Bank Sarasin's sustainability study on the solar industry: the most attractive countries for solar energy

In these challenging times, producers of photovoltaic (PV) modules and solar energy project developers are anxiously seeking attractive sales markets with minimal risks and good rates of return. In its latest sustainability study "Solar industry: Survival of the fittest in a fiercely competitive marketplace", Bank Sarasin has examined the 20 most attractive PV markets and presented them in the form of a country attractiveness matrix.

Although their rates of growth are slowing, existing markets such as Germany, Italy and France continue to show plenty of potential. Growth markets such as the USA, China and India are also very promising. By contrast, a number of countries blessed with generous sunshine, such as Greece and Portugal, still face high administrative hurdles. Switzerland offers attractive returns thanks to the extremely low risk profile presented by small-scale installations.

The reduction of feed-in tariffs in countries such as Germany, the Czech Republic and France continued during 2011 and impeded the growth of global PV installations. In order to identify attractive countries for market expansion, Bank Sarasin's country attractiveness matrix (CAM) offers a valuable decision-making tool for producers of PV modules and project developers, especially large energy utility companies. Each of the 20 solar markets analysed presents both risks and opportunities – illustrated in the CAM as the internal rate of return (IRR). The refined risk analysis takes into consideration not just governance but also technical risks.


Existing markets growing more slowly

Large markets such as Germany, Italy and France will remain attractive in 2012 and play an important role in absolute terms, although in future they are unlikely to experience such dynamic growth rates as in previous years. Germany has announced cuts to feed-in tariffs for the start of 2012 and again the following summer, but is still attractive and will continue to be one of the biggest sales markets until 2013. In Italy too, from next year onwards, feed-in tariffs will be reduced every six months and cease altogether in 2017, which will lead to a decline in newly installed capacity. In view of the debt crisis, and with solar power forming a growing percentage of total electricity production, governance and technical risks are very much on the increase. France is also adjusting its feed-in tariff system and although the IRR for small and large installations is at the lower end of the scale, Bank Sarasin believes that (southern) France could be one of the first markets in which solar power will soon be produced competitively without feed-in tariffs.


US, India and China are booming

Over the past years the US market has radically changed and next year could become one of the world's top three markets for free-standing solar systems in volume terms. With its high growth potential, average IRR and relatively low risk profile, Bank Sarasin considers the US market an attractive mix for all sizes of installation. The study also identifies India and China as upcoming PV markets. India installed around 80 megawatts (MW) of new PV capacity in 2010. However, the central government's ambitious target for 2022 is 20 gigawatts (GW) of installed solar energy capacity. To achieve this, Indian authorities must simplify the current administrative processes and guarantee a better connection of PV installations to the grid. Conditions in China are also promising with a large solar manufacturing capacity of its own. Our estimates for 2011 stand at 1,950 MW and at 2,500 MW for 2012.


PV markets with plenty of sunshine but high administrative hurdles

Various countries such as Greece, Portugal, Turkey and South Africa receive plentiful sunshine and theoretically offer ideal conditions for the PV industry. Until now, however, PV markets have been unable to develop there mainly due to inadequate subsidy programmes, high administrative hurdles and the immaturity of the markets.


Switzerland has the best risk profile

Switzerland is one of a handful of countries with stable, solid growth in the PV industry. The rates of return for small installations next year are average for all the countries analysed but Switzerland's risk profile is the most attractive of all the countries studied. Therefore, investors happy with a small market volume will find ideal conditions in Switzerland.