Analysis: Is the Solar Market Headed for a Crisis?

Several solar companies recently declared bankruptcy, shocking the renewable energy sector. While this trend is concerning, it raises questions about the broader implications for the solar market, particularly in the UK. 

The UK solar industry, once a shining example of the nation's commitment to renewable energy, is now facing turbulent times. This development raises questions about the future of solar power in the UK. Could this be the beginning of a crisis threatening the country's renewable energy goals?

We've observed these trends through careful market data analysis and conversations with industry experts, aiming to provide a clear picture of the current solar landscape.

We aim to assess the UK solar market by examining its size, share, and growth projections. We aim to determine whether the sector is heading towards a crisis or if there are opportunities for innovation and adaptation within these challenges.

We've seen remarkable growth in the UK solar market. Installed solar generation increased by 10.7% in 2023, reaching 17.6 GW of electricity. This significant growth falls slightly short of the recommended 13% annual growth rate.

The industry aims to meet a 70GW installed solar capacity target by 2035. However, we're optimistic about the future, as the UK solar industry expects the annual growth rate to accelerate.

By May 2023, the UK had registered 15.1 GW of solar capacity across 1,334,453 installations. This marked a 6.4% (911 MW) increase since May 2022. This represents the highest annual increase since December 2017, showcasing the sector's resilience and potential.

Solar farms are set to contribute 2GW through Contract for Difference schemes between 2024 and 2025. The commercial-scale rooftop solar market is also thriving, with around 15,000 installations. An expected 3GW is set to be deployed on roofs and ground in 2024. If these targets are met, we anticipate total solar generation capacity to surpass 20GW significantly.

The average UK home consumes between 7 and 11 kilowatts of electricity daily. Residential solar technologies generating 3kW are making a substantial impact on reducing energy consumption. However, the forecast for 2024 also suggests a slowdown, with expected additions of 1.5 to 2 GW.

Despite this growth, the industry faces several challenges. The removal of government incentives in 2017 has left many companies needing help maintaining profitability. Additionally, the economic outlook for 2024 remains uncertain, with inflation and interest rates impacting financial stability. 

We've observed significant challenges in the solar industry despite its immense potential. The Earth receives 173,000 terawatts of solar energy at any given moment, over 10,000 times the global energy consumption. This abundance of free, green energy underscores the importance of continued investment in solar photovoltaic (PV) power.

The UK has 15 GW of solar capacity, and 49% comes from ground-mounted or standalone installations. Recent data shows that solar power accounted for 6.8% of the UK's energy mix in the last quarter of 2023. Despite this, the country's total solar capacity reached a record 15.7 gigawatts (GW) in January 2024.

However, this has met a complex landscape of challenges that impact its growth and sustainability. We've therefore identified critical issues affecting the long-term productivity and sustainability of the solar industries. These all contribute to the financial difficulties faced by solar companies:

Similar policy uncertainties and economic pressures in the UK could reduce consumer demand and investment in solar projects. The insolvency statistics for 2023 revealed a worrying trend, with a 9% increase in company insolvencies compared to the previous quarter. This trend underscores the financial strain on businesses across various sectors, including solar energy.

Meanwhile, the UK and other countries have ambitious renewable energy targets. Some countries are also closely watching the developments in the solar market. However, some countries are already experiencing the effects of this crisis. 

In the Netherlands, energy companies are increasingly imposing feed-in charges for solar power, which are on the rise. If this trend spreads to more countries, it could severely affect the break-even point for solar investments, making them less attractive than simply saving money in the bank. 

The return on a savings account with an interest rate between 0.5% and 2.5%  is nearly as intriguing in this situation. The Dutch government is investigating this issue, but even the possibility of such charges makes solar less appealing.

The US, the solar industry is struggling despite initial optimism from the Inflation Reduction Act (IRA). High interest rates, increased costs for hardware and labour, and local opposition have slowed the progress of solar projects. As a result, over 100 US solar companies declared bankruptcy in 2023. 

In Europe, the solar sector faces stiff competition from Chinese manufacturers, whose subsidised panels have driven down prices and led to bankruptcies among EU solar companies. The European Solar Manufacturing Council (ESMC) has warned that many European manufacturers risk bankruptcy due to oversupply and aggressive Chinese subsidies.

Unlike the other nation's markets, the UK's solar industry is growing thanks to supportive government policies and financial incentives like tax reliefs, grants, and feed-in tariffs. As of June 2024, the UK has reached 16.9 GW of solar capacity, an 8.5% increase from the previous year. 

The UK's solar industry is experiencing growth, supported by government initiatives and financial incentives. The UK government has introduced policies to bolster solar energy adoption, including tax reliefs, grants, and feed-in tariffs, making solar installations more financially viable.

However, if the trends in the Netherlands and other parts of Europe spread to the UK, the solar market could face significant challenges. Rising feed-in charges and increased competition from subsidised Chinese panels could undermine the financial viability of solar investments. 

Moreover, the reliance on Asian suppliers for solar components exposes the industry to price fluctuations and supply chain vulnerabilities, which can impact production costs and availability. This could slow down the growth of the solar sector in the UK and increase the risk of bankruptcies similar to those seen in the US and Europe.

The financial impact could be significant if the UK solar market faces similar challenges internationally. New solar installations might slow down, causing investor confidence to drop. Existing solar companies could experience increased financial strain, leading to potential bankruptcies.

The UK government may need to boost its support for the solar industry to prevent these outcomes. This could involve increasing subsidies or implementing protective measures against foreign competition. Without such interventions, the UK's solar market could face a crisis, threatening its ability to meet renewable energy targets.

