2021 Annual Outlook On The Photovoltaic Market
Every New Year’s Day, we all receive a lot of New Year’s greetings with best wishes for health, happiness, success, and so on.
However, I will remember one greeting in particular: “Today is a very special New Year: the plants that were included in the EEG until 2000 will no longer be subsidised and will make electricity cheaper from today, in many steps – really historic and let’s see if this is not a good omen for 2021.”.
This message was written by Karl-Heinz Remmers, CEO of Solarpraxis AG and a veteran of the German PV industry. And indeed, with all the changes of the last few years, this is probably the greatest challenge, but also the greatest opportunity, that the PV industry is currently facing.
Every outlook begins with a retrospective
Who would have thought at the beginning of 2020, when the “Fridays for Future” movement was loudly campaigning for climate change, that in January 2021 we would be able to announce that Germany had exceeded its 2020 climate target? Certainly no one, because if you consider how long the politicians struggled to remove the 52 gigawatt cap on the PV sector and to get the new EEG off the ground.
Time is running out, and these were always actions that caused a great deal of uncertainty among market players in the solar sector and thus tended to slow down the expansion of renewable energies rather than spur it on.
And then, starting in March, the Coronavirus crisis overtook us. We all had to adapt our lives to some extent, restrict ourselves and were forced to take new paths.
As hard as the Corona-related shutdown of life and economy hit many sectors, the operators of PV systems, who were once again protected by abundant sunshine and state-guaranteed feed-in tariffs, were spared the immediate consequences.
The worst that could happen to a PV plant operator due to the pandemic was that cleaning, inspection or repair appointments on the plant were postponed due to the travel restrictions.
Rapid liquidity needs ensured increased portfolio investment trading
And yet the number of those who had to act quickly in 2020 increased. They had to examine their investment structures and portfolios, to position themselves better or, if necessary, also de-invest in order to compensate for losses from the actual main business.
This is precisely where Milk the Sun was able to fully play to its strengths for sellers of existing PV systems and support them. Thanks to the automated transparent processes and a large number of investors, the turnover rate (time between the publication of an advertisement and the conclusion of the transaction) could be further reduced.
We were able to support and accelerate the processes with the help of experienced partners in the areas of legal, technical inspection and financing. We completed many interesting offers for both buyers and sellers with all relevant services and valuable packages.
Political uncertainties as a guarantee for a volatile market of project rights and turnkey assets
One could say it is the same game every year. The will to build new commercial running systems is unbroken and the demand for such investments is growing steadily. The economic parameters are also right. The successively decreasing payments for the electricity generated continue to be in a balanced relationship to the prices for the construction or acquisition of a commercial PV system and its running costs, the financing costs are still historically low, so that investors can still achieve adequate returns.
And yet, once again, politics put the brakes on because it left the market players in uncertainty for far too long; whether it was the removal of the 52 GW cap, which led to an investment freeze in the middle of the year, or the uncertainty surrounding the design of the new EEG at the end of the year.
Of course, it should not be forgotten that supply bottlenecks from Asia led to a shortage of modules in the spring, which delayed many construction projects.
Dismantling solar plants continued to be in vogue
The trend towards trading transferable systems on our platform continued in 2020. More and more PV plants in payment had to leave their previous location for various reasons and were looking for a new roof or a suitable open space.
The reason why this market is now functioning so well is mainly due to the fact that a number of investors have specialised in this segment and now also have sufficient experience with prices, but above all with the administrative challenges.
Knowledge is power
In the eighth year of our company history, we have dedicated a separate online knowledge area on our platform to our bundled market experience from thousands of transactions of thousands of commercial PV systems. Here, not only newcomers but also “old PV hands” will find a series of studies, guides and constantly updated blog articles on all aspects of investing in and operating commercial PV systems.
In addition to our investment guide (DE) and our cleaning study (DE), we published our operator’s guide in July. This was followed in December by our first market price study, which maps the development of market prices for project rights, turnkey plants as well as running PV plants that have been traded via our marketplace in recent years.
