European market demand and long-term outlook for 2024

Europe has been actively deploying renewable energy to achieve energy security and net-zero emissions in recent years, with solar the major focus. InfoLink estimates that global module demand will come in at 470-529 GW this year, of which Europe contributes 82-93 GW, accounting for 18% of the market share, retaining the world’s second largest solar market.

Gradual decreases in the traditional energy prices this year impacted the public’s willingness to install distributed generation systems. Meanwhile, price decline across the solar supply chain, financing costs, and decreased subsidies caused some projects to delay in some countries, leading to a gradual module inventory pile up in Europe from the second quarter, with the market sitting on the fence. Given these factors, InfoLink expects module demand growth to slow this year, down by 3% on last year’s 84.4 GW under a conservative estimate. It’s not likely to see a jump in growth like last year even under an optimistic scenario, which is estimated at 10%. The long-term demand still hinges on the government’s policy design. For now, related policies and subsidies for stimulating market are still under discussion in Europe.

Source: InfoLink Database
 

The EU has been the major driver behind Europe’s solar market development. The European Commission first introduced the European Green Deal in 2019, pleading to achieve net-zero emissions by 2050 and the climate neutrality goal. After the outbreak of Russia-Ukraine war in 2022, the EU Commission proposed the REPower EU in May of the same year in the hope to reduce dependence on Russian natural gas and fast forward the green transition through energy saving, diversifying energy supply, accelerating renewables and expanding investment. The EU also provides subsidies and low-interest loans to member countries through the EU Recovery and Resilience Facility to aid the development of renewables.

Other policies that receive the most attention include the Net-Zero Industry Act, Critical Raw Material Act, and the proposal for a regulation on prohibiting products made with forced labour on the Union market. While details of the laws are different, the common goal is to enhance independence of net-zero technologies, boost local manufacturing, and reduce reliance on key technologies and related products from the third-party countries. China, as the largest exporter of solar products to Europe, will take hit.

Although the EU and its member states have signed the European Solar Charter to support local PV manufacturers to help strengthen the competitiveness of local solar products, the measures for subsidizing local manufacturing remain unclear so far. Moreover, local capacity is unable to fulfil demand. As a result, several solar associations and manufacturers called for the EU and European countries during the end of 2023 and early 2024 not to impose tariffs on Chinese solar products. Therefore, the impact on Chinese module exports is limited for the short term.

In terms of other stimulus policies, the EU introduced the Energy Performance of Buildings Directive this May, stipulating that all new buildings meet net-zero emissions by 2030 and all buildings by 2050, except agricultural, religion or historic buildings. Some European countries, such as Italy and France, also encourage the installation of solar on road noise barriers, parking lot canopies, industrial and commercial building facades, and public buildings. Notably, there has been significant growth in the installation of solar on parking lot canopies, which is expected to drive demand for distributed generation projects.

However, it’s worth noting that some European countries are gradually restricting agrivoltaics projects due to food security concerns and farmer protests. Additionally, grid congestion issues in some countries might somewhat impact the development of ground-mounted projects in the short term. Furthermore, European countries need to continuously address bureaucratic and administrative hurdles in the approval processes and actively fill the current technical labor gaps in the solar market to accelerate the solar development in Europe.

Overall, the European solar market will continue to boom, driven by its energy transition strategies. In addition to the policies rolled out by the EU, most European countries also introduced measures to support solar development. Within Europe, InfoLink’s estimates show that Germany accounts 19% of module demand, the highest of all, followed by Poland, Italy, the Netherlands, and Spain by 7% to 8%. The five countries together account for 50% of the total.

Germany saw solar power prices plump recently as it entered summer, during which negative prices occurred in peak hours. Coupled with gradual decline in traditional energy prices, solar installation decreased by nearly 10% YoY in the second quarter. Yet, Germany has added 7.55 GW of new capacity in the first half of the year, up 8% from last year’s 6.97 GW, satisfying 58% of this year’s installation goal of 13 GW and likely to meet target by the end of this year. InfoLink expects module demand to reach 16-17.5 GW this year.

