Germany Slashes FIT Subsidies in an Effort to Rein in Solar Power Installations

By John Blau, Contributor
February 23, 2012

Bonn, Germany -- Solar power has grown so massively in Germany that the government now plans to rein in the boom in photovoltaic installations by cutting generous subsidiaries.

On Thursday, after reaching an agreement with the Economics Minister Philipp Roesler, German Environment Minister Norbert Roettgen announced the most severe wave of subsidy cuts since the government began supporting solar energy in 2004.

The move comes after a further massive expansion of solar power production capacity in Germany last year and the associated costs for consumers who, in the end, pay for the above-market rates of renewable energy.

The government of German Chancellor Angela Merkel, who aims to replace nuclear power plants with renewable energy, has proposed cuts of 20 to 29 percent. They're deeper than the 15 percent reduction ordered in January and they're a month earlier than planned.

Among the key changes:

systems up to 10 kW will be subject to a 20.2 percent reduction to 19.5 euro cents per kWh;
systems from 10 to 1,000 kW will face a 25 and 29 percent reduction to 16.5 euro cents per kWh:
systems larger than 1,000 kW will see an approximate 26 percent reduction to 13.5 euro cents per kWh;
subsidies for systems over 10,000 kW will be dropped entirely in the future;
new small systems will only be remunerated for 85 percent of the electricity produced, while middle-sized and large systems will receive remuneration for 90 percent.

With its proposed changes, the government hopes to contain new capacity to between 2.5 and 3.5 gigawatts this year and next year, down from 7.5 gigawatts in 2011.

From 2014, the government targets a yearly reduction of 400 megawatts and from 2017 between 900 and 1,900 megawatts.

Germany is hardly alone in its efforts to contain costs for supporting the nascent solar power industry: France, Italy, Spain and the United Kingdom are equally tweaking their subsidies to align with falling solar panel prices and control the explosive growth.

In Germany, solar prices plunged more than 45 percent last year, due largely to rising Chinese competition.

Not surprisingly, the German government's proposals have drawn hefty criticism from the solar energy industry.

First-Solar manager David Wortmann called the cuts "a slap in the face." First-Solar is specialized in supply systems for large open spaces. His competition agrees. Phoenix-Solar CEO Andreas Haenel said the large-space market segment would be "strangled."

Carsten Koernig, head of the German solar industry association BSW, warned that thousands of jobs were in danger. Dietmar Schuetz, president of the German Renewable Energy Association BEE said the subsidy cuts represented nothing less than "an attack on the renewable energy law."

Nor are all politicians pleased with Merkel's move. Juergen Trittin, head of the Green Party parliamentary fraction, called the cuts "unreasonable" and said they carried the signature of Merkel's pro-business coalition partner, the FDP, which has shown less interest in supporting renewable energy.

The proposals will go to the cabinet next week and then on to lawmakers.