With Laurent's segele end from London and Gerard read from Berlin.
This is redefining energy.
Today on RIF Energy Jar we're going to talk about sign energy.
Absolutely the fastest growing energy technology we've ever seen.
But first of all from my partner.
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Back to the show, maybe reaching a peak, yeah, maybe you know, we've had such an explosive growth that sometimes it's very different to go beyond that explosive growth. And the concept of the three seas a term coined by Richard Sperson of Montel The three seas congestion, curtailment, cannibalization, and somehow that capture the growing pains of an energy system being transformed almost too fast. That's true.
And actually transformed too fast by solar and that I suppose we're already going to talk about, isn't it.
Yeah, to umpact this, we have invited one of the world leading voice in solar energy and it's Sam Wilkinson, head of Vulnerables at S and P Global Committee. Inside he has a team of twenty experts focused on analyzing and forecasting trains around honorable energy markets. So really you know what he's talking about. Yeah, so let's bring him on the show. Some welcome to the show.
Thank you very much, Lauren, very happy to be here.
Maybe just a kick off by just just asking really to talk a little bit about the state of the global solar market, and then we can dig in dept into each of the markets well as we come to the end of twenty twenty five. Be great to hear your view on what's happened in twenty twenty five and global solar.
I mean, let me just start off right. I clearly remember crossing powers with you the first time. Actually, it was very early in my career as an analyst, and I've been tracking the solar industry since two thousand and nine and we're in an incredible place now. Compared to
where we were back then. You know, back then we were talking about single digit gigawatt global market, and this year we're going to wind up with something north of five hundred gigawatts of solar installed, which is an incredible achievement. I should mention that's an ac number. As analysts, we throw out different numbers all the time, So five hundred and thirty gigawatts is what we think what will have
been installed this year globally. But the story is defined in sort of two hours of a year because the overall pace of the global market is defined by China. We all know that China's over half of global installations has been for the last three years running. But this year that the market's changed dramatically. In the middle of the year, the market switched from being a market where all projects were guaranteed a certain price. So on June the first, the policy switched and now projects have to
compete with each other. And what that meant was that in May, in the first five months of the year, there was a huge rush to install in China, and we saw an incredible ninety gigawatts at sola connected to the grid in China in May alone, followed by the market dropping down into the single digits Gigawa's you know, we're talking less than ten giga what's a month, which for a market that's used to installing hundreds of giga, what's a year is a very sharp slower So we see,
you know, in the second half of the year, the continuation of super aggressive pricing, very very low margins, and from a business standpoint, it's a very complicated place to be right now, The.
Question for me is when does the value of solar really deteriorate to the point where installations fall here? And you have we reached that point in China now as buzzes where I'm coming from, and or maybe just talk about then, how you would see this Chinese market going for And I'm saying this because obviously it's the biggest market for solar in the world, and so it was incredibly important.
I couldn't agree more. So you use the word peak then, and yes, according to our current forecast. And I stress that because this is a market where policy interventions can change things dramatically, and policy is one thing that's almost impossible to predict. We've seen China intervene before and stimulate its domestic market to help to support its incredible supply chain.
But right now, based on what we know and what we can see and the visibility have, we think the annual additions of solar have peaked in China and the decrease next year in twenty twenty six is incredibly sharp. So we right now in our forecast are talking about roughly three hundred gigawa's this year falling to roughly two hundred giga what's next year in China? That one hundred
gig or what drop is? You know is extreme in the global context, but you know, we do see the possibility that something can be done to support that, and then clearly what would be in China's interest to do so if they see a justification for it. The other thing that you mentioned about the value, you know, that's what we're kind of haven't seen yet. So China has moved to this competitive system rather than guaranteeing prices, So we don't really know quite how that's going to play out.
One thing I would say though, is we have an incredible team of analysts in in China in Shanghai. They're constantly talking to the industry and the outlook, talking to all the companies in China is very pessimistic. People are very concerned about next year. And right now that two hundred gigawatts that I'm talking about for China for twenty twenty six, it looks on the optimistic side, I would say, and some if.
