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Working together as an industry: EuPD Research CEO Markus Hoehner on Joint Forces for Solar, U.S. policies and global markets

Markus Hoehner
Markus Hoehner

Markus A. W. Hoehner is the founder and CEO of Hoehner Research & Consulting Group GmbH – represented through EuPD Research, 360|Consult and 360|Concept. He has top level research and consulting know-how in various fields, including renewable energies, clean technologies and sustainable management.

Prior to the foundation of the Group the graduated economist gained experience as a management consultant, a managing partner as well as a director of strategic planning and business development in the communication industry.


Solar Server: Can you talk about EuPD Research's Joint Forces for Solar program, what the program is, and why the PV industry needs this approach at this time?

Markus Hoehner: This industry was really standing together when I look at the times 2002, 2003, 2004, 2005, 2006. And then, when these huge capacities have been ramped up, it has become a more competitive industry.

And right now we are facing tough times. There are quite dark clouds appearing on the sky, a downturn of feed-in tariff market, and of course we have to bridge the gap towards grid parity and towards the emerging market.

So it's about joint activities. In new markets you have the problem that the PV industry is not that aware, like in mature markets, end-customer wise, investor-wise, also bank-wise. So that means that we have to do some joint activities, to influence politicians to set up the right framework.

We have to enter these markets jointly, to get awareness for solar. We have to find investors, approach the end-customers in these markets. We are covering more than 100,000 market intermediaries, like the EPCs, like the installers, like the system integrators, and we are bringing together the whole value chain, mainly the module and inverter manufacturers from that community, to start exchange. Because we need in the future to have a much more customer-oriented, system-wide approach.

And therefore we have set up for two years the Joint Forces for Solar. Intersolar joined this year, and became co-founder of the initiative. We have recently launched the Joint Forces for Solar in the emerging U.K. market. In December the initiative is hitting new shores, with a first event in China. All in all, we conducted more than five events here in the United States, where it all started, and we will have at least eight events in the U.S., Europe and Asia in 2012.

So it’s a global approach that works locally.


Solar Server: To jump over to your recent report which you did with SEIA - Solar Server reported on EuPD Research's report on the potential benefits of extending the Treasury Grant Program (TGP). Can you talk about why is the TGP such a significant policy for the U.S. PV market? And how it compares in significance to other U.S. policies, such as the DOE loan guarantee program or state level RPS policies?

Markus Hoehner: Thank you very much for that question. The 1603 Treasury Grant Program, also called cash grant, is a very effective program. In contrast to the ITC, the Investment Tax Credit, it is not necessary to have a high deductible income, whereas for the ITC you need that.

So for the cash grant, also tax-paying entities are profiting that normally don't have such a high tax structure. So it allows investors a direct injection of 25-30% of the investment cost, and they get that a very short time after connecting to the grid. The payment comes from the U.S. Treasury Department, made 60 days after inquiry, or when the installation is connected to the grid.

So of course this is bringing down the effective investment cost. From a calculatory point of view, it is very good when you look at that levelized cost of electricity-wise to compete. PV becomes more competitive in comparison to other renewable energies.

The loan guarantee program is there to improve financing of projects. The loan guarantee is a contractual obligation between the government, private creditors, and a borrower, that the federal government will cover the borrower's debt obligation, in the event that the borrower defaults.

So the government, more or less, takes the risk. I think that's a very high contribution to the PV market development as well, but the loan guarantee program has not the same calculatory cost-shrinking effect like the TGP. So more or less the TGP increases the profitability of the investment, and the loan guarantee program lowers the impact of risk.


Solar Server: Which is interesting, because I am continually hearing that a big issue is access to capital for these large projects, and risk. But what you are saying here is that the increased profitability from the TGP ends up being more significant.

Markus Hoehner: Exactly. That's a very important thing. And if you look at the RPS, the RPS is also a very important policy because it says what percent of the generation capacity of the utility must come from renewable energies.

But we have a kind of investment freedom. Wind, water and biomass currently have a lower levelized cost of electricity. And therefore, the utility, from that levelized cost of electricity point of view, taking out technology hedging, will not invest in solar.

So more or less, the RPS is speeding up renewables directly, but not solar directly.

Of course there are specific carve-outs within the RPS in some states, but unfortunately they are structured at a very low level. For example, Texas just 500 MW non-wind by 2025, Oregon 20MW by 2020, Nevada 1.5% of solar electricity generation by 2025, and Pennsylvania 0.5% PV by 2021.

RPS policies in the current scenario have quite a low impact on speeding up statewide PV installations. Maybe there is room for some change to increase that, to increase the numbers of the solar carve-outs or even to implement, in each state, a solar carve-out.


Solar Server: To move to global markets, which national PV markets does EuPD Research find most promising in terms of development in the next three years? Why?

Markus Hoehner: Promising is a difficult word. The European markets for sure will have high importance in the future as well. But maybe it’s also a question of promising, because there is not too much potential in the current European market, as they are at a very high level. There is very limited growth potential, as well as in Southern and Eastern European markets.

On the other hand, you have in Southeast Asia markets, when you look at Thailand and Malaysia, that are very very promising, and a lot of things are going on. But it is again a question of access to finance, people must get familiar with PV, and of course of bankability as well, and they are quite limited regarding volume.

