German solar association willing to accept further FIT cuts, but rejects market cap

The news comes as the German Federal Minister for the Environment, Nature Conservation and Nuclear Safety stated earlier this week that further tariff cuts had not been ruled out in the coming year. At the same time, Reuters said the solar industry had signaled it would accept further cuts in PV tariffs, with the report stating most companies regard it as acceptable that the cap on subsidy rates for 2012 will be moved up.

No official comments

At mid-week, the first press releases became public indicating that the German ministry and BSW-Solar were in the midst of discussions on a further accelerated cut in tariffs for next year. At present, the Association is not commenting officially on the current policy discussions. In internal correspondence to its members – which has been shown to pv magazine – BSW-Solar confirms this report and writes: “If the federal government wants better control on market growth by exercising the control option of an accelerated gradual decrease, depending on the rate of new installations in the middle of the year 2011, then the industry will provide constructive support.” This has already been signaled by Günther Cramer, President of BSW-Solar in a discussion with Norbert Röttgen (CDU), German Federal Minister for the Environment, Nature Conservation and Nuclear Safety.

According to information provided by the Association, the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety is currently considering an additional cut in the FITs next year if new PV installations go clearly above the defined target of 2,500 to 3,500 megawatts. It is important that “PV in Germany be put on a sustainable path of development that is both politically and socially acceptable,” asserted the Association in the resolution at its members’ meeting in November. What has to be achieved is limitation of the reallocation of the price for electricity generated through PV to approximately two cents per kilowatt-hour, and then to reduce it again over the medium term in order to maintain social acceptance for further PV development.

BSW-Solar is aware that substantial risks are harbored precisely by the fact that further development of the German PV market is so difficult to forecast. “This uncertainty when it comes to providing a forecast prompts policymakers to think about intervention and control measures in order to avoid a cost explosion next year. The various considerations range from an advanced review of the market trend in the first half of the year in 2011, to additional cuts in the course of next year, to the introduction of fixed quantity restrictions (cap),” it goes on to say in internal correspondence.

Slight reductions

However, the Association also believes that the market trend should be responded to in both directions. Thus if there is a decline on the market next year, then “there should only be a slight reduction in tariffs, if at all.” If it becomes clear in the spring that the market is developing significantly above the targets, then “parts of the degression stages which depend on the rate of new installations for 2012 could be moved up to the summer of 2011, and thus the Renewable Energy Act costs could be dampened,” says the Association letter.

From the perspective of BSW-Solar, “the market should become adjusted to an annual increase of between three and five gigawatts per year.” However, it strongly rejects any rigid quantity restrictions, i.e. a ceiling on the market, as this would undermine the free market mechanisms that are indispensable for cost reductions in the future.

This is in contrast to CDU energy expert Thomas Bareiß, for example, who is in favor of putting a cap in place. According to a 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. In a letter to Röttgen, Bareiß also said that with the continued strong increase in the number of PV plants in Germany, there has to be an additional cut in FITs.

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.