German Government Proposes 15% Solar Subsidy Cut

The German government plans to announce a 15% reduction in subsidies to solar power providers. The one-time cut would be implemented in April for roof installations, and in July for open-field projects, the Wall Street Journal reports.

German Environment Minister Norbert Roettgen also indicated that an additional 10% feed-in tariff (FIT) decrease will be implemented for farmland installations. However, the FIT for personal solar power usage is expected to be increased.

If Germany's newly installed PV capacity exceeds 3.5 GW this year, a subsequent 2.5% cut will be added, notes Jefferies & Co. in a report addressing the German government's announcement. The threshold for the 2.5% reduction was previously expected to be 3 GW.

A further 5% reduction in the FIT will be implemented if total installed capacity tops 4.5 GW this year. According to the report, this generation total is unlikely to be reached.

Overall, ‘We would view this proposal as relatively benign, as we believe that attractive rooftop [internal rates of return] can be maintained with the FIT levels proposed while, critically, the current proposal does not include a hard cap on installations, which could devastate the industry,’ Jefferies & Co. states.

Other industry analysts, however, predict significant industry challenges as a result of the German government's decision.

‘The PV industry has never before experienced such massive cutbacks,’ says Markus A.W. Hoehner, CEO of market research and consulting institute EuPD Research, in a report. ‘This is naturally increasing the pressure on the German PV industry due to the tightened cost situation.’

According to EuPD Research's analysis, Germany's FIT reduction will create a short-term run on photovoltaic equipment and lead to false price increases. European manufacturers are expected to struggle most over the medium term, as they seek to overcome the pricing upheaval.

For Germany, the effects on local production remain to be seen. ‘Emigration of leading technology companies, bankruptcies, collapse in sales for tradesmen and a weakened location for the solar industry – these are all realistic scenarios,’ Hoehner states.

SOURCES: The Wall Street Journal, Jefferies & Co., EuPD Research

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