With FITs as high as 41.3 pence per kWh paid over 25 years, the foundations are in place for rampant PV market growth in 2011. Government incentives yield immediate installed PV system Internal Rates of Return between 8% and 11% over the next 12 months. Despite this, the UK market is already exposed to significant potential policy risks-more so than most other European markets-even though the FIT is only six months old.
Six market segments are emerging; five are on-grid, and one off-grid. 2010 demand has already seen rapid growth in residential installations, with the South East and South West regions accounting for 45% of the English part of the market in MW terms. In addition, an emerging pipeline of large scale commercial, agricultural and industrial projects are currently going through the application and permitting processes, ready to impact 2011 demand.
With several big name national utility and retail brands entering the UK market, they join a fast growing downstream installer network that exceeds 500 companies. The leading wholesalers and installers, constituting a group of eighteen companies, are well-positioned to serve the burgeoning market. Back in 2009, the top 3 of these accounted for 60% of shipped wholesale volumes.
“The early entrance of big name brands are helping to lend public confidence to what is generally a poorly understood renewable energy source in the UK,” noted Alan Turner, Vice President of Solarbuzz Europe. “These companies join a multitude of European and international companies scrambling to establish early positions in this fast-growing embryonic market.”
The wide range of end-market segments has led to four main downstream channels to market. These are not completely exclusive and examples of overlap can be found. In addition, novel business models are being advanced, still to be tested for practical viability, but with some gaining traction.
The fragmented end-market, together with the diversity of the installers and wholesalers, is further complicated by the 60 module suppliers that have already gained the accreditation necessary to enter the market. This downstream picture sets extreme challenges for solar companies to operate profitably in the UK.
“Notwithstanding the potential uncertainty over government policy, no major company can afford to ignore this market opportunity,” concluded Turner. “The challenge for companies is to construct business models that can deliver profitable growth while volumes are still low, while at the same time phasing their level of downstream investment consistent with the policy risk.”
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