Severe Incentive Cuts Could Wreak Havoc On German PV Market

SI Staff
Written by Jessica Lillian
on February 23, 2012 No Comments
Categories : Policy Watch

9759_qcells2.23.12 Severe Incentive Cuts Could Wreak Havoc On German PV Market Incremental reductions to PV feed-in tariffs (FITs) have been acknowledged as a painful – but perhaps necessary – response to strong installation market growth in Germany and other leading European markets.

However, Germany's latest FIT plan, as announced by Federal Environmental Minister Norbert Rottgen and Federal Minister of Economics Philipp Rosler, presents an unusually severe schedule that slashes FITs earlier and more deeply than was originally planned. Industry experts fear that the changes could inflict major damage on the German PV market – the world's largest.

Rottgen and Rosler's plan, which was developed following extensive discussion and debate about the issue, calls for a FIT reduction of up to 30% by March 9. Previous schedules had called for a July 1 FIT cut of just 15%.

Now, PV installations up to 10 kW will see their FIT reduced by 20.2% to 0.195 euros/kWh, according to an analysis from Germany-based market research firm EuPD Research. Larger systems face even steeper reductions: Installations between 10 kW and 1 MW will see a reduction between 25% and 29%, to 0.165 euros/kWh, and systems between 1 MW and 10 MW will see a 26% reduction, to 0.135 euros/kWh.

FITs have been eliminated altogether for installations 10 MW and larger. For smaller installations, the March reductions are just the beginning; additional monthly cuts of 0.15 euros/kWh will begin in May. Furthermore, the new plan eliminates a bonus for self-consumption, and FITs for small systems are now capped at 85% of electricity produced.

PV market caps of 1 GW per year and 33 GW cumulatively – an idea that had been floated by the German government – were not included in the final plan. Even so, the sharp acceleration of the FIT schedule alone could have effects far beyond Germany.

In EuPD Research's analysis, CEO Markus A.W. Hoehner predicted that the ‘recent and extraordinary changes will bring drastic cuts for companies along the entire solar value chain, which, in some cases, will severely threaten livelihoods.’ He also believes the plan sends a ‘negative international signal.’

Carsten Koernig, managing director at German industry group BSW-Solar, echoed those concerns. He told Reuters that the accelerated FIT reductions will threaten thousands of solar jobs and hurt installation growth in Germany.

Existing market interventions would have been sufficient to enable sustainable market growth, according to Markus Lohn, chief analyst at EuPD Research. ‘Market instruments require time in order to come into effect; there was no real need to intervene in the market again,’ he remarked in the company's analysis.

The global industry ramifications of Germany's new FIT plan will become visible shortly, predicted Deutsche Bank analyst Vishal Shah in a research note. Shah summarized the German ministers' announcement as ‘a lot worse than feared.’

‘Our checks indicate that German distributors could start canceling orders immediately, in order to work down inventory,’ he wrote. Although many international solar firms have not yet faced negative effects from Germany's recent FIT turmoil, he expects that a ‘strong supply-chain reaction’ will occur within the next few weeks.

Stock prices for several large international solar firms – including SMA Solar, Q-Cells, SolarWorld, First Solar and Suntech – have already dropped following the news, according to Reuters

Photo: A solar plant in Rottgen, Germany. Photo credit: Q-Cells.

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