Germany: New PV FIT cuts not ruled out in 2011

There appears to be no end to the discussions about solar subsidies in Germany. Next year there could be an additional reduction in the remuneration fees as a result of the sharp increase in newly built PV plants in the past months. “We are in discussion with the industry to achieve further development on reasonable terms,” said Norbert Röttgen (CDU), German Federal Minister for the Environment, Nature Conservation and Nuclear Safety in the Bundestag, according to a report in “Financial Times Deutschland” (Thursday issue).

“Those who advocate renewable energies should consider the fact that they require social acceptance,” he noted with a view toward the prices for electricity. Any further development will be passed on to all consumers of electricity through the reallocation measures of the German Renewable Energy Act [EEG]. Approximately 400 electricity suppliers have announced an increase in the price for their electricity at the turn of the year. In general, they justify the hike with the 70 percent increase in the EEG reallocation.

This argument, however, has been contradicted by Matthias Kurth, President of the German Federal Network Agency. He pointed out that renewable energies cannot be blamed for price increases. On the contrary, they even have a dampening effect on the prices for electricity, because they replace expensive power stations.

Solar industry indicates willingness to cooperate

In his Bundestag speech, Röttgen gave no express guarantee that the current solar subsidies would remain in force as planned until the EEG amendment in the year 2012. According to information from Reuters, the solar industry has already signaled it would accept further cuts in PV tariffs. Discussions between representatives of the PV industry and the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety are said to have already taken place. The report stated that most of the companies regard it as acceptable that the cap on subsidy rates for 2012 will be moved up. However, there has been no agreement thus far on who should take the initiative.

Just this weekend, CDU energy expert Thomas Bareiß demanded in a letter to Röttgen that with the continued strong increase in the number of PV plants in Germany, there also has to be an additional cut in FITs. Furthermore, he advocated putting a ceiling on the PV market in this case.

According to an industry note issued by industry analysts Jeffries & Company Inc. Bareiß contends that Germany is over subsidizing PV. He refers to the fact that module ASPs have declined faster than the FIT degression, pointing to a 2010 15 percent ASP decline versus the 13 percent FIT cut in January 2011. He further argues that solar produces only two percent of Germany’s electricity, while receiving some 50 percent of the EEG remuneration. As a first step for the EEG Nouvelle, he proposes establishing a breathing cap in January 2011 whereby the FIT is steered by installation volumes. If installations remain below 3.5 gigawatts (GWs), subsidy cuts will be less harsh.

Jeffries reports however, that Dirk Becker, Parliament member and energy speaker for the SPD considers this year’s “bumper” market in Germany the creation of the current government’s “rash decision” to implement the mid year cuts, which resulted in massive pull effects in the summer. Consequently, he says that a cap would “kill” the German solar market as it did in Spain. As such, he prefers to rationalize growth with fixed cuts to the FIT.

Moreover, the analysts say that Hans-Joseph Fell, energy policy spokesman for the Green Party believes a cap would “distort” market dynamics, thus making it impossible for investors, companies and banks to plan. Additionally, he fears Germany would trigger a contagion effect with a cap causing further damage to the industry. In place of a cap, he suggests implementing a flexible quarterly degression to manage market growth in Germany, if further intervention is indeed required.

Political battleground

Jeffries continues by saying that solar stocks have been “hammered” despite strong third quarter results, and guidance for the fourth quarter and 2011. The analysts attribute blame to German Politicians, the media and analysts, leading it to conclude that in a worst case scenario, rest of world growth in 2010 would offset a potential three GW cap in Germany.

However, they predict that “when the smoke clears”, 2011 will be an uncapped year with an additional FIT cut unlikely, given the slowdown in the German market. They said: “We believe 2012 could see the implementation of a more flexible solution for the FIT schedule especially if pricing warrants. We favor a quarterly adjustment to govern growth. In a worse case scenario, we believe a three GW cap, if instituted in 2012 (current discussions), would not prevent global demand from rising 20-25 percent in 2012 thanks to diversified ROW demand from including North America, MENA, China, and India. In the meantime, investors should expect frequent noise from the media and the street.”