Dr Shawn Qu, chairman and chief executive of Canadian Solar on government cuts to the feed-in-tariffs
The solar industry experienced a tumultuous end to 2011 with the announcement of government cuts to the feed-in tariffs. Many have been concerned that the premature reduction in incentives would severely hinder the young industry’s growth and potentially cause serious knock-on effects. However, we at Canadian Solar really don’t believe this is the case.
Although the cuts were much more dramatic than anyone had thought, they weren’t unexpected. Over the past couple of years, the solar industry has experienced a phenomenal rate of growth and its popularity can clearly be seen in the uproar generated by the tariff cuts. However, this type of growth was never going to be sustainable and some contraction of the market was to be expected. Unfortunately, the government failed to foresee the huge public demand when it first set the tariff and this disconnect is the lead cause of the current situation.
It is also important to remember that although the feed in tariffs were the primary subsidy from the government, it is not the only subsidy available to the industry. There is also the government’s renewable heat incentive (RHI), a £860 million scheme launched last year to provide a financial incentive for industry and businesses. It aims to invest in low-carbon heating systems like heat pumps, biomass boilers or solar thermal panels, which like the feed-in tariffs will provide cash back to individuals.
In terms of how it handles the current situation, the next steps for the UK solar industry will be critical to ensure that the industry continues to develop, and avoids unsustainable short-term solutions. The market’s reaction so far has been to lower the price of solar modules to make up for the shortfall in tariffs. While the strategy has seen an initial sharp increase in orders, some companies have found themselves unable to match supply with demand. Such measures are not helpful at a time when the industry needs to do whatever it can to convince customers to invest in solar energy and nurture organic growth in the industry.
Companies also need to think about possible service issues which may result from their quick decisions. It is all very well to decrease the cost of products but this will result in the need to cut back elsewhere in the business. Within the industry this is being predominantly seen among tier two and three companies, as they are able to cut back due to lower overheads. Canadian Solar’s strategy is focused on providing more ground support for customers opposed to cutting back. Companies who have not bought into the price wars will be more stable and able to move forward, thus able to invest in people, offices and R&D – something that would be difficult with reduced profit margins.
The good news for the industry is that despite the outcome of the cuts, the price of solar remains affordable and continues to offer a high return on investment. Driven by advances in technology and increases in manufacturing scale and sophistication, the cost of photovoltaics has declined steadily since the first solar cells were manufactured. The reduced cost of solar will help balance the loss in subsidies. This combined with increased efficiency means that solar energy will continue to be an attractive alternative solution.
While the debate continues, for Canadian Solar we see the coming year as an opportunity to focus on our commercial solar projects. Commercial developments are where Canadian Solar sees the most potential in the UK market and are a real area of demand and growth for 2012. We have already witnessed the increase in this demand during 2011 when we completed a major commercial project working with EPC project supplier Isolux Corsán, to build the UK’s three largest photovoltaic solar power plants. Under the €40 million project, three new 5 MW solar power plants were built in Langford, Churchtown and Manor based in Cornwall, for a total of 15 MW installed capacity.
The public sector will also be an interesting market segment to watch in 2012, as we see the emerging trend for major residential installation projects across local government and council owned and managed housing portfolios.
Now the tariff deadline has been postponed, the pressure may be temporarily off however the revised March deadline is not too far away. We would argue that the industry has less to worry about than commentators presume. The industry was always going to have to learn to stand on its own feet, independent from Government support. However, abrupt political change and minimal industry consultation do little to ensure that the industry is given the best possible chance. Provided that we keep the lines of communication open we still expect that in the next 10 years solar energy will make a reasonable percentage of the UK’s utility infrastructure. We anticipate the future to be bright for the solar industry.