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UK, Germany chop PV subsidies

Two of Europe's top solar markets have simultaneously announced new steps to reduce subsidies for solar projects by at least 50%, moves that are aimed at reducing long-term financial impacts -- but might actually spur demand and exacerbate the problem.

November 3, 2011 - Two of Europe's top solar markets have simultaneously announced new steps to reduce subsidies for solar projects by at least 50%, moves that are aimed at reducing long-term financial impacts -- but might actually spur demand and exacerbate the problem.

In the UK, support for small-scale solar (rooftop) projects is being chopped in half, focusing on smaller projects (<250kW), and particularly on the very small ones (<50kW). FiTs will be reduced by at least 51% on solar installs starting Dec. 12, and applicable to everyone in April 2012. Existing projects will be grandfathered into the old rates for 25 years. The official new FiT plan is shown in the table below.

"The plummeting costs of solar mean we?ve got no option but to act so that we stay within budget and not threaten the whole viability of the FITs scheme," claims UK energy minister Greg Barker. He acknowledged that the new lower tariffs "will be a big challenge for many firms" but "it won't come as a surprise" given how fast costs and profits have fallen in the past year -- he cited a 30% drop in average PV installation costs this year alone (to ~£9000).

Barker let the math do the talking: With no FiT adjustment, consumers would pay £980M/year by 2014-15; the FiT adjustment will shave that to £250-280M -- saving £700M, plus reducing the impact on domestic electricity bills through the rest of the decade.

Why act now? The UK saw >16,000 solar PV installations in September alone (nearly double the June total), and nearly 3× as much solar PV as projected has been installed (100K installations and 400MW capacity). "My priority is to put the solar industry on a firm footing so that it can remain a successful and prosperous part of the green economy, and so that it doesn?t fall victim to boom and bust," Barker stated.



Current and proposed generation tariffs for solar PV. *Current tariff levels, which like other current tariffs will be adjusted in line with the Retail Price Index from April 1, 2012. Details of the funding allocation for FITs can be found here [PDF link]. (Source: UK Department of Energy and Climate Change)

While Barker aims to stem the solar PV tide, it'll be a tough pill to swallow for many solar firms. "It will reverse a fast growing domestic industry in a time of job cuts and austerity measures," according to Solar Century's Jeremy Leggett, quoted by Reuters, and "cause many bankruptcies in the rest of the industry."

And the new FiT levels might not even cut deep enough. PwC's Daniel Guttmann proposes that the current FiT spending will likely run out before March 2015 anyway, as deep price cuts could spur even more installations, and simply recreate the problem of too quickly reaching subsidy budget caps. "The government has two principal options -- either reduce tariffs [further] or increase the spending envelope," he said.


Meanwhile, another FiT reduction is coming in Germany, where 2012 levels will be lowered by ~15% starting in January -- more than the planned -9% reduction -- to a range of 17.94-24.43 euro cents/kWh.

PV capacity has swelled by ~5.2GW since Oct.2010 to now; that's well off the 7.8GW pace in the previous 12-month period (Oct.2009-Sept.2010), but enough to trigger an additional FiT step-down (mandated if installations surpassed 4.5GW during the period), noted the Bundesnetzagentur, Germany's energy regulatory office. It was also dangerously close to triggering a -18% reduction had installs exceeded 5.5GW (surpassing 7.5GW would have kicked in a -24% step-down).

As in the UK, Germany's extra FiT cuts might also light a fire underneath PV project developers to get funds in the bank and shovels in the ground quickly to lock in the current levels. "December is going to be so massive it?s going to blow everyone out of the water," predicts Bloomberg New Energy analyst Martin Simonek. He points out that Germany added 2.2GW of panels in June 2010 ahead of a July 2010 subsidy reduction, which was more than triple the installs seen in the previous three months combined.

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