The Solar Power Market - Macro Perspective
Companies that sell solar electricity generators operate in the overall electricity generation market.
Unlike other forms of energy, electricity, once generated, has to be consumed. Otherwise, any over-supply will just result in heat. However, due to losses in the distribution of electricity, more electricity has to be generated than will be consumed. See maps for distribution losses and electricity generation by country.
Demand for electricity is continuing to grow fuelled by a growing population. Interestingly, the demand for electricity has grown faster than overall energy consumption, which in itself has grown faster than the world population.
This difference is particularly pronounced in developing countries with significant economic growth. Nevertheless, even in developed countries the per-head demand for electricity is expected to rise despite anticipated energy efficiency savings.
Compound annual growth from 1990 - 2030 in demand for electricity is forecast to be around 2.6%, with the world population growing at an annual 1.14%.
Are there differences in fuel types?
According to the Energy Information Administration (EIA) of the U.S. government, overall demand will grow at 2.85% annually from 2006 - 2030.
However, the demand for different underlying fuels and technologies varies greatly.
For instance, zero-growth is anticipated for the use of oil in electricity generation. This is no doubt because oil is to expensive for this purpose. Coal and gas on the other hand will continue to grow.
Of all fuels, the renewables however will grow faster, albeit from a lower base level of course.
One word of caution: This is one forecast of many. We have selected the EIA figures, because they seem to be the most conservative figures as far as renewables are concerned. There are other models that predict a far more aggressive growth for renewables. Yet even with this more restrained forecast, the renewables segment looks attractive.
What about differences among renewable fuels?
Among renewables, hydro is the pre-dominant source, and will be so for at least the next 30 years. Only five nations get their energy from renewable sources, one of them geothermal, the other four from hydro.
On the other hand, wind energy has matured and will see significant growth in the foreseeable future while the use of geothermal energy will only grow little.
The other significant growth section is solar & others including bio-fuels.
The absolute size of the solar electricity market as of 2009 is still tiny, generating around 0.1% of electricity globally.
Are there differences between regions?
Not surprisingly, there are significant differences between regions. While anticipated growth in OECD countries will be limited to 1,2% per annum, the annual growth in non- OECD countries is expected to run at 3.6%.
As a result, demand for electricity in non- OECD countries will surpass the cumulative electricity demand in OECD countries before 2015.
Despite the high costs of renewable energy systems, growth in electricity generation from renewable sources is still significant bigger in non- OECD countries (3.2%) than in OECD countries (2.5%).
What is the value of this market?
To meet the growing demand for electricity, money has to be spent on new installations, refurbishment of existing capacity, transmission (high voltage from power stations to the grid) and distribution (low voltage delivery to consumer).
As man power plants will have to be replaced in the near future due to their age, more capacity has to be built than just matching the growth in demand. This could amount to 5% annually of existing capacity just for replacement.
The IAEA estimates investment into new electricity generating capacity to be $4,000bn over 30 years from 2001. In a very crude approximation, the annual size of the market is $136bn (in US dollars 2000- base). More than half of the investment will be in Non- OECD countries.
Which fuel types grow faster than others?
Wind is the fastest growing segment in the electricity generation market with growth of over 10% annully.
Growth is more pronounced outside OECD countries, although growth in renewables other than hydro remains strong in OECD countries as well.
Note that the EIA puts solar electricity into the category "Solar & Others". Solar itself is outperforming this general category, as can be seen in the next section.