SOLAR ELECTRICITY 2008 A TECHNICAL AND ECONOMIC OVERVIEW

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1 Ecofys Netherlands BV P.O. Box 8408 NL-3503 RK Utrecht Kanaalweg 16-G NL-3526 KL Utrecht The Netherlands W: T: +31 (0) F: +31 (0) E: SOLAR ELECTRICITY 2008 A TECHNICAL AND ECONOMIC OVERVIEW Authors: J.C. Jol, M.M. Mandoc, E.C. Molenbroek October 2008 PDCSNL Copyright Ecofys 2008 By the order of: SenterNovem

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3 Summary The first modern solar cell was made in a laboratory in The solar market has since developed into a billion -market with double digit growth and a variety of products and applications. This report gives an overview of the status of photovoltaics in 2008, internationally and nationally. Objective is to give a market overview and sketch the market developments that give people outside the world of energy and photovoltaic professional s insight into the global PV-market and the Dutch market in an international perspective. International market The solar market is booming. The solar market has shown average growth rate of more than 35% over the last ten years. The market value was estimated to be 13 billion Euros in 2007 and over 100,000 people have found employment in the solar business. The cost of solar panels continues to drop as well. Since the early years of solar panels, panel prices have dropped by 20% for each doubling in cumulative production. Important countries for the solar market are Germany, Japan, the US and not the least far Asian countries with China as a strong centre point. The renewable energy market is no longer a niche market. It was almost a $150 billion market in Almost 60% of this was spent on renewable power generation projects in asset finance, which accounts for 23% of all new power generation capacity worldwide in Solar investment really took off in 2007, when $ 28.6 billion of new investment flowed into solar, of which $ 18 billion (approx. 13 billion) was spent on newly installed PV power. The annual growth is at an average rate of 254% since It is seen now as a mature market by financial institutions. The market share of the mainstay of the solar industry, crystalline PV modules, has still a market share of about 90% but the thin film modules are catching up. A lot of production facilities are coming into production the coming years. The Netherlands For 2007 the share of solar electricity is estimated to be 0.03% of the Dutch electricity consumption. Wind counts for 3%. The total production of renewable electricity was 6%. The Netherlands has a long history of support for the installation of PV (demonstration) and R&D. With the new SDE support schema a new impulse is given to the solar industry and PV installation the Netherlands. SOLAR ELECTRICITY OCTOBER 2008 III

4 Research and development on solar cells and solar photovoltaic systems in the Netherlands is diverse and continuously growing. From significant innovations regarding the more traditional crystalline Si technology, to the development of thirdgeneration (organic) solar cells, the Dutch R&D has approached many fields, such as materials and processes, devices and systems. R&D is conducted at universities (Utrecht, Groningen, Eindhoven, Nijmegen, Delft) and research institutes (ECN, TNO, Holst Centre), but also within companies commercializing the PV technology, such as Solland, Scheuten Solar and Nuon. Conclusions In an international perspective, it is expected that the solar market will continue its high growth rates (~30-40% per year) in the coming years. The coming years will show an expansion in the thin film production capacity. However, crystalline silicon will stay an important mainstay of the solar industry. Production is showing a shift toward Asia (China, Taiwan, Philippines). Nevertheless production capacity is also being built in Europe. In the short term, an oversupply situation could arise. In the longer term the market will be able to catch up with the expansion in production capacity that will materialize in the coming few years. From the financial market perspective solar is now seen as a mature market which is safe to invest in. International and also Dutch related investments funds and venture capitalists are investing more and more capital in solar companies and projects. Large investments are needed in the sector to allow for high growth rates in the coming years. In the Dutch perspective: groups like the branch association Holland Solar and the working group PV of the Platform Duurzame Elektriciteitsvoorziening advocate for a balance between cost reduction through market stimulation and technology development. On the technology side, the Netherlands is doing quite well, with a substantial R&D effort in institutions as well as private companies. The local availability of high level knowledge on PV, is beneficial for non-specialist parties, like investors, that become active in the solar market. For increasing their throughput and turnover however, companies in the Netherlands have been relying completely on international (especially German) market developments rather than national developments. In an international context, the relationship between a strong industry and a strong home market is well visible. The market in Japan collapsed after subsidies were terminated and Japan lost its international top position in production. At this mo- IV 17 OCTOBER 2008 ZONNESTROOM 2008