However, if costs rise and competition intensifies, this growth could stall. The financial burden on solar companies might increase, making it harder to sustain operations and invest in new projects.

The UK might need to catch up on the economic benefits of a thriving solar industry. Currently, the sector employs around 6,500 people. This number could grow to over 42,000 jobs by 2030 if the 40 GW target is met, which has already led to a significant increase in the number of homes with solar panels, from 28,211 in 2010 to 1.4 million by June 2024, according to government data.

The wave of bankruptcies in the solar industry is not confined to a single region or market; it is a widespread phenomenon affecting multiple areas, particularly in the United States.

The bankruptcy surge stems from a storm of economic challenges and policy shifts.  As a result, we've seen a drop in consumer demand for solar energy systems, directly impacting contractors who rely on a steady stream of new installations. 

California, a key player in the US solar market, has been particularly hard hit. Introducing new net metering rules under NEM 3.0 has drastically reduced system economics. This policy change and broader financing shifts have led to an 80% decrease in rooftop solar installation volume. The California Solar & Storage Association reports thousands of stalled projects and over 17,000 industry layoffs.

The impact extends beyond the US. In Europe, we've seen eight solar supply chain companies restructure loans, halt production, file for bankruptcy or warn of impending facility closures. For instance, Swiss company Meyer Burger Technologies saw its shares plummet by 87% over 12 months and recently announced the closure of one of Europe's largest module production sites. 

Smaller contractors have been disproportionately affected, needing more financial buffers than larger firms to absorb increased costs. This disparity has led to a wave of closures among smaller players, reshaping the industry landscape.

The ripple effects of these bankruptcies are far-reaching. Homeowners with ongoing installations face uncertainty and potential delays. Those with existing warranty or service agreements may need support. In the short term, this could lead to reduced competition, potentially impacting pricing and service quality in the solar market.

The potential crisis in the solar market could have far-reaching implications for the UK economy. The solar sector's potential to contribute up to 17% of the UK's electricity by 2035 highlights its crucial role in the nation's energy mix. 

This projection is based on an ambitious target of increasing deployed solar capacity five-fold to 70GW by 2035, with an interim goal of 40GW by 2030. 

The solar industry is a significant employer that provides manufacturing, installation, and maintenance jobs. A downturn could lead to job losses and reduced economic activity, particularly in regions heavily reliant on renewable energy.

The current pipeline of solar farm projects represents a potential £30 billion investment of private capital in the UK energy sector. This investment not only aids in decarbonising the economy but also promises stable financial returns. Moreover, the industry could support at least 60,000 jobs by 2035, with Scotland alone potentially seeing between 5,500 and 8,500 green jobs across various industries.

However, the recent challenges in the solar sector pose risks to these economic gains. Immediate action is necessary to meet the UK government's 2030 target of reducing greenhouse gas emissions by 68%. This shortfall could have far-reaching consequences for the UK's net-zero ambitions and economic resilience.

While the recent bankruptcies are concerning, a crisis is not inevitable. It's important to remember that the solar industry has always been highly competitive and subject to market fluctuations. The current challenges could lead to consolidation and restructuring rather than a full-blown crisis.

Moreover, the sector has shown resilience and adaptability, with opportunities for innovation and growth. Technological advancements in solar panels and energy storage could drive cost reductions and efficiency improvements, helping companies stay competitive.

In 2022, global solar deployment saw over 250GW of modules produced and shipped, with more than 200GW going to commercial, industrial, and utility sites. The UK's ground-mount solar installations have seen considerable new site planning, with the project pipeline growing from a few gigawatts in 2019 to over 40GW.

A study published in Nature Communications suggests solar photovoltaics will likely become the dominant power source before 2050, even without support from more ambitious climate policies. However, four key barriers could hamper this progress:

To overcome these barriers, governments should focus on policies addressing grid resilience, access to finance, and supply chains. They should also tackle political opposition rather than relying solely on price instruments like carbon taxes.

However, the situation warrants close monitoring, particularly as the industry navigates the complexities of the post-pandemic economy and ongoing geopolitical tensions.

Despite current challenges, we've identified significant opportunities for innovation and adaptation in the UK solar industry. The sector's potential to contribute up to 17% of the UK's electricity by 2035 underscores its crucial role in the nation's energy mix. 

Technological advancements in solar panels and energy storage could reduce costs and improve efficiency. New business models like community solar projects and power purchase agreements could offer alternative revenue streams. They may also reduce reliance on traditional sales channels.

In addition, energy firms across renewables, oil and gas, and nuclear have outlined projects worth up to £100 billion to be built across the UK over the next decade. This massive investment potential highlights the industry's commitment to innovation and growth.

The consensus among energy firms is clear - immense opportunities lie ahead, but they can only be seized through coordinated efforts. We need the UK government, industry, and regulators to work together to accelerate investment into renewables, bring down bills, and deliver on net zero goals. 

Innovation is central to this approach. It creates opportunities to develop new technologies, business models, and systems to reach net zero and facilitate investment for further development. 

By embracing these innovations, solar companies can navigate the current challenges and position themselves for long-term success. 

The recent bankruptcies in the solar sector are a wake-up call for the industry, but they don't necessarily signal an impending crisis. The UK and other European countries have the tools and resources to navigate these challenges but must act swiftly and decisively.

Inemesit Ukpanah, GreenMatch’s solar panel expert analyst, explains:

As the industry adapts and innovates, we expect new technologies and business models to emerge, driving the UK towards a cleaner, more sustainable energy future.