Germany’s Solarpaket 1 was officially initiated earlier in May. As one of the key policies for stimulating solar development, the program provides a subsidy of EUR 0.015/kWh for grid connection, simplifying application procedure for rooftop and balcony PV, and extending the maximum bid volume for tenders for ground-mounted PV from 20 MW to 50 MW. Solarpaket 1 also encourages the development of agrivoltaics projects and installation of solar canopies on parking lots, which will drive the long-term installation of ground-mounted and distributed generation PV.

Germany has a clearer renewables target compared to other European countries, with more than 90% of the public supporting renewable energy. Meanwhile, more and more German companies announced to invest in self-consumption solar systems to reduce electricity costs. Against these backdrops, solar demand in Germany is expected to grow year on year in the future.

Poland, the second largest solar market in Europe, saw significant progress in solar development in recent years, despite its reliance on fossil fuel. Last year, the country added 4.9 GW of new solar capacity, making it a notable emerging market in Europe. This year, solar demand is projected to come in at 6.8-7.9 GW. As Poland is facing grid overload issue due to excess power in off-peak hours, Polskie Sieci Elektroenergetyczne (PSE), an electricity transmission system operator, announced to invest EUR 117.5 billion in upgrading transmission and distribution lines before 2040.

In addition, the Polish government plans to introduce the “My Electricity (Mój Prąd) 6.0” program in September after Mój Prąd 5.0 has successfully boosted installation. Mój Prąd 6.0 is expected to drive 16,000 households to install rooftop PV, stimulating demand from distributed generation projects this and next year. Donald Tusk, who has been promoting renewable energy development and now the Prime Minister of Poland, may roll out more policies that support PV development for the long term in the future.

Italy, while the 90% subsidy rate provided by Superbonus scheme boosted demand for distributed generation projects last year, rooftop installation might be impacted this year as the subsidy rate decreases to 70% this year. Moreover, the government approved the regulation in May to ban ground-mounted PV in designated farm lands in the future, which will somewhat hinder the development of ground-mounter PV. Installations this year will mainly come from C&I or public facilities, with demand coming in at 6.2-6.6 GW. On the other hand, Italy has made more significant progress in local manufacturing. The government launched this March the National Recovery and Resilience Plan 2, offering subsidies for developers that use domestic made solar products. The European Commission also provides incentives for local solar manufacturers through Italy’s Green Deal Industrial Plan. However, Italy will rely on modules from China for the short to medium term as its local capacity is yet to catch up with demand.

The Netherland, one of the fastest growing European countries in terms of solar, added 4.8 GW of new capacity in 2023. Limited by land resource, the Dutch government is actively developing solar on bike lanes, parking lot canopies, highway noise barriers, and public buildings, as well as waterbody. Rooftop and C&I projects also saw modest growth. However, the coalition government led by Party for Freedom (PVV) agreed in May to expand offshore gas extraction and nuclear energy generation while cancel the net metering scheme (Salderingsregeling) in 2027, meaning that the public will not receive rewards for feeding solar power to the grid in the future. With no new supportive policies being introduce, demand in the Neterlands is estimated to reach 5.8-6.5 GW this year.

Spain’s wholesale renewables electricity prices have been declining since the beginning of 2022, affecting the returns of power plants. With the power generation volume from solar increasing markedly as summer arrives, negative electricity prices might occur again and impact IRR, thereby reducing the willingness to develop solar projects. InfoLink’s research found that many projects have been postponed in Spain, with ground-mounted PV installation not likely to increase this year. Moreover, distributed generation projects are also impacted as Spain didn’t introduce any policy lately to stimulate rooftop PV demand. Overall, the Spanish solar market will remain sluggish throughout the year, with demand coming in at 5.5-6 GW. The market situation depends on whether grid congestion, administration procedure, and skilled labor shortage issues could be improved.

Source: InfoLink Database
 

Despite limited module demand growth due to declining traditional energy prices, decreasing supply chain prices, financing costs, and narrowing subsidies, the long-term demand in Europe will still grow, driven by the EU’s supportive policies and the common goal to achieve net-zero emissions by 2030 among the member states. It’s expected that module demand will reach 95.1-111.3 GW in 2025, a 9-18% increase from this year. The real market situation in Europe hinges on the developments of policies, supply chain prices, financing costs, and political economy during the second half and the first half of next year. As the 2030 net-zero emission deadline approaches, European countries might increase module inventory to meet the target. In light of this, demand is projected to top 150 GW in 2028; the long-term solar market outlook is bright.

Source: InfoLink Database