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Directions for the Solar Economy:
PV-Roadmap 2020
Competitive, environmentally friendly, decentralized –
The solar economy as a central pillar of a sustainable energy supply

A study by Roland Berger Strategy Consultants and Prognos AG
for the German Solar Industry Association

Abridged version
Directions for the Solar Economy:
PV-Roadmap 2020
Competitive, environmentally friendly, decentralized –
The solar economy as a central pillar of a sustainable energy supply

A study by Roland Berger Strategy Consultants and Prognos AG
for the German Solar Industry Association

Abridged version

Impressum:

Roland Berger Strategy Consultants
Mies-van-der-Rohe Strasse 6
80807 Munich
Authors: Torsten Henzelmann, Jochen Schönfelder, Philipp Hattrup, Caroline Peters, Andrea Wiedemann

Prognos AG
Goethestrasse 85
10623 Berlin
Authors: Jens Hobohm, Frank Peter, Leonard Krampe, Stefan Mellahn, Fabian Sakowski
2   |   A study by Roland Berger Strategy Consultants and Prognos AG for the German Solar Industry Association

        I. Introduction and background
        The photovoltaic sector in Germany has developed dynamically over the past years.
        At the end of 2009, the cumulative installed capacity was 9.8 GW; at the end of
        2010 it will be approximately 18 GW. Within the solar economy, numerous com-
        panies have developed which manufacture and install products for this growth
        industry – from machines and plant construction to modules and system compo-
        nents. Many of these companies have become leaders on the global market. In
        this sense, the political and social project of supporting renewables technologies
        to the point of commercial maturity, for example with the Renewable Energy
        Sources Act, has yielded positive results. The photovoltaic industry itself, with its
        consistent reduction of costs, has also contributed to this development. In the face
        of the coming challenges, in particular in competition with Asian suppliers, and in
        light of the expected global growth of this economic sector, Roland Berger Strategy
        Consultants and Prognos AG, together with the German Solar Industry Association,
        have jointly developed a vision for the photovoltaic industry in Germany. From this
        vision are derived concrete targets until 2020 as well as measures that are neces-
        sary to reach these targets.

        II. Photovoltaic vision 2020
        The vision of the German PV industry is based on the claim that the sector can
        guarantee competitive, affordable, safe and clean power generation from solar
        energy by the year 2020. The solar industry will be a key pillar in the system trans-
        formation to clean and independent power generation based on 100% renewable
        energies in Germany and around the world. By cutting CO2 emissions, the expan-
        sion of photovoltaics is making an indispensable contribution in the struggle against
        climate change. In addition, photovoltaics contributes decisively to the security
        of the power supply and to the protection of resources.

        PV electricity combines distinct advantages: Decentrality – in other words, PV
        electricity is generated close to consumers, it is easy to install and maintain and it
        offers unlimited availability. In generation it is virtually without competition from
        other uses and takes place at times of the day with high demand – so that it covers
        demand peaks. These advantages ensure affordable and sustainable power genera-
        tion that can be easily integrated into the overall power system and makes a signifi-
        cant contribution to the power supply.

        The photovoltaic industry in Germany is currently technology leader, and by offe-
        ring competitive costs it will maintain this position on a global scale. There is high
        global demand for photovoltaic products "Made in Germany,” produced for export
        in Germany.
3   |   PV-Roadmap 2020

        III. The nine key targets of the German photovoltaic industry
        To tap the significant potential that photovoltaics holds for environmental and
        climate protection, for the security of the power supply and for Germany as a
        business location, nine targets need to be met:

            ut systems prices by more than 50% by 2020 - Solar power will become largely
        1. C
           competitive in Germany before the year 2020, thereby achieving independence
           from support measures in certain relevant market segments. System prices will
           be more than halved by 2020 in order to meet existing EEG (Renewable Energy
           Sources Act) provisions. As a first milestone, grid parity, i.e. the point at which
           solar power generation is equal in cost to household electricity tariffs, will
           already be reached in 2013.

        2. I nstall 52 to 70 GW of photovoltaic capacity by 2020 – With an installed capa-
            city of 52 to 70 GW and a resulting share of approximately 10% of the annual
            gross power consumption by 2020, photovoltaics becomes a key pillar of energy
            supply in Germany. In following years, the photovoltaic industry realizes further
            growth potential.