In addition to our free net worth calculator, we have further optimised our Return on Investment Planner and created a very compact value calculation for commercial PV plants and PV projects.
What is new in 2021?
The new EEG 2021 was passed shortly before the end of the year. This ensures that the industry has regained planning security. However, the new regulations for rooftop PV systems >300 KWp are anything but in line with the market. As always, when something has to be whipped through the decision-making bodies shortly before the end of the year, the political compromises always come at the expense of the market. Improvements have been announced for 2021, which should help to ensure that the ambitious European expansion targets for renewable energy are achieved.
Let us remain optimistic and fight together to ensure that politicians do their homework on climate policy despite the challenges of dealing with the corona pandemic and the upcoming elections at state and federal level.
Development of trading in existing assets
According to our estimates, we will see a significant increase in this area in 2021. What started in 2020 due to corona will clearly continue in 2021. In many sectors, securing liquidity will be the issue that decides whether companies survive or fail.
A number of entrepreneurs and freelancers who have invested in PV systems as an asset will sell these non-essential assets in order to stabilise their core business. Of necessity, many operators will have to engage in active portfolio management in order to make the right decisions. This is where our valuation tools provide professional support.
We will probably also see an increase in insolvencies in 2021, in which PV plants will also be looking for new investors.
Development of new commercial PV systems
Due to the current regulations in the new Renewable Energy Sources Act (EEG), we assume that there will be a significant decline in the area of systems >300 KWp, since in the area of self-consumption a large number of technically feasible roofs will certainly not find corresponding customers for the electricity generated. It is also not yet clear how the financing banks will position themselves here.
It remains to be seen whether the option of tendering in this segment is economically viable. We will follow the development of the market with interest. In our view, the < 300 KWp segment will also become more difficult, as only optimal new construction projects are worthwhile at the current tariffs.
We are optimistic about the new construction of large ground-mounted PV systems. Here we expect an increasing number of project rights to come onto the market this year, as the topic of direct electricity marketing via PPAs is becoming more and more important in addition to pure tendering.
Discussions with project developers who were previously active in the rooftop sector already showed us last year that they are now busy developing ground-mounted systems. However, these developments require a significantly longer lead time, as the approval processes are much more complex and lengthy.
Development of dismantling / transferable systems
We expect here a further increase in business, as we follow the theory that the more PV systems are installed and the older they become, the greater the proportion of those who have to move from the original site due to technical, economic or simply interpersonal reasons will be.
Since the administrative procedures and the costs to be calculated are known, the decision-making barriers are also much lower. It should not be forgotten that relocation and/or repowering can be a good mix for optimising returns.
Offer around the operation and transaction
As in previous years, we will continue to expand our range of services for investors and operators. The aim is to ensure that every transaction can be completed quickly, safely and on fair terms with our support services, such as due diligence, technical inspection, expert opinions and financing.
In the services for operators, our goal is to provide curated offers for all topics related to the operation of commercial PV systems from a single source.
Our service also includes the further expansion of our knowledge area. We will continue to fill this with important studies in 2021, such as the continuation of our recently published market price study, and the update of guides that have established themselves as standards in the industry, such as our several-time updated investment guide, in order to make it easy for even more people to invest in photovoltaics.
Finally, I would like to come back to the New Year’s greeting from Kalle Remmers that I mentioned at the beginning. We will keep a close eye on how the market for the PV systems coming out of the subsidy develops and which business models will prevail for marketing the electricity from these systems. Their number is still comparatively small, but more and larger PV plants will quickly follow in the coming years. Whether this is already a good omen for 2021 remains to be seen!
I am optimistic and hope that a sensible political course will be set in 2021 and that by the end of this year we will once again be able to say: “Germany has achieved its climate goals” – even without the incalculable side effects of Corona.
To read the original version of this article (German): Jahresausblick Photovoltaik-Markt 2021 von Milk the Sun