Trends in Market Segments
Towards More Solar Parks or Individual Installations?
EPIA
2
ndInternational Conference on Solar Photovoltaic Investments
EuPD Research
Agenda
A. Concept of Market Segmentation
1. The Need for Market Segmentation
2. Requirements of Market Segments
3. One-Dimensional Market Segmentation for PV
4. Multi Dimensional Segmentation for PV
5. PV Market Segments in Europe
B. Market Segmentation Data
1. Customer Segmentation in 2007
2. IPP vs. Individual Installations in 2007 (Cum. Market Volume and Annual Investments)
3. IPP vs. Individual Installations in 2010 (Cum. Market Volume and Annual Investments)
4. Conclusion
C. Implications for IPP Investment Decision Making
1. IPP Factors of Success in Country Markets
2. Investment Allocation via Portfolio Theory
D. Summary
The Reason Why
Helps to identify different market portions
Allows companies to satisfy potential customer needs
Results of Market Segmentation
Internally homogenous and externally heterogeneous segment members
Being as similar as possible within the segment, and as different as possible between
the segments
The Need for Market Segmentation
Mass marketing refers to a
treatment of the market as a
homogenous group and
offering the same marketing
mix to all customers.
Target marketing recognizes
the diversity of customers
and does not try to please all
of them with the same
offering.
No segmentation
Segmentation
vs.
A.1.
Requirements of Market Segments
For a segmentation to be practical, the respective groups should be evaluated against the
following criteria:
The differentiating attributes of the segments must be
measurable so that they can be identified.
Identifiable
The segments must be reachable through communication
and distribution channels.
Accessible
The segments should be sufficiently large to justify the
resources required to target them.
Substantial
To justify separate offerings, the segments must respond
differently to the different marketing mixes.
Unique
The segments should be relatively stable to minimize the
Durable
One-Dimensional Market Segmentation for PV
Customer
type
Appliance
Flexibility
System size
Technology
Private
customers
Commercial
customers
Agricultural
customers
IPP/Solar
funds
Public
customers
Rooftop
Open space
Building Integrated PV
(BIPV)
0-10 kWp
11-20 kWp
21-100 kWp
101-1,000
kWp
> 1,000 kWp
Monocrystalline
Polycrystalline
Thin film
New materials
On-grid
Off-grid
Mobile
Portfolio of PV Market Segmentation
Multidimensional Segmentation for PV
TYPE X
PV Appliance
PV Customer type
PV System size
If marketing activities are to be oriented towards certain market segments, it is advisable to
combine the identified one-dimensional segmentation criteria.
PV Market Segments in Europe
Private person investing on his own behalf in solar power by installing a PV plant on his own residential building
Typical system size: < 10 kWp
Rooftop, BIPV
Type A
Private Customer
Commercial body or company installing a PV plant on own buildings such as warehouses, supermarkets, factories etc.
Typical system size: 10 - 100 kWp
Rooftop, BIPV
Type B
Industrial Customer
Person – in particular a farmer – investing in PV installations on barns or stables or land areas not agriculturally used
Typical system size: 10 - 100 kWp
Rooftop, BIPV, open space
Type C
A
griculturalCustomer
Public entity that invests in PV installations on public buildings such as town halls, schools, hospitals or theaters etc.
Typical system size: 1 kWp - 100 kWp
Rooftop, BIPV
Type D
Public Customer
Professional investors such as investment banks bundling capital of contributors to invest in large-scale PV systems
Typical system size: > 500 kWp
Open space, rooftop
Type E
IPP/
SolarFunds
A.5.
Agenda
A. Concept of Market Segmentation
1. The Need for Market Segmentation
2. Requirements of Market Segments
3. One-Dimensional Market Segmentation for PV
4. Multi Dimensional Segmentation for PV
5. PV Market Segments in Europe
B. Market Segmentation Data
1. Customer Segmentation in 2007
2. IPP vs. Individual Installations in 2007 (Cum. Market Volume and Annual Investments)
3. IPP vs. Individual Installations in 2010 (Cum. Market Volume and Annual Investments)
4. Conclusion
C. Implications for IPP Investment Decision Making
1. IPP Factors of Success in Country Markets
2. Investment Allocation via Portfolio Theory
D. Summary
According to the results of the European Business Climate Index (quarterly inquiry among experts and market participants) the share of customer segments varies across Europe. Possible explanations are: Historical development, diffusion stage of segments, architectural features, feed-in characteristics, objective targets of market players and last but not least the different absolute size of markets.
What are the current shares of each customer segment in European markets?
l
Customer Segmentation in 2007 (%)
B.1.
45.4 8.8 35.6 27.4 26.3 29.7 41.4 49.3 12.7 1.4 4.4 6.3 2.5 5.7 6.6 10.1 13.4 3.0 8.7 57.0 19.7 3.4 11.3 36.1 34.0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Germany Spain Italy France Greeceprivate customer commercial customer agricultural customer
public customer IPP/ solar funds n = 41
Customer Segmentation in 2007 (MWp)
B.1.
14 percent of the total installed capacity in Europe or roughly 600 MW are installed in solar funds. The relation between IPP and individual installations in Europe is dominated by the situation in Germany.In MWp, the following allocation of segments is valid for total Europe:
14.0%
6.0%
11.1%
27.7%
41.1%
private customer commercial customer
n = 41
Source: EuPD Research 2008
1828 MW 1230 MW 495 MW 269 MW 624 MW 86% (3822 MW)
As the focus of this presentation is only the relation between IPP and individual installations the previous shown segmentation reduces to a minimum. Nevertheless, the clear domination of the individual installation sector remains strong. The same is true for annual investments: Roughly 15 percent of the annual invest-ments , which corresponds to 1.152 billion Euro, were spent for IPP installation.