        3. L imit apportionment for solar power on electricity tariffs to about 2 euro cents/
            kWh – In 2010, approximately 8 GW of photovoltaics were installed in Ger-
            many; in 2011 approximately 6 GW are expected to be installed. In order to
            reach the expansion scenario of 52 GW by 2020 as outlined in the German
            government’s national action plan for renewable energy (NAP), an annual
            increase of 3 GW of photovoltaic capacity on average must be attained in the
            following years. To reach the dynamic expansion scenario of 70 GW by 2020,
            an increase of roughly 5 GW per year is necessary. In both scenarios, based on
            the current EEG degression corridor, it is possible to limit PV apportionment to
            about 2 euro cents / kWh on electricity tariffs. The share of solar power in the
            EEG apportionment is at approximately 50%. This translates to an electricity
            cost burden of less than 2 euros per month per person in an average household.

        4. I nvest at least 5% of sales in R&D – The German solar industry is intensifying
            research and development (R&D) in order to accelerate cost reduction, attain
            operative excellence on a global scale and assert its position in the face of
            international competition. To this end, the PV industry will increase its R&D
            expenditures and, in the medium term, will reach the R&D expenditure level
           of the machinery and plant engineering industry, which is 5% of sales.
4   |   A study by Roland Berger Strategy Consultants and Prognos AG for the German Solar Industry Association

        5. S
            ecure at least 12% share of the growing world market for German pro-
           duction – There is high global demand for German photovoltaics pro-
           ducts: By 2020 the German industry will have reached an export quota
           of more than 80% and will be able to maintain a global market share in
           the double-digit range (at least 12% in 2020) for photovoltaics "Made
           in Germany”, given strong global growth of markets and production
           volume. In the field of photovoltaics, the German machinery and plant
           engineering industry will retain its position as global leader. Together, the
           companies in the industry will achieve an export turnover of 14 billion
           euros (6 billion euros in 2010).

            uild up approx. 8.5 GW of PV production "Made in Germany" – Through
        6. B
           its investments, the photovoltaic industry shows its commitment to Ger-
           many as a production location. It is expanding German module produc-
           tion and all upstream production in the value chain from about 3 GW to
           about 8.5 GW. Similarly ambitious targets exist for all other technologies
           (e.g. inverters) along the value chain.

        7. E mploy at least 130,000 people around German PV technology – In the
            long term, photovoltaic technology will secure, directly or indirectly,
            approximately 130,000 jobs, even if the annual installation volume
            in Germany declines.

        8. G
            enerate a net economic contribution of at least EUR 25 billion by 2030
           – By investing in continuing production expansion and innovation, the
           overall economic balance will be stable by 2020, and in the longer term
           decidedly positive – by 2030, given the fulfillment of the national action
           plan for renewable energies, there will be a cumulative net effect of at
           least EUR 25 billion. Taking into account savings reached by avoiding
           climate change impact, this amounts to a cumulative positive effect of
           at least 56 billion euros. Moreover, the dependency on imported fossil
           fuels is significantly reduced.

            ake photovoltaics a key component of the future power system –
        9. M
           Through decentrality and system services, photovoltaic systems make a
           significant contribution to the expansion of an environmentally friendly,
           safe and affordable future power system.
5   |   PV-Roadmap 2020

        IV. Overview of measures in the roadmap
        The vision and nine key targets of the photovoltaic industry can only be attai-
        ned if crucial measures are initiated and implemented over the next ten years.
        The prerequisite for success are actions by the photovoltaic industry, together
        with additional key stakeholders, in various fields.

        On the business side, these stakeholders also include, in addition to the pho-
        tovoltaic industry, all other renewable energies, as well as the companies from
        grid operation, power supply and power generation (see figure 1). It is crucial
        for the successful implementation of the vision that stakeholders from outside
        the business community be incorporated, in particular from the political sphere
        and the scientific community.

