Reducing Feed-in Tariff Too Quickly Threatens Solar Industry

The German Solar Industry Association (BSW-Solar) and analysts are warning strongly against reducing the solar feed-in tariff too quickly. Large sections of the German solar industry would not survive an additional reduction of the tariff for photovoltaic systems this year in the double-digit percentage range. If this were implemented, around 50,000 jobs in Germany would hang in the balance. On 1st January 2010, the feed-in tariff for new solar plants was already reduced by around ten percent, as scheduled. According to unconfirmed media reports, the Federal Ministry for the Environment plans to reduce solar funding by around a further 15 percent both in the summer of 2010 and at the start of 2011.

Production in Germany in jeopardy

An analysis paper by Landesbank Baden-Württemberg (LBBW) dated 13.1.2010 states that a reduction of the solar feed-in tariff in the double-digit percentage range "means that it is over for the European production location." A tariff reduction will also benefit the East Asian competitors, who would make great gains in market share in this case, according to the LBBW analysis. The principal reason for this is the exchange rate advantages and undervaluation of the Chinese currency.

With an additional double-digit percentage reduction of the feed-in tariff, project returns would fall below the mark of between six and seven percent considered by analysts to be critical. "This is the necessary minimum to offer a sufficient investment incentive to purchasers of new photovoltaic systems and offset the operating risk," says German Solar Industry Association (BSW-Solar) Managing Director Carsten Körnig. In 2013, if development is undiminished, solar power will reach ordinary retail prices In harsh international competition, the solar industry is working to continually reduce its production costs. In the next four years, the industry wants to invest ten billion Euro in the expansion of solar factories and in solar research in the location of Germany. In 2013, it will therefore be possible to generate solar power from one’s own house roof at the same level as conventional consumer electricity rates.

BSW-Solar President Günther Cramer claims: "To do this, we need political backing and a reliable support policy with a sense of proportion." BSW-Solar considers a quicker reduction of the solar feed-in tariff to be possible. However, the association believes that additional reductions should be based on the extent of additional market growth. Beyond the feed-in tariff reduction already legally validated at around 10 percent at the start of both 2010 and 2011, there is no scope for further reductions in the double-digit percentage range in the short-term. Even with strong market growth, the tariff should fall by no more than 14 percent per year. This would leave scope for a further reduction in the order of five percent this summer.

Wrong economic and climate-policy signal

The Copenhagen climate conference demonstrated that international agreements are made neither in good time nor with sufficient effect. "To now make an excessive incision in the solar feed-in tariff would send the wrong political and economic signal," Cramer says. A FORSA survey this week proves the high level of willingness of citizens to pay for conversion of the energy supply to renewable energies and particularly for solar energy.