5 ment, nowhere in the world can be found so many thin film start-up companies as in Germany, where currently the most PV modules are sold. A strong internal market also creates jobs in the installation sector. In terms of job creation, the Netherlands could do a lot better, stimulating the home market. For example: Germany has 40,000 jobs in PV, the Netherlands an estimated Grid parity may be reached in the Netherlands in 2015 or even earlier as well. It should be realized though that the volumes necessary to reach this low PV kwhprice will have to be realized and it will not happen if everybody starts waiting for grid parity. Also, it is not expected that the PV-consumer market will directly take off as soon as grid parity is reached. Grid parity is in fact already reached in South Italy by now, but the market is still small. However, a sufficiently interesting pay back time, awareness of the possibilities and willingness to pay up front for households and an infrastructure able to offer cost-effective rooftop PV-systems will have to be in place for this to happen. Last but not least, a lot will depend on the development of the conventional electricity prices in the years to come. SOLAR ELECTRICITY OCTOBER 2008 V

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7 Content 1 Introduction 2 2 International Market development PV cell production Investments The future Outlook electricity generation Grid parity Future production Production developments and bottlenecks Employment 13 3 National Market development Research & Development Companies The future 17 4 Conclusions 19 SOLAR ELECTRICITY OCTOBER

8 1 Introduction The first modern solar cell was made in a laboratory in A lot has happened since. From this initial several mm thick slice of silicon, with an efficiency of 6%, we have moved to a billion -market with double digit growth and a variety of products and applications. In the sixties, solar cells found their way in space applications. Terrestrial applications followed in the seventies. Solar cells were still very expensive at that time and applications were limited to off-grid, small scale applications in remote area s (telecom, buoys, watches). However, two oil crises and growing concerns on environmental problems with fossil fuels spurred governments in many countries to look into solar as a possible alterative for large scale electricity production. The sun radiates 10,000 times more energy to earth each day than global energy consumption. Because solar energy is available everywhere, is has the potential to play a very important role in the global energy supply. It has the promise of abundant, clean and quiet electricity supply. Clean and efficient technologies are needed to convert the solar radiated energy into a form we can use. Since the first solar cell was produced, the solar technological development is aimed at increasing efficiency and reducing cost price of photovoltaic (PV) technologies. Steady development in R&D of solar cells continued, reducing cost and increasing efficiency, combined with applications stimulated by government programs on an increasingly larger scale. Solar photovoltaic electricity is now on its way to become a serious candidate for large scale grid-connected electricity, living up to that promise that was already recognized in This report gives an overview of the status of photovoltaics in 2008, internationally and nationally. It gives insight into the global PV-market and the Dutch market in an international perspective OCTOBER 2008 ZONNESTROOM 2008

9 2 International 2.1 Market development The solar market is booming. The solar market has shown average growth rate of more than 35% over the last ten years. The solar PV-market is usually expressed in terms of MegaWatt (MW) or GigaWatt (GW) of installed solar module power. From figure 1, by the end of 2007 the total installed PV power was estimated to be 9.2 GW, compared to the 6.8 GW in The market value was estimated to be 13 billion Euros in 2007 and over 100,000 people have found employment in the solar business. The cost of solar panels continues to drop as well. Since the early years of solar panels, panel prices have dropped by 20% for each doubling in cumulative production. In the last few years however, the prices has not dropped because of a shortage of panels in the market. Figure 2.1 Cumulative installed PV power worldwide (Source: Greenpeace/EPIA 2008) The market for PV installations and applications in 2007 was dominated by Germany (46% in 2007), followed by Spain (21%), Japan (10%) and the USA (8%). Recent strong growth is seen in countries like Italy and France. In Germany and Spain, the market is stimulated by feed-in tariff incentive schemes at rates significantly higher than the retail electricity rate. For Spain the feed-in system has been prolonged by a new law approved in September In both countries, private investors have made large scale investments in photovoltaic power plants. These in- SOLAR ELECTRICITY OCTOBER