        The stakeholders must become active in three main fields of action:

        A. Support and steer the expansion of renewable energies: The objective is to
        enable, through support mechanisms, a continued growth of PV installations in
        Germany amounting to at least 52 GW by 2020. The growth of PV installations
        must be steered in such a way that it can be integrated into the German power
        grid and energy system. Furthermore, the product character of photovoltaics
        – for example the provision of system services – should be further developed
        through appropriate incentives and thereby integrated in the electricity market.
6   |   A study by Roland Berger Strategy Consultants and Prognos AG for the German Solar Industry Association

        B. A
            chieve system integration of photovoltaics – and of renewable energies
           on the whole: The expansion of photovoltaics and of renewable energies
           leads to a system transformation, from the central power supply that has
           existed thus far to a decentralized supply structure. Until now, power
           grids are set up for centralized power supply. The increasing connection
           of fluctuating and decentrally fed-in in renewable energies leads to new
           challenges that require an adjustment of the supply system.

            ake necessary technologies available: In order to make the quickest
        C. M
           possible progress in fields of action A and B, but also to limit the con-
           version costs and to remain competitive on the international market,
           new technologies must be made available at an early stage. This requires
           measures in the area of research and development.

        Stakeholders and fields of action form a matrix into which the measures
        can be positioned (see figure 2).

        As a third dimension, the time factor is of great importance. The measures
        must keep pace with the process in such a way that they achieve the neces-
        sary results in due time (see figure 3).
7   |   PV-Roadmap 2020

        The interplay of stakeholders, fields of action and implementation periods
        results in a roadmap of measures for the implementation of the Photovoltaic
        Vision 2020. Over 20 measures are included in the roadmap, by which the
        vision and the nine key targets of the German photovoltaic industry can be
        implemented (see figure 4).
8   |   A study by Roland Berger Strategy Consultants and Prognos AG for the German Solar Industry Association

        V. Fields of action and measures in detail
        V.1 F ield of action "Support and steer expansion of renewable energies"

        The measures in this field of action focus on four main aspects:

        Strengthen decentrality: The decentralized nature of power generation
        through photovoltaics relieves the transmission grids and enables an inde-
        pendent power supply, especially in combination with other renewable
        energy sources. Accordingly, the measures are aimed at achieving an even
        closer connection between power generation and consumption on a decen-
        tralized level, for example through incentives for more direct consumption.

        Achieve spatial distribution: The expansion of photovoltaics must be dis-
        tributed equally across Germany. This allows a reduction of costs for grid
        extension at distribution network level, since regional concentrations of
        photovoltaic installations are avoided. At the same time, it prevents from
        requiring transmission grid capacity from the south to the north in the
        medium to long term. An equal distribution reduces the occurrence of
        spatially-concentrated overproduction in periods of high irradiation. As
        a result, seasonal storage capacity for photovoltaic power alone will not
        be necessary in the medium to long term.

        Change the product character of photovoltaic and RES electricity and bring
        about greater plannability: Incentives must be designed in such a way that
        renewable energies have a better match to the requirements of the over-
        all system. A cost-optimized expansion will succeed if renewable power
        generation increasingly takes over services that are necessary for the system
        stability of the power supply and for an optimal extension of the grids. This
        also must be taken into consideration when planning support mechanisms.

        Retain the principle of absolute priority for renewable energies: It is neces-
        sary to retain the basic, essential provisions of the EEG (for example the
        principle of priority) that are required for further expansion. This is
        explicitly underlined through a corresponding measure.

        This is the background of the measures set out for the support and steering
        of expansion (see figure 5).
9   |   PV-Roadmap 2020

        Expand direct consumption incentive: The 2009 EEG (Feed-In-Tariff) amendment
        promoted the strengthening of direct consumption. This element should be retai-
        ned, as it motivates investors to also consume the electricity that they generate
        decentrally. This enables peak loads to be absorbed better, and it provides relief to
        the grids. In addition, the electricity consumed directly is no longer remunerated,
        which reduces the burden on electricity tariffs through the EEG apportionment.
        Overall, it is recommended to continue the current support mechanisms and to
        incorporate large scale installations in the support program, which might require
        a differentiation in the tariff system for direct consumption by system size (due to
        different electricity tariffs of large-scale consumers). Furthermore, shared consumpti-
        on in a neighborhood, which allows shared use of installations by consumers on the
        same street, in a homeowners association or in multi-family houses.

