The current oversupply situation triggered particularly by the entry of large-scale and low cost Chinese solar manufacturers coupled with the continuation of solar subsidy cuts by governments due to economic slowdown, have fuelled a recent spate of industry premonitions about solar doomsday. But a McKinsey study titled “Solar Power: Darkest Before Dawn” released earlier this week, renders such predictions unwarranted. Although the “rules of the game are changing” and “significant challenges” lie ahead as industry goes through a “critical transition”, the study affirms that the industry is poised for substantial benefits in the years ahead.

PV installed capacity may rise by as much as 600 GW by 2020
The study estimates that installed solar photovoltaic (PV) capacity may increase by 400 to 600 GW by 2020 from current levels of about 65 GW. This would imply as 50-fold increase in PV installations compared to 2005 levels, thus rivalling gas, wind and hydro installation rates. Such growth, primarily in distributed generation, is based on the anticipation that continuation of decline in PV prices, despite financial support drying up, will lead to doubling of manufacturing capacity by 2015-16 and a 10% annual drop in underlying costs till 2020.

Distributed generation set for rapid ramp-up with downstream players reaping maximum benefits
Downstream players, according to the study, will reap maximum benefits particularly after 2015 when rapid ramp up is projected to occur in distributed generation. Opportunities for upstream players to differentiate themselves will dry up as manufacturing is expected to become more standardised. However, to remain competitive and survive, both upstream and downstream companies will have to achieve rapid cost reductions and also deliver distinctive products and services. For generating differentiation, upstream companies will need to push for developing proprietary technologies while downstream players will need to focus on catering to the needs of high-value customers in a particular customer segment.

Demand to be driven by five consumer segments
Demand in five customer segments, the study predicts, will drive PV growth over the next two decades. The first four segments are expected to rapidly grow by 2020 while the fifth segment will expand significantly between 2020 and 2030. These segments along with their triggers and barriers to growth and their estimated size are tabulated in the exhibit below:

Margins set to expand even though PV price decline continues
In addition to the five segments, the study expects diverse entrepreneurial opportunities to arise for new players and investors aiming to tap the different markets and customer segments with customised business models. Downstream companies focusing of specific consumer segments may emerge and become regional or even global niche leaders. For example, a global solar developer could help big retailers such as Wal-Mart and Staples to deploy solar and energy-efficiency approaches in their stores. Emergence of these new lines of demand, according to the study, will lead to healthier margins for solar companies by 2015 despite continuation of PV price decline as solar becomes attractive for more and more customers. Read more here…