10 vestments are generally backed by banks who do not perceive such investments as high risk anymore. Figure 2.2 The learning curve of the price development of solar modules Japan used to be leading in production as well as in national sales of solar panels for several years, due to an investment subsidy scheme and high electricity prices. In 2007 the subsidy programme was terminated and Japan lost its frontrunner position. The US has a tax incentive and in California the California Solar Initiative is in place. This programme, a performance based incentive that aims at having installed 3000 MW of solar capacity by 2016, has been a successful stimulus for the market recently. Another important incentive for solar in the US is that many states have Renewable Energy Portfolio Standards, which requires electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date. For several states a special percentage for solar is also in place, like Arizona, New Mexico, Colorado, Nevada. In addition, many states offer various incentives such as sales tax exemption, grants or state income credits [21]. Crystalline silicon based solar panels, the workhorse of the photovoltaic industry and proven technology, is still the majority of the PV market. However, thin film modules with lower efficiencies but also with much less materials usage and lower cost price than crystalline silicon PV, are catching up and now represent a market share of 10% OCTOBER 2008 ZONNESTROOM 2008

11 Figure 2.3 From rooftop market in California to hectares full of ground based systems supplying electricity for whole villages in Spain (sources: PVNEWs and Ecostream) PV cell production Over the years, Japan has been dominating the PV cell and module production. The US has been a good second. In recent years the production in Europe has grown substantially and also production started in China. In China particularly, a real 'production explosion' is ongoing and China is now the leading producer of cells and modules, as is evident from Figure 2.4. These modules are mostly exported to Europe, where the most attractive markets are located. Taiwan and South Korea are also upcoming producers of solar modules. Worldwide there are already more than 300 producers of solar panels. There are more than 80 producers of thin-film modules of which most of them have recently started. Figure 2.4 Region al shares of global solar cell production in 2007 (source: EPIA/Green peace 2008, Photon, March 200 8). The shortage of silicon a bottleneck limiting production for the last two years has prompted dozens of parties to invest in new silicon production plants. An interesting development is the strong expansion of thin film production. In the US thin-film now accounts for nearly two-thirds of US production of solar MW s and is expected increase its market share and penetration in the next few years. SOLAR ELECTRICITY OCTOBER

12 Producers In Europe, many producers grew faster last year than the global average. The top ten solar cell producers represent 53% of the market and are shown in Figure 2.5. The largest cell producer in 2007 was Q-cells from Germany with a production of cells of MW. They switched the number-one position with Sharp (363.0 MW). An interesting emerging trend showed rapid growth from producers in Norway, the Netherlands, and Belgium where Scancell, Solland, and Photovoltech respectively all experienced rapid growth due to early and reliable access to polysilicon. In Japan, production of PV cells showed no growth in 2007 primarily due to the lack of adequately-priced polysilicon. In the US, thin-film drove the market, with companies like First Solar (cadmium telluride (CdTe) thin film) and Figure 2.5.Top ten solar c ell producers (sourc e: EPIA United Solar (amorphous silicon, (a- Si) thin film) racking up meaningful /Greenpeace, Photon) expansions. Some current producers are companies that are well known from other areas of business, like Sharp, Kyocera, Sanyo and BP Solar. Shell sold its solar panel factories in Germany and the Netherlands a few years ago but still has some joint ventures for new thin film technologies. 2.2 Investments The renewable energy market is no longer a niche market. It was almost a $150 billion market in Almost 60% of this was spent on renewable power generation projects in asset finance, which accounts for 23% of all new power generation capacity worldwide in Solar investment really took off in 2007, when $ 28.6 billion of new investment flowed into solar, which has grown at an average annual rate of 254% since How this money was invested is shown in Figure 2.6. In 2007, solar attracted by far the most Venture Capital/Private Equity (VC/PE) investment (~$3 billion), both for new technologies and for manufacturing capacity expansion. The US continued to lead VC/PE investments, but grew only slightly year on year in dollar terms. European investments are growing strongly as inves OCTOBER 2008 ZONNESTROOM 2008

