ITC Extension Will Halt Installation Rush in the U.S. and Stabilize Global PV Market Growth, According to TrendForce

The U.S. House of Representatives passed an amendment to extend the solar Investment Tax Credit (ITC) on December 16. The extension, which is part of a tax and spending package, is now being moved to the Senate for consideration and is very likely to win final approval. The tax credit rate under the ITC was originally to be scaled back from 30% to 10% at the end of 2016 (December 31). Under the amendment, ITC will be extended to 2022, during which the rate will be reduced gradually and subsidies given will vary according to the installation schedules of each photovoltaic (PV) systems. This amendment will be effective on the date of issuance.

The PV demand in the U.S. market will return to a normal level with the ITC extension, said Patrick Lin, analyst for EnergyTrend, a division of TrendForce. The future development of the global PV market will also differ from the earlier projection that was based on the massive reduction of ITC. Taking the amendment into the account, EnergyTrend believes that the U.S. market will not see the initially anticipated installation rush in 2016, followed by a sharp demand decline that will also drag down the global PV market in 2017. EnergyTrend therefore has lowered the installed capacity forecast in the U.S. for next year from 11.5GW to 9GW.

Additionally, the extension of the ITC will stabilize the U.S. market next year. The country’s overall demand will not swing wildly and instead will be continuously sustained by large PV power plants and commercial PV systems over the following years. Consequently, the global PV market will not suffer a serious demand slowdown during 2017. In response to Congress passing amendment, manufactures of PV products will most likely to evaluate their plans to rapidly expand capacity as the installation rush in the U.S. will not appear. On the whole, the capacity expansion efforts across the PV sector in 2016 will be less aggressive than originally projected, so the threat of severe oversupply in 2017 has been averted for now. The supply-demand situation in the global PV market for the next five years is expected to become healthier and more balanced.

With the installation rush not taking place, the overheated market will start cool down as well. According to EnergyTrend analyst Corrine Lin, the ITC extension will have a heavy impact on certain Chinese PV exporters. Trina and Canadian Solar, which respectively sold 50% and 30% of their products to the U.S. in the third quarter, will be the first major Chinese PV firms to experience the cooldown. These manufacturers will have to find other markets and channels to consume their enormous capacities.

As for the Taiwanese PV manufacturers, they have had difficulties fulfilling the flood of incoming orders since this year’s fourth quarter because the U.S. and China were both preparing for their respective installation rush. However, the tight supply situation will start to moderate next year as demand returns to normal in the U.S. with the extension of the ITC. The next peak season for the Taiwanese companies will move to the period between January and April, when China will have its installation rush due to subsidy reduction by mid-2016. Cell prices, which are now seeing larger-than-normal increases, will face strong downward pressure in the late second quarter of 2016. Additionally, Taiwanese manufacturers have relied too much on orders from first-tier Chinese PV firms recently. With U.S. demand anticipated to fall next year, the major Chinese manufacturers are now more hesitant to place their cell orders. Hence, the amount of orders going to Taiwanese companies will become less certain in the near future.