As the national election results rang in on Sunday 27th September, it appeared almost certain that changes would be made to Germany’s generous subsidy program. The centre-right coalition between Chancellor Merkel’s conservative Christian Democratic Union (CDU) and the Free Democratic Party (FDP) is tipped to cut the incentives that have pushed the country along in its battle for leadership in the renewable energy world. Comments on the wires in a MarketWatch report just before the election confirmed that FDP would be sticking to its suggestion of lowering the incentives for solar power.
Although it remains clear that renewable energy will remain one of the government’s priorities, the details of the policy as it stands are very likely to change – and not generally for the better. Germany ironically seems set to follow the rest of Europe by cutting the high feed-in tariff rate (currently set at €0.45-0.55/kWh).
Just days before the election, Gerhard Stryi-Hipp, head of energy policy at the Fraunhofer Institute for Solar Energy Systems ISE in Freiburg said, “If you reduce the feed-in tariffs to a level which is very low, it could affect the market a lot,” he said. “The highest risk of overreaction is with the conservative parties — with CDU and FDP.” The two parties are likely to stick to their nuclear power guns and reduce the amount of emphasis on renewable energy in the country.
The key law surrounding the German renewable sector, the Renewable Energy Sources Act (EEG) of 2000 obligates grid operators to give priority to electricity from renewable sources and to pay fixed FiTs for that electricity. Some argue that this incentive rate is set too high. “There is a hot debate that the fees for individual renewable energy are too high, especially solar energy,” said Claudia Kemfert, head of the department of energy, transportation and environment at the German Institute for Economic Research in Berlin.
Kemfert continued to say, “I could assume that the CDU, but more the FDP will foster a greater cut of the individual feed-in tariff, especially the solar feed-in tariff.”
By putting this cat amongst the pigeons, Germany will most likely see a huge shift in the market, even before any changes are actually made to the law. The mere suggestion of a cut will encourage those with solar plans to complete projects sooner than expected in order to benefit from the existing incentives. We could be in for a scenario similar to the Spanish ‘Gold Rush’ of 2008 that saw developers fighting to get grid connected before attractive tariffs expired.
There are many reasons why the country could call for a lower FiT rate, regardless of governmental preferences. The first, and perhaps most prominent is the effort to fight off the competition from Chinese module manufacturers in the country. There is considerable backlash in the German market against the readily available, cheaper supply of Chinese modules on the market, German taxpayers are becoming wary of funding programmes that potentially benefit companies operating outside of Germany.
SolarWorld’s CEO, Frank Asbeck, has also made calls recently for regulations to keep Chinese companies’ success at bay as their ability to offer cheaper solar panels have caused concern among European companies as well as American companies such as First Solar, which has a manufacturing base in Germany. First Solar will be especially worried, as it reaped in the profits by creating cheaper, non-silicon panels. “We will discount if necessary to defend our position in this core market,” said Michael Ahearn, CEO of First Solar.
However, these changes may end up having the adverse effect by boosting the sales of Chinese companies because project developers would be more likely to choose lower-cost equipment to offset the FiT declines. To offset this, Germany will rely on its ‘Made in Germany’ quality standard stamp, something that cannot be met by competitors.
Solar panel average selling prices have dropped by 30% – 50% over the past year. This phenomenon has increased the margins for installers and allows the members of the German government to justify cuts to the tariff on that basis that less funding is required to subsidize installations. “The rate of return investors can achieve on solar installations has become quite attractive because of the drop in module prices,” said Treasa Ni Chonghaile, fund manager for alternative energy at KBC Asset Management in Dublin.
Until the new government formerly announces any policies our speculation is idle. What is certain is that the German PV market is in for a tumultuous time over the coming year.