IPP vs. Individual Installations in 2007 (Cum. Market Volume and Annual Investments)
B.2.
For 2007, the allocation between segments and corresponding annual investments … will
approximately amount to…?
265 200 327 624 3430 3824 84 374 1152 684 374 4910 632 6082 0 MWp 1000 MWp 2000 MWp 3000 MWp 4000 MWp
Greece France Italy Spain Germany Sum
0 m € 1000 m € 2000 m € 3000 m € 4000 m € 5000 m € 6000 m € 7000 m €
Cum. Market Volume (IPP) Cum. Market Volume (Individual) IPP Investments Individual Investments
Assumed that the relation between IPP and individual installation remains constant until 2010, the annual investment volume for IPP would increase to roughly 1.8 billion Euro, while individual
installations reach nine billion Euro. In case of IPP doubling overall shares (30%), roughly 2.8 billion Euro IPP invest-ment volume per year is possible.
IPP vs. Individual Installations in 2010 (Cum. Market Volume and Annual Investments)
B.3.
For 2010, the allocation between segments and corresponding annual investments … will
approximately amount to…?
723 1.930 7589 9525 993 749 1316 5004 7727 457 1788 5988 9026 2833 1244 296 373 446 0 MWp 1000 MWp 2000 MWp 3000 MWp 4000 MWp 5000 MWp 6000 MWp 7000 MWp 8000 MWp 9000 MWp 10000 MWp
Greece France Italy Spain Germany Sum
0 m € 1000 m € 2000 m € 3000 m € 4000 m € 5000 m € 6000 m € 7000 m € 8000 m € 9000 m € 10000 m €
Cum. Market Volume (IPP) Cum. Market Volume (Individual) IPP Investments (moderate) Individual Investments (advanced) IPP Investments (advanced) Individual Investments (moderate)
Conclusion
B.4.
Share of customer segments non-uniform in Europe: German market mostly
driven by individual installation while Spain as the second biggest market has a
focus on IPP
Share of IPP in total in Europe is only 15 percent which corresponds to an
annual investment volume of roughly 1.2 billion Euro.
Assuming that customer segmentation will not change in the mid-term, annual
investments of roughly 1.8 billion Euro are expected in 2010. In case that
IPP-share in total might double in Europe, 2.8 billion Euro annual investments are
possible.
Further questions: Which factors are most influential for further IPP growth?
What are country-specific factors? How is the optimum portfolio to be
constructed concerning the risk-return profile?
Market segmentation opens up investment opportunities
Agenda
A. Concept of Market Segmentation
1. The Need for Market Segmentation
2. Requirements of Market Segments
3. One-Dimensional Market Segmentation for PV
4. Multi Dimensional Segmentation for PV
5. PV Market Segments in Europe
B. Market Segmentation Data
1. Customer Segmentation in 2007
2. IPP vs. Individual Installations in 2007 (Cum. Market Volume and Annual Investments)
3. IPP vs. Individual Installations in 2010 (Cum. Market Volume and Annual Investments)
4. Conclusion
C. Implications for IPP Investment Decision Making
1. IPP Factors of Success in Country Markets
2. Investment Allocation via Portfolio Theory
D. Summary
Editorial
IPP Factors of Success in Country Markets
C.1.
Energy import dependence Opportunity costs
Economic welfare conditions Institutional investor body Bureaucracy
Experience and qualifications of market participants Long-term political support Public support
Investment grants and promotion programs
Attractiveness of feed-in tariff
Total rating
Natural conditions
Germany
low medium high
Attractiveness of country markets Spain low medium high Italy low medium high France low medium high Greece low medium high
Source: EuPD Research 2008 The evaluation of investment opportunities in different countries requires not only the consideration of obvious factors like solar radiation and feed-in tariff, but also an analysis of the degree of bureaucracy, the experience and qualifications of market participants, the possibility of investment grants and opportunity costs. As far as market segments are concerned, it is to be kept in mind that IPP is highly cost-driven.
What determines the attractiveness of country markets?
IPP investments across Europe follow a different risk-return profile. Therefore and on account of small correlation coefficients the efficient portfolio of investments can be found using portfolio theory. 1,000 simulations of investment combinations lead to the efficient frontier (blue line) as the geometrical location of all efficient portfolios. Question: Which portfolio to choose?
Efficient frontier concerning five assets (country markets)
Investment Allocation via Portfolio Theory I
C.2.
1.0% 2.0% 3.0%
Source: EuPD Research 2008
Minimum Risk Portfolio DE I E 0% 5% 10% 15% 20% 25% GR 4.0% 5.0% 6.0% F Expected R e turn
Answer: It depends on your utility function and the question if you are risk averse, risk loving or risk neutral.
Efficient frontier concerning five assets (country markets)
Investment Allocation via Portfolio Theory II
C.2.
U1 U2 U3 U4 Efficient Frontier Utility Function Simulation Results Country Risk-Return ProfileDE I E F GR 0% 5% 10% 15% 20% 25% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Standard Deviation
Source: EuPD Research 2008
Expected R e turn Minimum Risk Portfolio
The osculation point between your utility function and the efficient frontier will lead you to the portfolio to choose, which is P. This example clearly
demonstrates the risk and return improving function of diversification.
Efficient frontier concerning five assets (country markets)
Investment Allocation via Portfolio Theory III
C.2.
U1 U2 U3 U4 Px
E(Rp) Ϭp DE I E F GR 0% 5% 10% 15% 20% 25% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%Source: EuPD Research 2008
Expected R e turn Minimum Risk Portfolio
