London, UK -- With some irony, it appears that the success of German's solar photovoltaic (PV) feed-in tariffs, enshrined in the Renewable Energy Sources Act, or Erneuerbare-Energien-Gesetz (EEG), has lead to the federal government's proposal to cut them.
Berlin has decided to accelerate the annual rate by which it will reduce the solar feed-in tariff from five percent to ten percent, partly because the overwhelming success of the scheme lead to concerns that its generous support was causing a proliferation of solar installations that were becoming less affordable as the German economy entered recession.
The success of the scheme has meant many more installations than expected have secured support under the EEG. Given the lower initial expectations, the subsequently much larger number of qualifying installations has taxed the allocated budget. With the economy in decline, this has meant the generosity of the scheme has become less affordable.
Consequently, the government cut the tariff for new solar plants by around 10 per cent on 1 January 2010. However, at around the same time as the shrinking of Germany’s economy in 2009, the price of silicon went into a slump, which in turn led to significant reductions in installation costs. Calls followed for a further reduction in the feed-in tariffs.
In response, the Ministry for the Environment released plans in January to reduce solar funding by a further 15 per cent in the summer of 2010 and by that amount again at the start of 2011 – this is in addition to reductions already planned.
Although the amendments are not yet law as the coalition government is still negotiating on the draft-proposal, reports in the media suggest that roof systems will receive 16 per cent less in feed-in tariff in June, in addition to the January cut of 10 per cent. They will also suffer a two per cent cut per 1000 MW of newly installed capacity should the market raise above a certain – currently < - limit.
The thinking is that as the volume of installations increases overtime, costs will fall. A final parliamentary decision on the new tariff rates is expected soon.
Tariff Amendments Draw Fire
Proposed changes to the feed-in tariff in Germany for solar power have caused so much alarm in the PV industry there that the head of the country’s solar industry association has issued a strong warning about its possible effects. Günther Cramer, president of the Bundesverband Solarwirtschaft (BSW), went so far as to say that the proposed cuts threaten jobs. “Dozens of German solar companies would face insolvency or be forced to relocate their production outside of Germany,” said Cramer.
“The excessive feed-in tariff cut endangers one of the most important driving forces of jobs and the economy in our country. The creation of value added in the production of PV modules must be allowed to continue in Germany.” Cramer added the cuts even threaten to make the German chancellor’s policy on climate change obsolete. The BSW strongly advises a cautionary approach to reducing the feed-in tariff.
It says large sections of the German solar industry would not survive an additional reduction of the tariff for photovoltaic systems this year in the double-digit percentage range. “If this were implemented, around 50 000 jobs in Germany would hang in the balance,” a statement by the organisation reads.
BSW managing director Carsten Körnig reflected the industry’s consternation over these proposals by saying: “Depending on growth and market segment, this brings the total reduction in funding for solar energy from 31 December 2009 to 1 January 2011 from 25.5 to 55 per cent.”
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Wider changes to to global PV market have not helped either. With the rise of low-cost manufacturers in Asia, chiefly China, Germany’s solar companies were already worried about their competitiveness and technological leadership. The BSW is now warning of a wave of insolvencies in the PV industry as well as the loss of tens of thousands of jobs if the drastic cuts in the feed-in tariff are implemented. “Such a radical and sudden incision robs German solar companies of the foundations of their business. They are left with no scope for investment in order to survive in the harsh international competition,” said Carsten Körnig.
A recent analysis paper by Landesbank Baden-Württemberg (LBBW) cited by the BSW states that a reduction of the solar feed-in tariff in the double-digit percentage range would mean: “that it is over for the European production location”.
A tariff reduction will also benefit East Asian competitors, which would make great gains in market share, the LBBW analysis added. The principal reason for this is the exchange rate advantages and undervaluation of the Chinese currency. In addition the paper by LBBW finds that with a further double-digit percentage reduction of the feed-in tariff, project returns would fall below the 6–7 per cent mark, an amount analysts consider to be critical. “This is the necessary minimum to offer a sufficient investment incentive to purchasers of new photovoltaic systems and offset the operating risk,” says Körnig.
Grid Parity and PV investment
According to Germany’s solar industry, it is working to continually reduce its production costs. If development is maintained at the current pace, solar power will reach ordinary retail prices or grid-parity by 2013. To achieve this, it plans to invest €10 billion ($13.6 billion) in the expansion of solar manufacturing capacity and in research in Germany over the next three years or so. But, Cramer observes, “To do this, we need political backing and a reliable support policy with a sense of proportion.”
Nonetheless, BSW does consider a quicker reduction of the solar feed-in tariff to be possible, conceding that the EEG is effectively too generous and suggesting alternative amendments. However, the association believes that additional reductions should be based on the extent of additional market growth.
Beyond the two already approved feed-in tariff reductions of around ten per cent each at the start of 2010 and 2011, the industry says that there is no scope for further cuts of the order of double digit percentages in the short-term.
Even with strong market growth, the tariff should fall by no more than 14 per cent per year, the BSW says, adding this would leave scope for a further reduction of some five per cent this summer.
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Evidently, says the BSW, an amendment to the minister for the environment Dr Norbert Röttgen’s plan is essential. As an alternative the industry has proposed a one-off reduction of 15–25 per cent by the summer of 2010. Furthermore, the industry proposes that at the start of 2011, the annual reduction of nine per cent already established in the EEG could be made in addition to a tariff reduction of up to ten per cent.
This, BSW says, will allow a gradual and growth-dependent reduction of the solar feed-in tariff by 9-14 per cent per year and, the industry believes, would ensure that the economic efficiency of operating solar arrays in all market segments is maintained.
Without confirmation of either the plans by the environment ministry or the industry’s alternatives, doubt has already been cast on suggestions that the solar energy industry will manage to invest the €10 billion outlined, a figure double that of the previous four years that equates to some 14 per cent of the industry’s turnover.
Total installed solar PV capacity in Germany and worldwide for the period 1998-2008
This compares with an investment rate of around seven per cent by the conventional energy industry in Germany and would see some €1 billion earmarked for research and development alone, according to figures in a PV-sector survey by EuPD Research on behalf of the BSW. Germany is clearly seen as a key European market for PV installations.
It has the most mature market that has a high potential for future development, good availability of skilled PV companies and awareness of PV technology.
However, even under earlier scenarios for feed-in tariff reduction, the growth of the German market was expected to slow in 2010. The country’s leadership position is certainly not secured by its cutting edge production and distribution systems alone.
Ultimately, the goal is to make solar PV electricity competitive with conventional sources of electricity in the next few years. Körnig argues that until grid parity is achieved, “Stable political framework conditions remain necessary to secure the billions in planned investments, as do attractive incentives for consumers. This will provide this industry, characterized primarily by mid-sized companies, and the public with the required investment security for the production and installation of solar power plants.”
Certainly investment security is key to the long-term development of the sector. Without that security in place Germany’s continued position as the leading exponent of the technology must now be in doubt, despite its spectacular success.
This article was reprinted with permission from Power Engineering International as part of the PennWell Corporation Renewable Energy World Network and may not be reproduced without express written permission from the publisher.