13 tors become more willing to take early-stage risk. Examples of these in Europe are Good Energies, Low Carbon Accelerator, Virgin Green fund and Tendris. Also an international investment and specialised fund and asset management group like Babcock & Brown has started to invest is solar (deal with First Solar end 2007). 10% 27% 63% asset finance public market private equity/venture capital Figure 2.6 Global new investments in 2007, division into asset class (total = $ 28.6 billion). Source: Global Trends in Sustainable Energy Investment Investors like Ecoventures (part of the Econcern group [23]) see a danger in this boom as well. Even though the future is bright for solar energy, it is considered to be a hype at the moment, with very high prices being paid for some solar stocks and enormous investments going into new companies with new technologies that remain yet to be proven. This has given rise to fears for a bubble. Also, the indepth knowledge of the traditional financial institutions and investments funds on photovoltaics is limited. This makes risk assessment especially difficult for those parties. Some venture capital firms with prime focus on clean energy have specialists in house. However, there is also ample opportunity for lower risk investments in asset finance. The long term compensation provided by the feed-in schemes in Spain and Germany give investment security. Here, private investors put in equity, supplemented by loans from banks. On the other hand, it should be noted that funding for the solar sector is not unmoved by the financial (credit) crisis in the financial sector, making funding for solar projects more difficult and more expensive than before [24]. 2.3 The future One thing can be said for sure about the near future of photovoltaics: it will keep on growing strongly. We describe expectations for this in the next paragraph on electricity generation. Based on the expected growth figures, we also have an idea of how the cost will come down and when grid parity might be reached. This is described in paragraph grid parity. However, any questions on production will be extremely difficult to answer, given the incredible dynamics of the photovoltaic industry at this moment. Which production technologies, which countries, which companies will dominate? This is all unknown territory. We describe some of the developments in paragraph future production. SOLAR ELECTRICITY OCTOBER

14 2.3.1 Outlook electricity generation Despite output growth of about 50 percent in 2007, solar energy still represents well below 1 percent of the world's generation capacity. More specifically, it contributes to around 0.05% of the world's electricity needs. However, depending on the growth scenario, PV has the potential of generating 4 to 14 % of the global electricity consumption by In fact, PV installations in 4 percent of the deserts would meet global energy needs. The European photovoltaic industry association, EPIA, estimates the global cumulative installed power to be GW in Figure 2.7 World energy consumption. Source: WBGU, German Advisory Council on Global Change (2006) By 2050, solar energy is expected to account for more than 20% of the total energy consumption, as shown in Figure 2.7. This is including concentrating solar power (CSP) and concentrated PV (CPV), both only for very sunny regions Grid parity The price of solar energy will be on parity (meaning same price) with power provided by the grid much sooner than previously thought. Rising prices for fossil fuels and falling prices for solar panels mean that the once large gap between the prices of electricity produced from photovoltaic cells and from oil, gas and coal, is closing rapidly. The market segments with the highest electricity prices will reach grid parity first. These are those of consumers and of peak power. This is shown in Figure 2.8, 8 17 OCTOBER 2008 ZONNESTROOM 2008

15 where the historical and expected future development solar electricity cost is given and compared with historical and expected future conventional electricity prices. Figure 2.8 Development of utility prices and PV generation costs (Greenpeace/EPIA, 2008). The range for the solar electricity is caused by the variation in electricity output in going from Northern Europe to Southern Europe. General predictions today are that standard rooftop PV systems which output correlates with peak demand are to reach grid parity by 2015 in large parts of the US, Japan and Southern Europe. In the more temperate part of Europe, this grid parity is expected to happen around Some analysts say for Germany, because of cheap PV prices and high national electricity prices (source: EPIA, Valencia 2008). Grid parity for base-load power in this area is only to be expected around Future production In the near future, we expect to see an increasing share of thin film photovoltaics in the market from all main thin film technologies. These are: amorphous silicon (a- Si), Cadmium Telluride (CdTe) en Copper Indium(/Gallium) diselenide or CIS (or CIGS), as they finally manage to live up to their long lived promise of being SOLAR ELECTRICITY OCTOBER