I just take a step back, if I maybe I think we have to just take a step back and look at the amount of solar that's been installed in the last eighteen months. I mean, if I look at that, the rates that we've installed at are almost sort of for almost producing in terms of electricity production from that eighteen months, we're producing what Japan produces and needs in terms of electricity demanding. I mean, the scale of what we've done is so crazy that it's at some point
it had to peak. And if I take the point what you're saying is a China's peaking, maybe you could talk about the rest of the world. What do you see? So maybe if we can just go to different reasons like how's India for example, and then you know, maybe we going to Europe, North America and other markets to talk about then please.
We can talk about individual markets. But pretty much across the board we still see growth on like individual countries and particularly emerging markets. And that's a story that continues almost everywhere you look. The solar market continues to grow, even in places where you tell her about cannibalization and how that's impacting on the business model. But the thing is that one hundred gigawak drop in China is like it's impossible for the rest of the world to step
up and fill that gap. And what that means is right now you're talking about peaks globally. Our forecast suggests that next year is for the first time, we are predicting that the global solar market and by that I mean the amount installed each year declines for the first time. It's marginal, you know, we're talking about less than ten percent decline. But you know that's the big story in
our forecast right now. We've never done that. You're going back to me joining the industry in two thousand and nine and tracking and forecasting it ever since. Never once have we, you know, put our hands up and said that this global market is going to decline. And I actually think that's an interesting moment for the market, right because it clearly can't go on growing every year. It's just not possible. But this is an incredible supply chain
that's been built very quickly. It's been built on the back of growth, and it just changes the dynamic completely. You know, we no longer have that luxury of knowing that next year the market's going to be bigger than it was the year before in terms of volumes at least, right, and that totally changes things.
So, simon, if I hear you and there's going to be one hundred gig less in China, is it going to go against the current narrative than China is decobanizing.
First of all, before I talk specifically about China, it's worth just recognizing the fact that we are still installing huge amounts of solar every year and other renew as well. Despite we're in this my colleagues that are in the power and the scenario is being called it this re that scenario. We're in this moment where people are just reconsidering their positions on the energy transition, thinking more about security than decarbonization. Yeah, and it's called this policy reset.
Despite that, and despite the fact that annual additions globally will be less next year than they were this year. Over the next five years, We're still going to double the amount of solar installed in the world, just because the amount we're adding each year is perhaps slowing down or is less, or is roughly the same, or it's but it's not growing one hundred percent like it has done in the past. We're still going to install roughly something like two terror watts of solar in the next
four years. We're just talking about installing five to six hundred gigawat's a year, rather than it being more than the year before and more than a year before that. It's just a total change in the dynamic takes away that luxury of growth every year, which which makes the supply chain behave in a certain way. That's one of
the interesting things for me. This supply chain thrives on high volume and high scale, and I think people take the time to appreciate just how high volume solar manufacturing is. Roughly speaking back of the envelope calculation, eighty billion solar cells made a year right now something like that. Just for context, iPhones is like two hundred million. On smartphone
market in total is one million. I can't think of any other electronic device that is made in that volume, and so it thrives on that volume and just continued high utilization rates of the supply chain. And people have always been ahead of demand, building out supply in the hope that demand will come, and we've always been confident of doing that. But right now that doesn't feel like something we can we can bet on. So I think it's going to really change the way the supply chain behave as well.
So so maybe let's move to what the repercussions are, because I think that's the really interesting thing. So I would have told the first thing I would see is consolidation. What else would we think will happen?
Well, we've already seen this playing out in terms of prices. We're talking in the like ten cents of what price range now for solo modules, which is something that going back in history we almost never would have believed. But again on that like volume thing, this volume has allowed innovation and cost reduction that people just never saw possible.
So you know, these prices, whilst margins are either very very low or potentially zero right now throughout the supply chain, these prices are a factor of that incredible progress that the technology has made. Clearly that's going to lead to consolidation. You can't have all of these manufacturers making no money.
