closest competitor and the second-ranked global solar PV capacity holder, the US. Between 2020 and 2022, the country experienced an average annual PV capacity growth of 24%. China’s solar PV pipeline growth continues to outpace the rest of the world. A report by Global Energy Monitor estimates that the country is on track to achieve its 2030 renewable energy targets (wind and solar) five years ahead of schedule. The solar PV pipeline, driven by domestic demand, significantly surpasses other leading markets.

The strong domestic demand for solar power, however, does not fully translate into the share of this energy in the total grid power supply. As of the end of 2022, solar power accounted for only about 4.8% of total grid-based power generation. In 2019, this figure was at 3%.

The relatively slower growth in solar penetration in total energy mix partly reflects a plateau in utility-scale solar projects. Investment in large- scale centralized solar plants has slowed down due to cost fluctuations in PV modules, a lack of business models (such as merchant capacities and corporate PPAs) and an inadequate grid infrastructure. Consequently, the focus of growth shifted to distributed solar. Starting from 2021, the distributed solar segment has been responsible for the growth momentum. By the end of 2022, the country had added over 50GW in distributed solar. In effect, close to 60% of total solar PV capacity added came from distributed solar PV installations in the commercial and industrial sectors.

In other markets, however, the utility-scale solar PV segment continues to be the driving force for growth. This is the case for the US market, which ranks second after China in installed solar PV capacity. The market faced some headwinds that impacted capacity additions, with a 19% year-on-year growth in 2022, compared to an average of 25% in the previous two years. Trade restrictions on imported solar modules, especially those from China, played a significant role in disrupting planned capacities.

However, policy measures implemented since then could ease such bottlenecks. As of Q1 2023, the US solar panel imports rose 87% year-on-year, following the government’s decision to ease tariffs on imports from four Southeast Asian countries, which supply 80% of the US’s solar panel requirements.

The Inflation Reduction Act (IRA) represents a major and landmark federal policy initiative toward clean energy. For solar PV, the tax credits serve as incentives for domestic PV module production. The IRA’s provisions also extend incentives for solar PV projects using US-made products, even if the solar modules and other components are imported. Developers, however, look forward to further clarifications to make use of the incentives on offer. Meanwhile, another sub-segment that has experienced rapid growth in the US in recent years is hybrid solar-plus-storage. This growth is largely attributed to the investment tax credit provisions that were previously applicable to storage linked to clean energy. Per NREL’s estimates, transmission requests for hybrid solar projects increased from 6GW in 2015 to 173GW in 2022. There are expectations of a shift in this growth trend following the IRA’s incentives for standalone battery storage.

Contrary to the global trend, incentives remain a key instrument for the Japanese solar PV market, which also ranks third globally in installed capacity. While feed-in tariffs have been gradually rationalized over time, they continue to play a pivotal role in Japanese solar PV capacity deployment, both for utility-scale and the residential segments. However, the capacity expansion has not been very encouraging, with annual growth in 2021 and 2022 at 6% each, compared to 10% in 2020. Select measures are in line to change the approach and business model. These include offering better incentives for rooftop solar installations, providing wholesale market-linked premiums for upcoming solar PV plants (especially if linked with storage), and introducing a third-party ownership business model for PV systems in residential locations. Overall, the small-scale or rooftop solar segment could be the next major growth driver for the Japanese solar PV market, as indicated by the planned incentive measures.

In some markets, a crisis in conventional energy sources acted as a major catalyst for solar PV (along with other renewables). Germany, ranking fourth globally in installed solar PV capacity, registered a 12% year- on-year growth as of the end of 2022. Incremental capacity growth was at its highest in 2022, contributing to the trend of an accelerating capacity addition rate. The European energy crisis, aggravated by inflationary pressures and the Ukraine-Russia armed conflict, led to expedited approvals for utility-scale solar PV projects. The residential solar sub-segment received additional support from the policymakers due to its impact on mitigating energy costs for residential and commercial consumers. Also important was the German decision to raise ceiling prices for utility-scale solar PV auctions. While the bids still faced under-subscription during 2022, there was a sign of recovery in the subsequent auction of early 2023, which saw marginal over-subscription. Projections, such as those of IEA’s, indicate a significant increase in the German solar PV market due to the ongoing momentum.

Source: IRENA