Germany: Another FiT Bites the Dust

As widely expected Germany reduced its solar photovoltaic feed-in-tariff (FiT) by 17% effective April 1. 2010 following the earlier lead of Spain which took the same action last year.  This cut is deeper than expected and comes at least a quarter sooner than once thought likely and is on top of the 10 percent already approved in the German Renewable Act.

The solar industry was braced for this action but there is no way to mask the impact it has on solar market players since Germany was Europe’s largest buyer of solar equipment fueled by these deep subsidies.

Until this action German solar projects realized 32 Euro cents per kilowatt-hour (about 45 US cents) in subsidy. And it cost German taxpayers more than 9 billion Euros to produce the more than 8 GW of solar PV that lead the world’s markets while it was in effect.  After the new rules take effect in April, solar PV power in Germany will cost 27 Euro cents (or about 40 US cents) closer to the costs of solar power.

Because Germany’s subsidy policy fueled a spectacular, but unsustainable growth in market share, many of the industry’s leaders including China’s leaders Yingli and Suntech, and First Solar and SunPower of the US.  But the biggest impact will fall on the German solar companies according to DZ bank analyst because they are so dependent on the German domestic market.  German firms Q-Cells realized 56% of sales, Solar World saw 67% of sales and SMA Solar saw over 70% of sales from German domestic markets.  All of these firms, both German and international players, all now have heartburn over their sales exposure in the German market.  Reuters reported that analysts say that lower prices will provoke a fierce shakeout in the industry much like Spain earlier forcing higher cost players to quit the market.  Inventories of solar panels may also be sold off at similar fire sale prices to monetize investment and preserve cash.

So what?

Renewable energy is on a roll and we want to encourage its growth and market penetration.  But to be sustainable renewable energy must make it in the cold, and sometimes ruthlessly competitive global market place.  Feed in tariffs and other subsidies may produce short-term results as we have seen in Spain and Germany, but true scalable growth will only come when solar and wind generation can be delivered at competitive, grid parity prices.  Any other scheme is not sustainable over the long term. And each such scheme distracts the manufacturers from their one true path to success—driving down the installed capacity cost to grid parity in every market they seek to win.