How Could The Brexit Impact The Solar Industry?

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The United Kingdom’s vote to end its membership in the European Union is likely to have far-reaching ramifications on the global economy and various industries. For one, the move could have a significant impact in the areas of renewable energy and overall climate policy in the U.K and E.U., impacting renewable energy companies across the globe. Below we take a look at the potential impact of the Brexit on the solar industry.

Lower Installations, Further Pricing Headwinds

The Brexit caused a significant decline in both the British pound (about -10% vs USD on Friday) and the Euro. As Europe imports a large portion of its solar panels, the currency depreciation could put pressure on the installed cost of solar systems, hurting demand in these markets. Additionally, the possibility of a recession in the U.K and a slowdown in Europe could also hurt consumer spending power and energy demand, consequently lowering the need for solar. While European governments have already scaled down on renewable subsidies over the last four years, there’s a possibility that other fiscal priorities could force governments to reduce subsidies further. 

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Solar_EU_UK

While the U.K installed just about 3.5 GW of grid-connected PV capacity in 2015, it was the primary driver of installation growth in Europe (accounting for 123% of growth in the region), offsetting declines in other markets such as Germany. Europe as a whole is also playing a smaller role in the global solar market – just 16% of global grid-connected installations in 2015 – but a decline in demand could nevertheless worsen the outlook for the global solar market, which is already witnessing strong manufacturing capacity additions and increasing supply. Even a small reduction in aggregate demand could hurt ASPs for panels further, impacting revenue and profitability of solar companies.

Some Positives For The Industry

There could be some positive developments from the Brexit as well. Economic uncertainty could force central banks to keep interest rates low, potentially causing yield-seeking investors to invest in  solar project developments. This could prove positive for stocks such as SunPower and SolarCity, which have significant exposure to the capital-intensive U.S. residential leasing market.  Separately, the EU’s anti-dumping/anti-subsidy duties and minimum import price restrictions on modules and cells from China have typically inflated the landed cost of panels in the E.U and the U.K. It’s possible that the Brexit could help to remove some of these restrictions, lowering the costs of panels in the U.K.

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