Germany’s Solar Outlook Brightens

The German government’s June announcement that its scheduled reductions to the solar photovoltaic (PV) feed-in tariff (FiT) would not be implemented in early July has provoked much speculation that a strong market recovery will now take place.

Under the current policy Germany has provided a target amount of solar power to be installed each year, set at 3500 MW. If that target is exceeded, the FiT is reduced more than a base rate of about nine percent, and if, conversely, installations fall short of this figure the FiT is cut less than planned. According to indications from the government earlier this year, the incentives would have been lowered significantly – in cuts some called draconian – if at least 875 MWp of PV capacity had been installed during the months of March, April and May. However, this quota was not met, and the FiT rate will thus stand.

Depending on size and type of the system, remuneration for solar power ranges from 21 to just under 29 €cents per kWh, but over the past two and a half years it has been reduced by 40-50 percent. In the coming years, reductions of another 24 percent at most are planned, depending on the scale of market growth.

Under the subsidy plan adopted last year, the government was expected to cut solar subsidies twice a year, once at a variable rate established annually, and then by an amount to be determined by the size of new installations. The base rate cut for 2012 is set at nine percent. For the second subsidy cut, which would have been effective in March 2012, incentives were expected to be slashed by another six percent.

Germany has now cancelled the scheduled six percent cut and so for 2012 a cut of nine percent – rather than 15 percent – is planned. Subsidies were cut by 16 percent for 2011.

“For solar power companies, the existing cuts already constitute an enormous strain. An even faster drop in support rates would not be possible for the industry,” observed Carsten Körnig, managing director of the German Solar Industry Association (BSW-Solar).

Above 3500 MW but below 7500 MW, new installations suffer a further cut of three percent and above 7500 MW, a maximum cut of 24 percent has been proposed.

The end of uncertainty will help solar companies and developers plan both production and installations. “With the release of the published data, market participants have clarity now,” said Matthias Kurth, president of the Federal Grid Agency. “The feed-in tariff levels will not fall for systems that will go online from July 1. This is based on the projection of added capacity of 2800 MW,” he added.

According to the Agency’s preliminary figures, only 349 MWp were added in March and April (147 MWp in March, and 202 MWp in April). With 362 MWp added in May, this brings Germany to 1079 MWp for 2011 thus far, and a total of 18.4 GWp. As in the first four months of 2011, new PV installation in May has been lower than in the comparable months of 2010, reflecting this uncertainty.

Conflicting Forecasts

Despite some justified anxiety over the future of Germany’s large-scale solar development, the country’s recent declaration that it will work toward shutting down its nuclear capacity within the next decade has contributed to the much more positive forecast for renewable energy in general and PV in particular. The PV industry in Germany has ambitious targets in its roadmap and wants to keep allocation costs under 2 €cents/kWh by installing 52-70 GW by 2020, along with lowering system prices by at least 50 percent.

In addition, a glut of modules and PV inverters are set to revitalise the German solar market this year as prices fall to a degree that makes investing in solar power financially attractive again, says a report from IMS Research. Despite a very weak first quarter, the report predicts strong growth through the rest of the year, peaking in the fourth quarter and even exceeding the 7 GW installed in 2010.

However, the Grid Agency predicts that only 2.8 GW will be installed throughout 2011, a figure which falls rather short of industry expectations and even less than the government had originally envisioned in its targets.

Analysts at Jefferies & Company, meanwhile, believe that Germany could see 5-6 GW installed over the year. In a recent industry note, they comment: “Our estimates are still for 5.5 GW this year in Germany.”

Nuclear Dump Hikes Solar Prospects

Germany’s decision to shut down its more than 20 GW of nuclear plants is expected to increase the country’s solar generation capacity significantly, above the anticipated growth of 32 GW by 2020.

The government plans to replace the 23 percent of its energy mix accounted for by nuclear plants with renewable technologies and greater energy efficiency.

According to preliminary estimates from the Federal Association of the Energy and Water Industry (BDEW), Germany’s renewable energy output in the first quarter of 2011 reached 28.1 TWh (compared with 24.9 TWh in the first quarter of 2010) and accounted for 19.2 percent of total German electricity consumption (compared with 17.1 percent in 2010). PV accounted for 1.9 percent (compared with one percent in 2010).

However, in 2010 Europe added more PV than wind capacity for the first time ever, led by installations in Germany and Italy. Germany added more PV (7.4 GW) in 2010 than the entire world did over the previous year, ending 2010 with 17.3 GW of existing capacity. But, following the earlier FiT reductions, this trend abated in early 2011. And Solarbuzz predicts that, overall, strong 2010 European PV market growth of 169% is set to give way to a 14 percent contraction in 2011.

Criticism

BSW expressed regret that, within the context of the current legislative amendment to the EEG, photovoltaic installations on agricultural areas, which are particularly cost-effective, will continue to be excluded from support measures although the solar industry has repeatedly called for their inclusion.

In any case, whatever the exact figures turn out to be, it seems that most analysts agree that a market recovery – very strong or less so – is now likely.

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