So consolidation is one obvious impact. But the other thing that this industry has, you know, I meant I'd called it like water earlier, but it has this elasticity as well, Right, these low prices and this slow down somewhere else, solar has this incredible ability to go and find markets and
make markets. So I see the Pakistan was the thing that was talked about like a lot in recent years, all of a sudden, like consumed this huge gigawatts of solar panels, having not been a solar market previously, and there's so many other markets around the world that will
do that. This sort of unique scalability of solar as a power generation technology means that we're going to see markets that there weren't there before, in Africa, in Southeast Asia, in South America, in these emerging economies, they're going to probably start to consume solar because it's such an accessible price point. So I think that's one thing. And another
thing is again the innovation outside of the solar panel. Right, almost everything we've talked about today has been to do with the panel, and anytime we've related it out to the supply chain, but all of the other technology that's going into optimizing the building and the maintenance and the operations of these assets, adding in batteries to help with
like making these more flexible and dispatchable. There's going to be a real focus on that in terms of maintaining like high quality, high performance assets rather than just this focus on generating hardware and hooking it up to the grid.
That's a very good point. So the question for me though on that is who does this? In other words, is it the module manufacturer that's going to push these it's going to be the inversion manufacturer in other words, who's going to be the winner out of providing that solution to customers.
Well, there's so many roles to play that it's difficult to give us simple answer to that. But one thing I would say that we've noticed very clearly in recent years is that the module manufacturers recognized these are top tier manufacturing companies, right, These these sort of Chinese panel giants, they saw this coming and they knew they had to diversify. And so you look at the kind of cohort of top tier companies there and you see how they've all
diversified through various methods into energy storage. Some of them are making electoralizers, and they're all trying to find other revenue streams as well. And the inverter companies too, right, it was a very natural step for them to go into energy storage power conversion, and now a lot of them are for providing full energy storage systems as well. So that diversification is very clear, But it comes at a time where it's not like these are great industries
to be in as well. In terms of being a manufacturer, they're very overcrowded, as any high growth industry always is, right. It attracts a lot of people in and more people than the demand can sustain these companies that the manufacturers are clearly trying to diversey FI there, but then all the other places, right, you know, we look at like robotics and drones in O and M, the use of
AI and optimization. There's so much going on still downstream in that sector that there is still plenty of innovation to happen. And I just think that that focus actually on the sort of high quality projects and systems is actually really quite healthy.
I like the way you think about the future. But before we go there. I like to kill the few dinosaur along the way. There's been desperate attempts in Europe and in the US and diverse administration to build a local supply chain of cell up panel and they've thrown a lot of money on It's the status of this reinsourcing of set up panels.
Yeah, it's a good question, and it's something that's been talked about a lot. Like my thoughts are, i'd see the value in building like supply chains. So like I guess, you know a confession that start with I think you can look at China and the dominance of the supply chain either like with admiration or as a threat. I have to say that I recognized the dangers of having a supply chain concentrated in one country. But I have been visiting China and out for like over ten years,
like regularly. I'd remember the first time I like set foot in that country and started visiting these companies and I just was just been fascinated by it. Like I remember, like I was like Coli Culkin and like home alone, like you know, the New York visit where he's like hanging out the taxi, like just amazed by what he's seeing. I was kind of like that kid, and I've sort of like seen these companies grow into incredible technology companies. I always tell this story. I visited the same company
ten years apart, roughly in twenty eleven twenty twelve. It was that time when solar inverteds were like impossible to get hold of. There was a shortage sober inverters, and I remember visiting this company that makes inverters and they were literally like building them in the car park. It was total chaos. They were running around like couldn't really
tell what was going on. Ten years later, I visited the same company and they're like operation was like the slickest, most modern factory I have ever seen, Like this is like grade A plus plus plus plus plus manufacturing. And the point I'm trying to make is, you know, when we talk about China as a threat in terms of manufacturing and its dominance, you've got to recognize that it's
not like a low cost, low quality option anymore. It is the leader in terms of cost, it's the leader in terms of technology, it's the leader in terms of quality, it's the leader in terms of innovation. So there's a bit of meaning that always looks at this from a very sort of pragmatic standpoint, looking back from the global high vision, why not use that great top of the range, low cost technology and use it to decarbonize and build renewables.
