Record German PV installations should lead to major FiT mechanism changes

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A 30% cut in feed-in tariffs in Germany, after a record 7.5GW of new solar power generation installed in the country in 2011, is almost guaranteed based on the current regression system; double the level seen in 2010. Pressure is now on the German government to combat another year of record installations. This would require further changes in the EEG mechanism, as PV system price declines have been greater than the FiT reductions, boosting investor IRR and renewed interest in PV after a dismal first-half year level of adoption.

The move by German ministers to change the system isn’t speculation, PHOTON reported in its daily newsletter a day after the Federal Network Agency rushed to release the record installation figures that meetings between Germany’s Ministry of Environment and the German solar industry would take place next week to discuss “the future of solar subsidy rates.”

Some may be shocked at the 3GW of installations achieved in December, the German Ministry of Environment certainly was, but I am reminded of Germany’s efficient distribution network coupled with PV installer skills – as only the year before – over 2GW was installed in a peak summer month. Mild weather certainly helped, but I doubt would have been but a small factor, for the record December installs.

I am also reminded that this corresponds to half of the electricity produced by a modern nuclear power plant, which takes a decade to come on stream and with virtually no grid infrastructure costs – something governments often forget to understand!

Cuts and changes in 2012

A 30% reduction in the German FiT shouldn’t be a killer as system price declines of roughly 25% are being floating around for 2012. Indeed, speaking with Dr Henning Wicht of IHS iSuppli, the market analyst is projecting module price declines of at least 30% in 2012. Prices of US$1.33/W in 2011 should be in the range of US$0.91/W in 2012.

With December proving to be a record month for installs, demand hasn’t disappeared in early January, 2012 after the expected 15% FiT cut came into operation. This is of course due to the system price declines implemented late last year to protect IRR levels at attractive levels to keep demand going. Again, mild weather remains in play, unlike the very poor weather conditions experienced in the prior year period.

With IRR levels remaining attractive in Germany, Wicht isn’t ruling out the possibility of the boom continuing, noting to PV-Tech that a further 4GW could be installed before the mid-year regression.

As talks get underway over what changes will be needed, speculation could only fuel greater installations.

Concern therefore centres on FiT changes that equate to more than a 15% cut mid-year, or worse the introduction of a capping system.

Now that it is obvious to the German Government that further reforms are needed and this gets picked-up by investors in PV, it would be surprising not to see the boom seen at the end of 2011 carrying through to the next enforced cuts or fundamental changes to the system.

A key question today is what and when will changes be made, not if?

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