        Differentiate between remuneration rates based on irradiation and reduce them ac-
        cording to the market development: Currently, remuneration rates are reduced each
        year; recently a degression has been introduced which is based on market growth.
        In the medium term, this is meant to lead to a target corridor with an annual pho-
        tovoltaic deployment of 2.5 – 3.5 GW. The degression is intended to motivate the
        photovoltaic industry to undertake further efforts in cost reduction. However, the
        current arrangement lacks a steering mechanism for an improved spatial distribution
        of photovoltaics expansion, and this has led to strong growth in southern Germa-
        ny. Against this background, the recommendation for the next amendment is to
        introduce a differentiated remuneration through a reference yield model, based on
        irradiation levels, and to retain the market-based degression in its present form.
10   |   A study by Roland Berger Strategy Consultants and Prognos AG for the German Solar Industry Association

         Integrate ground-mounted installations with high direct consumption: Since the last
         amendment, ground-mounted systems, with the exception of those on conversion
         areas, are not subject to EEG remuneration anymore. Large installations, however,
         hold considerable potential, as their installation is the least expensive and they
         provide significant relief to consumers as they require the lowest level of support.
         The aim should be to lift restrictions on areas for ground-mounted systems if a
         significant share of the produced electricity is consumed directly.

         Support stable power generation: One important aspect is the achievement of stable
         power generation from all renewable energy sources. On the one hand, under the
         existing system, adjustable renewable energies such as biomass, biogas or hydro-
         electric power are supported on the basis of their yearly electricity generation. As
         a result, the installations produce electricity even when there might be no demand
         and electricity prices at the electricity exchange are at a low or even negative level.
         On the other hand, there are currently hardly any incentives to operate installa-
         tions that combine different fluctuating renewable energies, which would enable
         more constant power generation and a closer correlation with demand. For this
         reason...
         > ... options for supporting capacity availability should be developed in more
            detail and incorporated into the next EEG amendment;
         > ... a bonus for combined power plants should be introduced, which
            also allows increased participation in balance energy markets.

         Furthermore, in the area of support measures and steering of expansion
         of renewables...
         > ... commercialization mechanisms should be adjusted for the green electricity
            privilege (for each unit of energy purchased directly from RES, another unit
            will be freed up from the apportionment), so that direct selling of energy no
            longer leads to sharp spikes in electricity prices for the remaining end con-
            sumers; this can be achieved, for example, through a portfolio factor (in other
            words, a set minimum share of all renewable energies in direct energy sales),
            through an adjustment of the 50% criteria as well as a limitation of apportion-
            ment exemptions;
         > ... an incentive for decentralized storage systems should be created, since decen-
            tralized storage enables increased levels of direct consumption and at the same
            time creates market incentives for companies to fast track the development of
            competitive, marketable storage solutions;
         > ... smart metering should be introduced, as this can contribute to improved
            control of direct consumption and feed-in from PV systems;
         > ... provision of balance energy should be supported and a working capacity mar-
            ket should be created; following this system change, operators of conventional
            power plants will no longer only be remunerated for power generation, but also
            according to reserve capacity.
11   |   PV-Roadmap 2020

         V.2 F ield of action "Achieve system integration for photovoltaics – and for renewable energies
              in general"

         In the field of action "Achieve system integration for photovoltaics – and for renewable
         energies in general," the measures are focused on the three following core points:

         Provide system services through renewable energies: In the future, renewable energies must
         be able to provide more system services. The groundwork for this must be laid. This is es-
         sential, on the one hand, to guarantee grid quality and safety. On the other hand, it lessens
         the need for adjustable conventional power plant capacity for those specific system services.
         In order to achieve this, installation concepts in the photovoltaics industry must be adjusted
         and market mechanisms for the provision of systems services must be developed further.

         Enable decentralized grid structures: The expansion of decentralized photovoltaics will
         continue to put high demands on the grids. However, targeted system changes such as
         reactive power capacity as well as other innovations can help keep the costs of expansion
         to a minimum, or even avoid them altogether.

