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Solar Energy to face slight headwinds from Fossil Fuel price crash

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Fossil Fuel & Solar Energy

IHS has come out with a revised demand estimate for 2015, for the global solar demand to be between 53-57 GW. This is much higher than the 50 GW I had written earlier. The reason why I think that the demand in 2015 might be on the lower side (at just 10% growth), is that Japan might curtail the growth of solar energy. The country has already seen two boom years driven by high feed in tariffs for solar power. China is also already installing high amounts of solar power at 12-14 GW a year and is unlikely to increase in sharply. USA is the only country installing large amounts of solar capacity and increasing it as well year on year. This means that with all major solar demand sources pretty much at the same level in 2015, the incremental demand would have to come from smaller countries in terms of electric capacity. Europe is mostly saturated with solar power and is going to be mostly be driven by grid parity economics.

IHS is seeing a 16%-25% increase in solar demand next year. The large new markets are seen to be Chile, South Africa, Phillipines etc. All these small countries are expected to be more than 1 GW markets. As solar prices have plummeted, the number of gigawatt markets have increased sharply. As most of the large countries are plateauing in terms of solar energy growth, smaller countries are seeing sharp growth. Thailand, Indonesia, African countries like Egypt are becoming the new hot spots of solar energy demand. Egypt recently saw its solar tender being oversubscribed.

While I have written in the past that oil prices will not slow down solar energy growth, the recent sharp fall in oil prices will have an effect. It will be more sentimental rather than actual, as oil mainly affects the transportation sector rather than electricity market where solar energy is strong. However, it has secondary dampening effects on prices of coal and gas which will affect solar energy growth. While solar energy is driven by subsidies and its green nature, governments will be more reluctant to promote solar energy as energy security becomes less of a concern. The oil price crash in the 1980s stopped the solar energy growth at that time, which had originally boomed due to the oil price shock in the mid-1970s. This time solar energy is much more entrenched and much cheaper to be stopped by the oil price crash. However, its growth will slow as other fossil fuel becomes cheaper. Coal has substantially dropped in price for the last year and looks to remain at these low levels for a long time now, given the lower global energy growth. Same thing can be foreseen for gas and oil as well. The high prices of fossil fuels has led to massive overinvestment in fossil fuel production. It will take time for the overcapacity to be absorbed. Till that time expect slight headwinds form fossil fuel prices for solar energy growth.

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in

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