So the most interesting market is Australia. The different states have unfortunately cut down their feed-in tariffs, for example New South Wales by -66%, Western Australia by -50%, and they have also introduced a cap: Western Australia just 150 MW, or they even skip that totally like South Australia. On the other side, Victoria is planning to introduce a feed-in tariff for large scale, and I think they have targeted 350 MW by 2014.

When we look at the Indian market, everybody has to raise the question of whether we can really make the target of the National Solar Mission. I think it was 22 GW by 2020. I see that, more or less, as a quite optimistic view. But nevertheless, India could be really the driver of big demand, and this is mainly depending upon whether it is possible to embed in India the necessary structure for a solar market like running value chain, establish tendering, shrinking bureaucracy and also safe legal environmental structure.

When we look at China, China is jumping into the gap mainly for the Chinese mainland manufacturers to keep their production running. China has introduced unified FITs of approximately USD 0.50/kWh, and that comes additionally with the Golden Sun Program, just for projects higher than 300 kW.

Of course there is also a tendering, you can compare that to the Indian market for utility-scale projects, and the current project pipeline here is about 14 GW, so the big question is how massively China is stimulating the demand.

I think from an industrial politic point of view, that is quite interesting behavior, because European markets speed up their industry ramp-wise, capacity-wise, and due to slowdown in feed-in tariff markets right now they are opening up their domestic market. And we all know that we have 24 months at least tough times in front of us. So that's a nice strategy, and I think Japan did almost the same.

In China, the areas where you see PV generation, in the North, Northwest or West, that is far away from where the power will be consumed, like in the East or Southeast. This brings another issue to the table, the question of grid infrastructure - will they be able to handle that, time to market wise? Or is that a kind of natural cap for utility-scale projects?


Solar Server: When we look at all of this together for the next two or three years, what does that mean for the global PV industry?

For example, in July 2011 at Intersolar North America, Daniela Schreiber of EuPD Research stated that global PV markets are expected to decline in 2012 and 2013 from 2011 levels. It's a few months later, do you still expect that do be the case? Why or why not?

Markus Hoehner: There is no shrink in 2012 and 2013, but there was a boom in 2010 and 2011. So you can compare that to the situation in 2008, 2009. In 2012 and 2013, the market is going back to normal. Back to its old growth path.

There is no will for such a growth in the European countries, due to the feed-in tariff structure, so they try to slow that down a little bit. The Italian could get to 10 GW this year, our current forecast is at 9.6, inclusive these 3.3 that have been installed last year but not connected to the grid. This is also coming together into the analysis of that dip.

So again, in Germany we see a strong market. Of course, next year we see a shrinking market in Germany, we analyze the buying funnels, the kind of pull-forward effect in Germany. And all indicators since August show that we will see a high market in Germany, definitely.

So the shrinking of Germany and Italy from 2011 to 2012 sums up to higher than 4 GW. So that's why we see that dip from 2011 to 2012.

We estimate that the slowdown from Germany and Italy will be up to 5.8 GW. The only option to see no dip in the future is when China should really be able to show these new installed capacities. Our forecast right now is 1.8 in 2012, and if they exceed that, and we come to range of 4-5 GW, we will not see a dip either. If other countries should speed up faster than expected, if maybe there is another surge in the U.K., Greece, in the open space in South Africa and Australia, and fulfillment of the targets in India. But I am very skeptical, because when we talk to our clients in all these international markets, the market development is not as quick as many wish.

So the development is not really depending on whether the market on the global level is going up to 22 or 23 GW, or shrinking to 19 or 20 GW, or growing to 24.

The situation is that there is huge overcapacity in the market. This overcapacity could really serve any growth, but the markets are not booming in that intensity the way that 2008, 2010, 2011, so the growth rates are slowing down. And in these times, the demand was focused on just a few markets.

This brings us back to the Joint Forces for solar, how to explore the next 10, 20 markets, while margins on cell and modules, we call that the smile curve, are negative, or even approaching zero.


SolarServer: Anything we didn't talk about, that you feel is particularly important to share with our readers regarding your work and the future of global markets?

Markus Hoehner: I think for this industry, it's really decisive to go downstream, to understand downstream, to understand sales channel management, to improve branding, and really to take the view of the end-customer.

When we look at the next cycle of PV; the first cycle was the environmental idealist. Next cycle was mainly IRR driven, the feed-in tariff market, and the third and fourth cycle is really energy generators. The fourth cycle is system-wide integrating energy efficient building, building efficiency, intelligent household devices. So a lot of things are coming together, and the industry must really come together and take a customer value view and understand the downstream markets. That is why we have structured our services in that way.

It is all about research, it's all about data. We did more than 50,000 interviews in that industry in the last three years. But that's not enough. We must not forget that the market was short the last year in November. So they should have done marketing communication, even research or ramping market strategic teams.

So they have to learn all of that in a very short period of time, and the industry was very surprised to get hit hard even this year. A lot of companies expected that the world is getting tougher next year. So we have ramped more than 120 people, just providing analysis, and consulting, and corporate marketing strategy breakdown for that industry.

So doing the real execution of sales, helping them by providing tools in the form of customer relationship management. And approaching the right market intermediaries, based on market analysis, as well as levelized cost of electricity analysis, and to do proper channel management, regarding distribution with them in depth. It's about finding the right number of customers, and to get the loyalty that they sell your product or the listed product at a high percentage.


Interview conducted by Christian Roselund