16 cheaper than crystalline Silicon (c-si), despite their lower efficiency. The share of each of those technologies in the market in 2007 is given in Figure 2.9. The most important thin film company showing prices significantly below that of c- Si today is First Solar, with their CdTe technology. They are expanding their production capacity with great speed in all parts of the world. In the future, we can expect more thin film producers to produce at significantly lower cost than c-si and this will have a positive effect on the market share of thin films. 4.7% 2.2% 0.5% 5.2% 87.4% c-si thin film Si CdTe CI(G)S Ribbon c-si Figure 2.9 Share of PV technologies in Source: Solar Generation 2008, EPIA/Greenpeace report At this moment about twenty thin film start-up companies can be found in Germany. Examples are Schott Solar with a 33 MW a-si factory in Jena (investment 75 million) and Q-Cells with a 30 MW CIGS factory (investment 60 million). All over the world this number increases to much more than hundred. Nevertheless, ramp up of c-si based will also be enormous in the next years. The polysilicon producers fall into three groups. The first group is companies that already produce the silicon feedstock used to make polysilicon (e.g. Elkem, DC Chemical, and Degussa). The next group consists of companies that are in the solar industry and looking to become more integrated along the supply chain (e.g. Gira- Solar, SolarWorld, SilPro and ARISE). The third group of companies is completely new to both silicon processing and PV manufacturing (e.g. Hoku). In 2009/2010, when many new silicon production plants will start production, the shortage of silicon raw material will be over and will no longer be a bottleneck for growth anymore. This will cause a significant price reduction in c-si modules (~30%, Ecofys estimate). On a short term basis there could even be an oversupply on the silicon market OCTOBER 2008 ZONNESTROOM 2008

17 The bright prospects of photovoltaics are also attracting existing companies with other core business. The joint venture Heliatek of BASF and Bosch will develop organic photovoltaics and will benefit from the close cooperation with materials and process technology divisions of its investors. Making solar movement even more obvious as a definite trend is the entrance into the solar market of computer technology giants such as IBM and Intel. This year Intel Corp. has invested a double digit million figure in a German solar company, while IBM has announced its own joint venture to develop new solar technologies. Equipment manufacturers for the semiconductor industry have already started this trend a couple of years ago, with Oerlikon and Applied Materials going for the development of solar manufacturing lines. Earlier this year, semiconductor equipment maker Tokyo Electron Ltd., has teamed up with Sharp Corp. to start developing new tools for solar cell manufacturing. This year IKEA has announced that it will soon start selling solar panels, as part of its $50 million investment in clean tech products. Another interesting development is the interest of typical oil producing countries in taking stakes in production facilities. Abu Dhabi, in the United Arab Emirates, announced to invest in two a-si thin film facilities in Erfurt (DE) and Abu Dhabi city which will start production in 2009 and This will be funded by Masdar Clean Tech Fund that is a $250 million diversified venture capital investment fund. The fund is made-up of commitments from the following: (i) Abu Dhabi Future Energy Company ("ADFEC"), (ii) Consensus Business Group ("CBG"), (iii) Credit Suisse ("CS") and (iv) Siemens AG. The fund is part of a bigger plan called the Masdar initiative. This initiative is a response to the need for a global focus on resource conservation and the alternative energy sector and is designed to ensure in the long-term that Abu Dhabi retains, and even grows, its share of the global energy market [22] Production developments and bottlenecks The PV industry is continuously putting effort towards cost reduction so that PV could become a self-sustained industry without the need for subsidies. Characteristic developments in solar industry are the following: Strong investment in thin-film industry. Companies based on Si, such as Q- Cells are investing in subsidiaries based on thin-film technology. Also LCD equipment manufacturers are developing equipment for solar industry and even complete lines for thin-film production (such as Oerlikon or Applied Materials); a diversity of technological innovations. Reaching stability and device reliability for cheaper technologies, such as dye-sensitised cells. SOLAR ELECTRICITY OCTOBER

18 Expansion of manufacturing volume and achievement of lower costs, such as the case of First Solar. Silicon shortage is driving investments into poly-si plants. Another trend is the production of metallurgical Si, which allows for less capital costs for production machinery and tools. ribbon/sheet grown Si, capital costs and the amount of Si used can be diminished. Thinner Si wafers and new poly-si material supplies. Faster processing/higher production volume. Growth of the market for BIPV (Building Integrated PV) products and flexible PV products. Concentrating technology could become attractive due to lower solar electricity costs in very sunny countries (Africa, USA, Middle East, India, China, Mexico and Australia). Emerging of new PV technologies. As the industry and the volumes produced are getting larger and larger, more attention will have to be paid to the following issues: Raw materials bottlenecks for different technologies (cheap solar quality glass, tellurium and indium). Securing raw materials supply is necessary. Reduce waste, both of raw materials and of resources used in production. Being able to attract highly qualified and well trained personnel. Figure 2.10 Three solar cell technologies: crystalline Silicon, an example of thin film and of concentrating photovoltaics OCTOBER 2008 ZONNESTROOM 2008

