German FIT Reduction Could Lead to Q2 Drop

Germany’s plan to cut the level of its feed-in tariff (FIT) could result in a dramatic demand reduction and price plunge in nation’s demand for solar photovoltaic (PV) panels related system components in the second quarter of the year, according to iSuppli Corp.

The German government last week said that it will reduce its FIT levels for new rooftop and open-field sites installed after April 2010. The reductions are expected to fall in the 16-17% range. The final decision is planned within the next 10 days.

This reduction follows on a pre-planned, FIT reduction of 9 percent for smaller rooftops and of 11 percent for large rooftops and ground installations that was just enacted.

“Germany’s decision to cut its solar subsidies in the second quarter will make installations less attractive for the country’s consumers,” said Dr. Henning Wicht, senior director and principal analyst for iSuppli. “Because of this, German consumers will rush to make solar installations in the first quarter and then stop in the second quarter. As a result, iSuppli anticipates the German market will overheat during the first three months of the year and then collapse during the next three months.”

As a result of the cuts, iSuppli expects German solar installation levels to surge during the first quarter with 200 megawatts (MW) installed in January, 300 MW in February and 500 MW in March. Wicht said that he expects installations levels to plunge to between 10-50MW in April and remain at the 100 MW level in May and June.

“As a result of the decline in installations, solar system prices in Germany could decline by 7.5 percent from April through the end of 2010, compared to less than the 5 percent normal rate of decline,” Wicht said. 

The German government said that it was prompted to reduce the FIT because solar system prices declined more than expected in 2009.

“The massive oversupply and downturn seen in the global solar cell industry in 2009 was largely due to Spain’s decision to change its FIT policies, which led to a collapse in demand,” Wicht said. “Germany’s move could have similar impact on the global solar market during the second quarter of 2010. However there is a major difference: the German FIT does not limit the size of solar installations, whereas the Spanish FIT restricts installations to 400MW to 500MW per year. Assuming that solar system prices will drop more, installations in Germany will have an opportunity to recover, unlike in Spain.”

iSuppli said that it expects the German market will recover in the third quarter as lower prices lure consumers and as consumers decide to buy before a further FIT reduction in 2010. After holding steady at 100 MW in July, installations will rise steadily until November when they could reach 400 MW.

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