Deutsche Bank praises German PV policy

17. August 2011 | Top News, Markets & Trends, Industry & Suppliers | By:  Nicholas Stone

Deutsche Bank has labeled Germany’s feed-in tariffs (FIT) as 'Best-in-Class' while offering comment on balancing policy longevity and supporting investor security.

Germany: Conergy's Tarp solar photovoltaic park

Deutsche Bank says that in 2020 Germany, photovoltaics will account for 19 percent under the National Renewable Energy Action Plan trajectories. Image: Conergy AG.

The German FIT policy continues to drive renewable energy at scale in the country, supported by clarity in targets and an integrated climate and energy policy framework.

Given concerns over sustainable photovoltaic growth, the report says policy makers can increase this confidence in photovoltaic markets by giving investors a clearer view of policy horizons. Specifically, perceived risks can be decreased when policies are linked and integrated with these known targets and that they display transparency, longevity and certainty.

They also made predictions about the direction of the German market under these advantageous conditions.

"We project that PV will grow to more than seven percent of national electricity supply by the end of the decade," the report said. "We believe that Germany’s integrated climate and energy policy has been and will remain a key contributor to making solar energy competitive with on-peak fossil-fuel-fired electricity by 2014."

According to the report, Germany is poised for continued renewable energy market growth through 2020 and beyond in order to meet binding renewable electricity targets and compensate for its upcoming nuclear power phase out.

Aside from targets and nuclear withdrawal, another key reason growth will continue is pressure on prices.

"Germany is committed to sustainable PV market growth and to managing volume by putting downward pressure on prices," the report said.

It continued: "The rapid decreases in PV pricing over the past two years, the lack of hard caps in Germany’s FIT, and PV markets’ ability to rapidly scale in response to adequate price signals, has meant that Germany has served as a demand 'backstop" for the global solar market even as other markets have contracted or been capped and that Germany will be able to meet its national 2020 energy targets."

Fluidity and reactions

The report is particularly praising of Germany’s ability to maintain a fluid and continuous relationship with FIT policy, which is often refined every few months when the situation changes due to external impacts.

Despite external impacts such as dropping prices or the Japanese nuclear disaster providing problems for the government, Deutsche Bank said that its ability to remain fluid, react accordingly, and maintain transparency has led to continued growth and had a positive impact upon tariff degressions.

At the same time, this periodic review system could not adequately correct for sharp declines in photovoltaic costs in 2009, which led to this fluidity providing an appropriate solution to the issue.

"As a result, German policy makers instituted several unscheduled downward adjustments to the PV rate in 2010 and 2011, but did not institute capacity caps. Policy makers in other large European PV markets, faced with a similar challenge, placed significant limitations on PV growth," continued the report.

The two "non-scheduled" decreases (in addition to the scheduled digression) of the FIT in 2010 took it down 7.5 percent from 2009’s mark.

By using this method the German government has been able to weather the storm of dynamic photovoltaic pricing to support rapid market growth as it phases out its nuclear program and increases demand for large-scale photovoltaic development.

Contrastingly, other countries have "shuttered" their markets through mistakes in policy, which are reacting to cost and capacity, rather than time-related decision making, which Deutsche Bank suggests is better. 

Due to this policy making structure, the country was still able to install 7.4 gigawatts (GW) of photovoltaics in 2010, despite government predictions of only six GW.

Looking forward

Germany is poised for continued renewable energy market growth through 2020 and beyond, says the report, as it sets about meeting targets set and compensates for the phasing out of nuclear technology.

However, there is a clear objective to slow the recent rate of growth as the government intends to uses pricing to limit market volume to 3.5 GW per annum during this decade, compared to the 7.4 GW of installations that set records in 2010.

The report also expects that the rate of growth will slow from the hyperbolic 2008 to 2010 period, but that Germany is still set to remain one of the dominant solar energy markets for at least the next 10 years, driving generation costs to grid parity.

In 2020, photovoltaics will account for 41 TWh or 19 percent under the National Renewable Energy Action Plan trajectories.

As cost creates tension between investors and policy makers, justification of certain reactions to circumstance and moves will make investment harder.

In tips for investors, the report says they should pay close attention to price/volume trends, FIT arbitrage, generation cost, adjustments to policy, and implementation of Germany’s six point plan transition away from nuclear.


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