19 2.3.5 Employment The PV market offers important social benefits in terms of job creation. Significantly, much of the employment creation is at the point of installation (installers, retailers and service engineers), giving a boost to local economies. In Germany alone approximately 40,000 people work in 2007 in the solar branch (source: Bundesverband Solarwirtschaft). Based on information provided by the industry, it has been assumed that the total jobs created are 47 to 50 per MW. Over the coming decades these numbers will decrease as the use of automated machines will increase (especially production process). In the most optimistic scenario, almost 2 million people will work in PV industry by 2020, and more than 10 million by 2030 (source EPIA [8]). SOLAR ELECTRICITY OCTOBER

20 3 National 3.1 Market development In the Netherlands, the first house with a roof of PV panels was built in 1989 in Castricum. In the nineties, more demonstration projects followed suit, with increasing size. The largest project was the 1 MW PV project in Nieuwland, Amersfoort, totalling 1.3 MW (12,300 m 2 ) on 500 homes and a few public buildings. In 1998, private consumers were able to buy solar panels in the Greenpeace project Solaris. These demonstration projects were all partially funded by the programme from the ministry of Economic Affairs. In the years 2000, buying of solar panels by private consumers was stimulated by the EnergiePremieRegeling (EPR). This ended at the end of From 2004 through 2007 there were non worthy of mentioning stimulation measures at all. The only regulations in place were some by local municipalities or provinces. In April 2008, the so-called SDE regeling ( Stimulating Duurzame Energieproductie ) has started, which comprises in essence a feed-in tariff of 0.56/kWh, consisting of a 0.33/kWh feed-in tariff from the government added to the consumer price for electricity, which is determined to be 0.23/kWh. A total of 18 MW of applications have been filed, which is more than the 15MW foreseen in the 2008 budget (83 million euro). Whether this will all be installed in 2008 is quite uncertain, due to the bureaucratic hurdles to be taken by private consumers in the process, due to the time it takes for the subsidy approval process and the simple fact that it is allowed to install a PV-system within four years after approval of an application. These developments, described in a nutshell, are depicted graphically in Figure 3.1. An estimated total for 2008 is made, based on the autonomous growth in the few years after the EPR scheme ended together with the maximum possible expected systems installed through the SDE scheme (15 MW, dark blue, on top) OCTOBER 2008 ZONNESTROOM 2008

21 80 totaal geinstalleerd (MW) Figure 3.1 Total installed solar power in the Netherlands, including an estimate for 2008 (with maximum SDE realization). Estimated cumulative installed volume will then be 71 MW. The yearly electricity produced will be suitable for 16,000 households, during the next years. In the unlikely event that all 15 MW of the SDE would be installed in 2008, this would amount to a growth percentage of 36%, which would be quite in line with international growth percentages. Most likely however, this percentage will be less. It is estimated that in 2007, 0.03% of the Dutch electricity consumption came from PV. Wind counts for 3%. The total production of renewable electricity was 6% (source: CBS [13,14]). 3.2 Research & Development Research and development on solar cells and solar photovoltaic systems in the Netherlands is diverse and continuously growing. From significant innovations regarding the more traditional crystalline Si technology, to the development of thirdgeneration (organic) solar cells, the Dutch R&D has approached many fields, such as materials and processes, devices and systems. R&D is conducted at universities (Utrecht, Groningen, Eindhoven, Nijmegen, Delft) and research institutes (ECN, TNO, Holst Centre), but also within companies commercializing the PV technology, such as Solland and Scheuten Solar. Among Dutch research institutes, ECN is by far the largest in the field, with 85 people working on PV technology and a turnover of 15 million this year. To put this number in perspective: public R&D spent on PV in 2007 was 44 million in Germany and 101 million for the USA (source: IEA PVPS 2007 [25]). International recognition not only of ECN, but also of other research institutions in their particular area of research has shown the potential of Dutch R&D regarding the PV technology. This can be seen as well in the participation of the Netherlands SOLAR ELECTRICITY OCTOBER