1. Market News

1.1 Major markets status

Japan, Germany and the USA remain the dominant PV markets, each of them driven by government or utility led market incentive programs. We start this report with a brief review of progress in these main markets during the first few months of 2002.

1.1.1 Japan

The main market support program in Japan, the Subsidy Program for Residential Applications, remained strong in the final months of the financial year 2001, ending in March 2002. By the end of the end of the financial year 2001, the number of applications was up fourteen per cent on the previous year.

The total number of applications reached 29,389, equivalent to 114.7 MW. This demonstrates continued strong growth in the Japanese market, even though the level of subsidy was reduced in 2001 compared to the previous year. Amendments to the data are still possible as cancellation of applications already received may reduce the final number of installations. In addition, any variations in the planned performance capability of PV systems applied for in 2001 may cause some changes to the capacity value.

The present PV subsidy system expires this year. A new subsidy program for PV/thermal hybrid systems within private houses is planned, but details have yet to be announced.

1.1.2 Germany

The German market is almost completely dependent upon grid-connected demand, which in turn is driven by a combination of the Federal Government's 100,000 Roofs Program and the Renewable Energy Act or Feed-in Law. So far this year the level of requests to the KfW Bank (which administers the 100,000 roof program) has been at a similar monthly rate as last year, growing to a total of 13.7 MW by the end of April.

This indicates no substantial growth in demand compared to the same period last year. The level of approvals by KfW, which takes into account requests carried over from 2001 as well as rejections and renouncements during the period, has reached a slightly lower level of 14.8 MW, compared to 24.3 MW at this stage last year. In 2001, approvals by KfW followed a very irregular pattern with very large monthly variations. This year they are much more even, in the range 3.3 to 3.9 MW each month.

At present, the rate of approvals is slightly lagging the rate of applications, as might be expected. However, it will need to reach an average of more than double the current level for the remainder of the year in order for the market to achieve 2001 levels. Anecdotal evidence suggests some slowing of sales at the system integrator level, with strong quotation activity but a lower conversion rate to sales than in 2001.

The rate of pick up in business as summer approaches will be a key factor in this year's market performance, which needs to withstand the impact of a 5% decline in the available subsidy this year.

1.1.3 USA

Last year, the PV industry in the USA benefited from extensive public debate on energy policy, driven by energy disruptions (in California and then successively in other States), high oil prices (early in the year) and security of supply issues.

This provided an extremely favorable environment for market (private entity or customer) driven solar energy demand. The public debate on energy (including solar) has dissipated early in 2002, notwithstanding the National Energy Policy federal legislation. This legislation includes a 15% tax credit on residential PV (and solar thermal) systems. The underpinning of the PV market in the United States remains California, where there are around a dozen PV incentive programs.

Early year demand has been sustained by projects that were contracted (and secured a subsidy funding allocation) in 2001, but are being implemented in 2002. At the turn of the year, around 25 MW of approved projects under the California Energy Commission (CEC) and California Public Utilities Commission (CPUC) programs were waiting to be installed in 2002. This was mainly in respect of larger commercial systems, which will guarantee a very large growth rate over 2001 demand.

Funding remains available under the California Energy Commission Renewables Program in the small system category (<10 kW), while the other main funding source, the California Public Utility Commission program, still has substantial funding in the >30kW system category.

Of a total CEC budget of $92M, there remains $16.7M available at the beginning of May 2002 for systems of 10kW or below for Investor Owned Utility customers, and a further $7.6M available for Municipal Utility customers.

At typical demand rates this will take 5-8 months to absorb; this is a much slower take up pattern than for large systems. Dealers reported a quiet winter season, but with demand picking up as usual in the spring. There also remain some key legislative issues in California this year. These include net metering, direct access and exit fees (disconnecting from the grid) that are important for the future path of photovoltaics in California.