James Montgomery, News Editor, Photovoltaics World
February 27, 2012 | 25 Comments
For two decades, Germany has been a global leader in renewable energy, first creating Feed-in Tariff (FiT) laws in 1991, then in 2000 via the Renewable Energy Sources Act (EEG) establishing different FiTs for different renewables.
Since 2007 the nation has accounted for 30 to 50 percent of the planet's annual solar PV capacity. Cumulative installed solar capacity is roughly 25 gigawatts and the government is targeting 66 GW by 2030. To avoid overheating as seen in other European nations (Spain in 2008 and 2009 and Italy in 2010 and 2011), Germany has reigned in its FiT plans by nearly 40 percent. The EEG, which costs about €7 billion a year, is structured to degress as installations climb, thus maintaining steady internal rates of return (IRR) for projects, and generally keeping pace with plunging PV costs.
In the first few weeks of 2012, though, German officials realized they had a big problem: preliminary estimates indicated new solar PV installations in 2011 leaped to a record 7.5 GW in 2011, far outpacing the country's 2.5 to 3.5 GW plans -- with a whopping 3 GW in December 2011 alone, thanks to mild weather and desires to get installs done before the next scheduled FiT reductions in January.
Continued half-year adjustment of the subsidies, now scheduled for a 15 percent degression to about 24 €-cents/kWh given the 2011 surge, would no longer be enough. New policies were immediately proposed: more frequent step-down degressions in the existing FiT were preferred by Environmental Minister Norbert Röttgen, and some kind of hard cap on annual installations, as low as 1 GW annually or even lower, was proposed by Federal Minister of Economics Philipp Rösler. Industry watchers speculated on what would come out of negotiations, guessing on monthly or quarterly FiT reductions or a less-restrictive hard cap.
On Feb. 23, Röttgen and Rösler announced their framework of a compromise -- and it was more severe, and takes effect much sooner, than anyone anticipated.
Reactions to the New Rules
The newly proposed subsidies cut the FiT levels by up to 30 percent, limit the payback on electricity produced, and eliminate a self-consumption bonus. They also take effect on Jan. 2013 but apply to everything installed by March 9, not April 1 as many had thought. (The previous FiT structure would have cut the levels by another 15 percent in July.)
Germany's New FiT Plan
System size FiT reduction % degression
Up to 10kW 19.5 Eurocents/kWh 20 percent
10 kW to 1 MW 16.5 €-cents/kWh 25 to 29 percent
1 to 10 MW 13.5 €-cents/kWh 26 percent
Above 10 MW No subsidies --
-- Starting in May, the FiTs will be reduced monthly by 0.15 €-cents/kWh for all new systems.
-- New small systems will be remunerated for 85 percent of the electricity produced; medium- and large-sized systems will get back 90 percent.
-- A bonus for self-consumption will be eliminated.
-- Yearly installations from 2014-2017 will see a 400-MW annual reduction in the current corridor of 2.5 to 3.5 GW; the new corridor from 2017 on will be 900 MW to 1.9 GW.
Not surprisingly, the German solar market is up in arms about the changes, which are the most severe since the government's support began in 2004.
"This decision sends exactly the wrong message about renewables at a critical time for the industry and for EU efforts to achieve its energy goals," said Ingmar Wilhelm, president of the European Photovoltaic Industry Association (EPIA), in a statement to PV World. "No one believes that PV support schemes should last still for long, and everyone knows that they need to be smart, sustainable and properly adapted to changing market conditions."
"The breathing cap worked, and would have further slowed down the market after the lack of growth between 2010 and 2011," agreed Markus Lohr, chief-analyst of EuPD Research. "Market instruments require time in order to come into effect; there was no real need to intervene in the market again."
The strategy of accelerating reductions in Germany's solar support schemes have greatly narrowed the gap between PV and conventional electricity sources, Wilhelm argues, but the new rules "create an increasingly unpredictable regulatory climate containing impossible conditions which put the entire PV industry at risk." Narrowing the government's options to support solar, and more broadly its "Energiewende" energy transformation effort, "will only provide one result: ever higher costs for the entire energy system."
Hours before the new FiT proposals were announced, the Bundesverband Solarwirtschaft (BSW), Germany's Solar Industry Association
utility and infrastructure regulatory agency, organized a protest attended by roughly 50 domestic solar companies and thousands of workers against what were assumed to be tightened restrictions. S.A.G. Solarstrom AG, a solar PV plant designer and builder taking part in the protests, accused the government of "completely choking the German market" and jeopardizing jobs in Germany.
"It is completely incomprehensible to us how the federal government can argue these drastic reductions," said SAG CEO Karl Kuhlmann. "These short-term drastic reductions are slowing down the very positive development of photovoltaics that we have had up to now." German electricity suppliers are hiking prices by more than 3 percent, he says, far out of balance with any EEG-related increases: "Photovoltaics is being made a scapegoat by the energy corporations in order to expand their own profit margin without any risks."
Protesters in front of the Federal Economics Ministry in Berlin on Feb. 22, prior to the Feed-in Tariff announcement. (Source: BSW-Solar)
Industry watchers both inside and outside Germany are concerned about what the harsher and sooner FiT adjustments will do to solar project economics and end-demand.
"Overall we believe it is still bad news for the German solar industry," likely reducing IRRs from high single-digits "to low single digit at best (and in most cases non-existent), which will reduce demand dramatically," writes Citi analyst Tim Arcuri. "Given that Germany was greater than 30 percent of global demand last year with 7.5 GW installed, a dramatic slowdown in Germany, and at such short notice will we believe be negative for pricing across the solar value chain in an industry already suffering from overcapacity."
Maxim Group analyst Aaron Chew agrees: "It's hard to get projects going when the economics change every 30 days." The whole model is based on cash flow, and any delays under a monthly-adjusted FiT system "changes the whole equation" for everyone from financers to suppliers to EPC firms.
Vishal Shah from Deutsche Bank echoes that the new FiT structure "increases the risk of significantly reducing the installation run-rate in Germany [...] Our checks indicate that German distributors could start cancelling orders immediately, in order to work down inventory."
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