         Improved steering of load and generation: Renewable energies will increase system comple-
         xity. That is why communication and steering systems must be established which allow a
         better coordination of load and generation. This will enable the overall energy system to
         optimize its "operating mode" in the future and react more flexibly to change, for example
         through weather conditions and consumer behavior.

         This results in the defined measures for the grid integration of renewables (see figure 6).
12   |   A study by Roland Berger Strategy Consultants and Prognos AG for the German Solar Industry Association

         Restructure balance energy markets and open them for renewable energies:
         Until now, renewable energies have played little role in providing system
         services. On the one hand, many of the renewable systems are not completely
         equipped for that purpose from a technical standpoint; on the other hand,
         there are market-side limitations that hinder participation in markets for
         system services. These include in particular the long lead-time involved in
         the commercialization of system services. The result is that more conventional
         power plants than necessary are employed, and, as a result, the more afford-
         able renewable power generation is even temporarily switched off. Since this
         is not economically viable, the recommendation is to prepare photovoltaic
         systems for added system services by using relevant inverter technology, for
         example the already available capability of inverters to utilize reactive power
         control, as well as to design marketing mechanisms for balance energy with
         a more short-term range, so that renewable energies can participate in these
         markets on the basis of more resilient day-ahead-prognoses.

         Establish inverters capable of reactive power: The continued expansion of
         decentralized PV systems will make a further selective strengthening of
         decentralized distribution networks necessary – also as the foundation for a
         more decentralized electricity system. However, targeted measures can reduce
         the costs of this necessary expansion, as they replace conventional expansion
         measures such as the strengthening of existing transmission lines or the repla-
         cement of transformers. For this reason, photovoltaic systems should contri-
         bute to voltage stability through reactive power supply, and dynamic voltage
         regulators for local distribution grid substations must be brought to commer-
         cial maturity at an early stage so that conventional expansion measures can
         be reduced.

         Establish information systems to steer generation and load: A temporary
         shutdown of smaller PV systems to ease peak loads should only occur if the
         necessary systems for steering generation and load are available in the form
         of information and communications technology. Accordingly, the expansion
         of intelligent grids should be promoted and the resulting potential for steering
         load and generation should be systematically utilized.

         By using intelligent grids, e-mobility and PV production can complement each
         other, since fluctuating power generation can be stored and made available at
         a later point in time. With the expected growth of e-mobility, this holds great
         potential.
13   |   PV-Roadmap 2020

         V.3 Field of action "Make technologies available"

         The field of action "make technologies available" is defined by two main aspects:

         Prepare for system change to 100% renewables: In the long term, the share of
         renewable energies will continue to rise. This will lead to new challenges for
         the seasonal balance of generation and load. Research should already be working
         toward developing new solutions so that these are available in the future at a
         reasonable cost.

         Secure and maintain competitiveness: In the global race for leadership in the
         future-oriented industry of photovoltaics, German companies are facing serious
         competition from Asia. Through targeted support and promotion, the industry
         must be moved into a competitive position that secures Germany‘s long-term
         economic benefit.

         This is the background for the measures in the area of technology (see figure 7).
14   |   A study by Roland Berger Strategy Consultants and Prognos AG for the German Solar Industry Association

         Support and promote the photovoltaic industry in research & development
         and investments: The German photovoltaic industry is committed in its
         targets to Germany as a business location for this technology of the future.
         However, Germany has an unequal competitive standing compared to
         participants from Asia, who receive major support through industrial policy.
         Chinese companies in particular receive assistance in the form of direct in-
         vestment grants, state-granted credit facilities at favorable conditions and tax
         credits. In order to secure production in Germany now and in the future...
         > ... industrial policy measures should be undertaken which promote
            investments in Germany to a greater degree than has so far been the case.
            Political stakeholders must systematically accompany the industry on its
            course, and there must be a joint commitment on both sides toward the
            development of Germany as a production location. In the process, clear
            agreements should be made and milestones should be set out;
         > ... research & development should receive greater support so that compa-
            nies can continue to develop the best products and production processes
            in the world.