So there's that piece of me that always sort of questions, why would you want to build a factory that is higher cost potentially lower quality. We don't really know, and that's a question I always ask myself. But I understand from a political point of view, you want to have that energy security, you need to build it. So the status is jerub To get back to your direct question, very little progress has been made. If you look at the numbers. Still you're talking eighty to ninety percent of
manufacturing is in China. There is some factories built in the Middle East, in Africa, I in the US that gets very complicated with the latest policy changes. In Europe, very very little, so it's happening, but still the vast majority of product comes from China. And I sort of sometimes put myself on the shoes of the end market, the develop or the owner of the investor, and they're looking at it and saying, well, if the best products come from China and the lowest cost comes from China.
Why do I even want to buy it locally? And that's why the politicians have to step in and intervene and somehow.
Enforce Ero sin Sam. I agree with you saying I think there's an additional point that I would add to that. I think politicians completely misunderstand solar and what I mean by that is they think it's like normal fossil fuels, which is where I have to go and get a fuel. I don't need to get a fuel for that solar panel. So once it's installed, it's installed and it's producing electricity
for twenty twenty five years. If I put a gas turbine in, I need to make sure there's fuel there for twenty five years, So there's an energy security issue for twenty five years you have there isn't that with a solar panel. That's the big difference. And I'm totally witcher. They're better, they're cheaper, so why not just buy them now.
I could take the other approach, which is say what the US does, which is they say no, we're going to do it ourselves, and the result of it actually is that they're actually slowing down their own market because installation costs etc. Are just way higher than the art and the rest of the world.
Well, yeah, exactly. I've stood back and watched whilst the US is politically intervened and you know, in terms of trying to localize various different you know, policy attempts over the years, and the end result is that the US pays double triple the amount of the rest of the world for its solar panels. Sadly, we don't know exactly how things are going to play out right now because we don't have the luxury of any predictability for US
policy right now. But batteries looks like it all go the same way, Like the US is going to be more expensive than the rest of the world because of tariffs or all the various policies in place. So I get that totally, and you're absolutely right the earlier when we're talking about peaks, when we talk about peak solar, we're not talking about the same thing as peak oil. We talking about peak oil. We're talking about fuel and
how much fuel is consumed. The equivalent when we're talking about peak solo would be to talk about how much sunshine is coming out of the sky, and that's just not even a sensible comparison to make, whereas what we're talking about is how much extra capacity is being added each year, and even if that declines over the next decade or so, which ultimately it would have to at
some point, we're still adding capacity. And that's just you know, going back to what you're saying, we're talking about a technology that completely cuts your dependence on fuel supplies in the same way that like a conventional fuel would. I mean that said, you know, I have to put my hand up and say, these conventional fuels do play a role. You know, we don't live in a world where we can survive on just soda and wind and have a
stable electricity supply. So we do see a world where, especially as power demand grows, because we're living at a time where demand for electrons is increasing at a phenomenal rate, those like conventional power generation technologies are going to play a role in that and we can't bring on enough capacity. Like just from Sola and win.
Well, it's summer. It was a bit of a down beat episode. We don't like downbeat. So you's going to ask the last question and hopefully there's going to be a bit more optimism.
So Sam, I'd like to actually just get to your opinion really on the future so and what it means, because actually I didn't take come out of the conversation feeling negative. I actually went, my god, this has been so crazy that they just it. Notice has just changed and we'll have seen new business models, I mean, new companies doing things different way and as you said, more innovations.
How do you see it.
I agree with you that Jared, we are at a moment where things change in terms of annual additions. That does force his companies to compete or if they want to grow their business for one, but consolidation is somewhat inevitable. But the volumes are still incredible, you know, I mentioned it earlier, but we're still going to double the amount of solar installed globally in the next five years, you know.
