Friday, January 15, 2010

Germany poised to strangle nacent solar industry?

The strongest argument for German style feed-in-tariffs (FIT) is that they offer a financial incentive AND price certainty to investors--something solar market participants are not feeling right now. Yes I know the price-certainty is supposed to be for the buyers of solar panels not the manufacturers...yet you can't have one without the other.

A feed-in-tariff is a fixed price payment for energy produced, and when generous enough leads to a major boom like the solar industry has seen in Germany over the past several years.

In 2009 it was widely reported that Germany offered 43 eurocents/kwh for solar generated power--although Germany in fact offers mulitple solar rates based on the type and size of installation ranging from 43 (small residential) down to ~32 eurocents (ground mount utility). That rate is typically lowered annually and (if I did my math right) the top rate is currently 39 eurocents. But the substantial plunge in panel prices (40%+) led the overal cost of installed solar to drop (20%+) over the past year+ means the fixed rate in 2009 offered a phenomenal return to solar investors accelerating the German solar boom. The sensible thing to do (one might assume) would be for Germany to make a "one-time" extra 10% reduction to the solar tariff down to ~35 eurocents. Doing so would essentially restore the balance to what it was pre-financial crisis (i.e. it makes sense to reduce payments 20% when costs drop 20%).

Germany could still settle on this as no official announcement has been made, although recent news reports state that a ~17% one time reduction is in the works (implying ~32 eurocents/kwh). Such a sharp change from the worlds largest solar buyer (50% of the world market) in a short period of time (~100 days) would indeed damage the solar power industry. We just survived what happened when a 2.5GW market for solar collapsed overnight (Spain). Luckily Germany picked up much of the slack, while other countries began to implement serious solar incentives (including the US and China).

I will be stunned if Germany decides to stiffle their own 3GW+ solar market--as this is completly out of character with everything the government has said in recent months and years (not to mention shooting themselves in the foot). And it seems odd if they were willing to support the market so generously in the past why the sudden bout of penny-pinching? Still there has been no official comment or correction and solar stocks have continued crumbling since the Reuters report.


At 9:32 AM, Blogger Joerg said...

Looks like they cut what they pay for solar generated electricity by 15%.,1518,672959,00.html
Rooftop installation will be cut starting April. Freestanding solar structure in June.

Money for electricity from installations on, previously agriculturally used land, will be cut by 25% starting July.

The German government wants to save money. But experts doubt it will work because the market grows faster than what they plan to cut.

At 11:19 AM, Blogger Daniel said...

Thank you Joerg.

I think staggering the cuts will help a little...the industry will not hit a wall on April 1.

A 25% cut (Jan + Apr-July) will certainly put downward pressure on module prices and could put the german market into reverse.

At 3:08 PM, Blogger Joerg said...

I agree.
Lets hope the best.


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