By Jigar Shah
What a difference a couple of years make. Two years ago, the solar industry was over subsidized and doing well. Last year, the solar industry fell victim to the financial crisis, but emerged victorious through skill and determination to achieve another year of positive growth — after many predictions to the contrary. With today’s announcement that Germany will likely cut its solar subsidy substantially, many are asking, “what will this mean?”
We as an industry have to send a strong signal that we are willing to adopt a “cost-plus” incentive model based on the cost of modules, installation, and financing costs. Every government around the world is looking to invest in their energy sector to provide much needed stimulus. This cost-plus model is not unknown in other industries. As our industry matures, solar PV will use the same paradigm that guides other electricity generation technologies globally. For most electricity projects, developers are not rewarded for installing equipment – they are rewarded for taking risk. Because of the solar industry’s early maturity cycle, we receive fixed priced contracts for 20 years. Because of the stability provided by feed-in-tariffs the only risk taken is solar radiation and execution risk, undeserving of the high-profit margins of the past year. An industry standard cost-plus model enables the solar industry to grow in a predictable way, attracting growth capital in a rational and hopefully less volatile way.