So if you think about how long it's taken to get to this point where we are now, how long have we been installing these kind of volumes as dolar, like roughly twenty years, We're going to achieve the same begin in the next five So it's not really the same kind of slow down and I don't feel negative about it at all. It is forcing people to look at different business models. We've somehow gone through this call
without talking about batteries and energy storage technology. And clearly what's happening now is that storage is accelerating to capitalize on the volatility that renewables are creating in energy markets. But that's also going to enable and it's actually going to be critical to allowing solar to continue to grow. So one of the numbers I look at very closely is the ratio between storage installations and solar installations. And if you look at Europe as an exam for the
last few years, it's actually been surprisingly low. If you compare megawats of storage to megawatts of solo, you're talking about like ten to twenty percent. By twenty twenty six, twenty twenty seven, you're talking about it being like fifty percent. And that's because storage is stepping in and accelerating. And obviously a lot of that is co located. You're building doola with storage attached for very obvious reasons, but also a lot of it is just built standalone.
Now.
I was looking at the volumes that have been approved in the Maxi tender in Italy just a couple of weeks ago. Incredible volumes of storage. They're going to go into the system and support the renewables that have already been installed, but also renewables that will be added in the future as well. I don't feel negative at all. Well, it's just going to be a change in mindset for the industry to innovate without the luxury of growth, and there's still incredible progress to be made there in terms
of volumes you're added each year. Like of course, like accepting that moment where things decline for the first time is a kind of a bittersweet pill to swallow, but I still like maintain that the amount of soilor and renewables being built into the future is still something that people can feel very positive about.
Well, some thank you, thank you very much for coming. As usual, it's a very sophisticated balance message, which kind of differ the almost cult like declaration of people who don't know as much as you do. So thank you very much for coming on the show.
No problem, it was as a pleasure to join you. I listened to the podcast regularly and it was really great to have the chance to come and join.
Yeah, and Sam, I love having these annual catch up with you. So I just want to say thank you very much, keep up the great work.
Wow wow wow one hundred decline next year. Woof, that's heavy. Yeah, but you know our listeners.
I reflect on the podcast. My comment around it is what we've seen is peak large scale solar. And the reason is because if you've got large scale solar, the more you put into it, the more and it goes to a power market. You're just incentivized to bring more. The future solar is behind the transformer. It is all about actually avoiding green costs. That's what iver be really honest, that's what's about, and taxes and all that type of stuff.
There we have realed speak. Oh yeah, yeah, every roof every warehouse, every factory will put cellar. That's for sure. The revolution to come is beyond the metal. And you're right except in places like Texas or the Tibetan Plateau or you know those type of things where you can still put some huge parks, but at the end of the day, you need to put batteries as well. Otherwise you're going to be the all infrastructure for a twenty five percent capacity. If you build transmission, they need to
be a food capacity. Otherwise waste of money.
Yeah, which actually totally brings the point about going about behind the transformer. You're actually batteries are all about optimizing self consumption. So instead of the faster factor of being twenty five percent, you take it to forty percent. That's where we're going. And as we both see massive cost degradations in batteries and also performance improvements, that's what's.
Going to happen.
The capacity factor of that behind the mirror solar is just going to get larger.
Yeah, And finally Africa is gonna turn solar. Egypt, Nigeria, South Africa. I mean, all those countries going sold out big and this is great, so they won't go through the fassil fuel heavy infrastructure phase on the Yeah, they'll go to sell o direct.
And then I think the think we need to add to that was again, we've been in batteries for a long while. It started ten years ago. Batteries were there for you know, one in a balancing in the power Market's just that quick response you needed. Now we're not talking about six hour batteries.
Yeah, so you.
Got solar for let's assume you've got some for nine hours of the day and you've got battery for six hours. You know where I'm coming from here, You're not far off twenty four hours.
Yeah, and case in point, Pakistan who used to import lerg now are still Katar. Thank you. You can keep your boats. So that's exactly what's happening, and it's happening for cross reason, speed, to install security reasons. Solatics hold the boxes. So certainly we'll have a peek, but I really trust this industry to rebound, innovate.
Good my friend, Well, good conversation. Thanks Sam for coming out and speak to you next week.
Cheers.
Thank you for.
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