Most solar sector watchers will remember the second half of May 2008, when the solar world collective held its breath awaiting to find out what German policy-makers were going to decide about solar subsidies in that country. All this commotion was caused by the fact that Germany, despite lacking favorable physical conditions in the form of ample sunshine, had become the world's largest solar market on the back of a very aggressive incentive program.
Germany alone is in fact so critical to sales growth in the solar sector, that the mere announcement of a review of the subsidy caused solar stocks to fall and analysts to issue rating cuts. In the end, German politicians decided to take it easy on subsidy cutting, to the delight of investors.
This episode brought home the fact that, while debates among pundits about when solar will reach grid parity are often very informative, this very much remains a sector that survives - and even thrives - on government support. Even when solar does reach grid parity in jurisdictions where electricity prices are elevated, large-scale deployment must still be supported by some form of state policy (e.g. net metering, transmission facilitation, coordination with dispatchable supply, etc.)
The Policy Dimension: Key to Understanding Risk
Having a thorough understanding of the policy dimension for solar investors can therefore be very useful in assessing market potential, as none of the much-touted potential of this sector will occur without government intervention over at least the next five years. More importantly, however, understanding the political and policy-making processes can be key to managing risk.
One good example of policy-induced volatility is the infamous US Production Tax Credit [PTC] for renewable power. The volatile "on again-off again" nature of this policy, and the fact that the situation was allowed to endure for years, is the principal reason why a healthy wind turbine manufacturing sector never emerged in the US as it did in Europe...
Germany alone is in fact so critical to sales growth in the solar sector, that the mere announcement of a review of the subsidy caused solar stocks to fall and analysts to issue rating cuts. In the end, German politicians decided to take it easy on subsidy cutting, to the delight of investors.
This episode brought home the fact that, while debates among pundits about when solar will reach grid parity are often very informative, this very much remains a sector that survives - and even thrives - on government support. Even when solar does reach grid parity in jurisdictions where electricity prices are elevated, large-scale deployment must still be supported by some form of state policy (e.g. net metering, transmission facilitation, coordination with dispatchable supply, etc.)
The Policy Dimension: Key to Understanding Risk
Having a thorough understanding of the policy dimension for solar investors can therefore be very useful in assessing market potential, as none of the much-touted potential of this sector will occur without government intervention over at least the next five years. More importantly, however, understanding the political and policy-making processes can be key to managing risk.
One good example of policy-induced volatility is the infamous US Production Tax Credit [PTC] for renewable power. The volatile "on again-off again" nature of this policy, and the fact that the situation was allowed to endure for years, is the principal reason why a healthy wind turbine manufacturing sector never emerged in the US as it did in Europe...