         At the same time, forecast models must be improved in order to enable
         the predictability of photovoltaic production on a more short term and
         qualitatively better basis while taking possible direct consumption into
         consideration. Forecast models that have already been made available by
         the PV industry need to be utilized by grid operators. The cost reduction
         potential of storage solutions – both centralized and decentralized – is
         only just beginning to be fully utilized. Cost reduction and continued
         development are necessary in the medium and long term to absorb
         significant swings in renewable power generation, both in the course
         of the day and those occurring seasonally.

         VI. Milestones on the path to an era without financial
              support

         With the planned reductions of the system price by 2020 – prices could
         drop from today‘s average of EUR 2.70/Wp to about EUR 1.40/Wp – and
         selected PV installations will not require financial support anymore. The
         major lever is a significant share of direct consumption. Households that
         reach a direct consumption level of 60%, for example, could do without sup-
         port starting in 2017, and would be in a better financial position with a PV
         system than without. This target is feasible, for example, for a multi-family
         house using one shared system. From that point on, PV systems become self-
         supporting. The recommended measures systematically pave the way for this
         moment insofar as the direct consumption provision creates incentives for
         more decentralized consumption close to the system, including in conjunc-
         tion with shared neighborhood PV consumption.
15   |   PV-Roadmap 2020

         In the future, with the help of intelligent devices and grids, there will be
         an even better steering of power consumption ("local load management") –
         a significant reason for the build up of smart grids. And a support program
         for decentralized storage solutions will promote their further development,
         make them cheaper and allow again higher direct consumption
         (see figure 8).

         These considerations underline that the present energy system is facing
         challenges. Decentralized generation systems will take over an increasingly
         significant share of supply, so that less centralized generation will be neces-
         sary. The "classical" energy suppliers and power plant operators will lose
         production and marketable volume.

         Against this background, the differing positions become clear – regarding the
         support of renewable energies and their expansion, but also regarding ques-
         tions such as the absorption capacity of the grids in terms of a decentralized
         feed-in can be better understood. There is an increasing conflict potential
         between producers and distributers of renewable and conventional energies.
         The parties involved should engage in a constructive dialogue in order to
         find a common path to a changed electricity system. Potentially, political
         stakeholders would have to moderate the process.
16   |   A study by Roland Berger Strategy Consultants and Prognos AG for the German Solar Industry Association

         VII. Conclusion
         Over the past years, the photovoltaic industry has undergone significant de-
         velopment in Germany, and now has excellent prospects for the future as a
         central pillar in the struggle against climate change and for a clean environ-
         ment. Many consumers have recognized the advantages of the technology
         and have invested in a PV system in Germany. In this area Germany is a
         global leader, and over 130,000 new jobs have been created. Given a further
         expansion of production, the industry will be able to make a decidedly
         positive contribution to the German economy.

         The intensive growth and accelerated course toward system transformation
         with 100% renewables brings about new challenges. The photovoltaic indus-
         try, with its vision, its targets and its program of measures, has created the
         framework for making a contribution of its own toward energy transformati-
         on. In the coming weeks and months, it will be of crucial importance
         to discuss the insights with other stakeholders and to develop concrete
         plans for the implementation of individual measures.

         Each stakeholder must do his part so that Germany can build up an energy
         system of the future, and at the same time safeguard photovoltaics as an
         industry of the future in Germany. Currently, the parties involved in energy
         supply have differing standpoints on the expansion of and support for rene-
         wable energies. In particular through the use of decentrally installed pho-
         tovoltaic systems close to the consumer, the "classical" electricity suppliers
         and power plant operators lose marketing potential. Power plants will also
         become less productive due to their shortened operating time. However, at
         least in the medium term, conventional electricity supply cannot be aban-
         doned, especially when it comes to providing balancing power. A construc-
         tive dialogue between partners is therefore necessary in order to overcome
         the challenges of system transformation.

         "Directions for the Solar Economy: PV Roadmap 2020" provides the basis for
         a constructive dialogue. With the defined targets, the photovoltaic industry
         steps up to its responsibility and is now committed to implementation. In
         the process, Germany has the possibility to assume the role of global leader
         in the integration of renewable energies – an experience from which many
         of the involved industries can benefit from in the future, in Germany and
         around the world.
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