Why Germany has the Highest Solar Power Capacity in the World

Germany is the definite number one solar power country in the world. The latest numbers reveal that 28 GW of solar is connected to the grid – far more than any other country in the world. Italy, which is number two on the list, only have about half of Germany`s solar capacity, and the gap is getting bigger every day. Green World Investor has previously reported on Germany`s tremendous growth in the PV sector in December. According to European Photovoltaic Industry Association (EPIA), Germany`s solar power capacity accounts for 36% of total installed capacity worldwide:

Image credit: Global Market Outlook for Photovoltaics until 2016

We all know that Germany is not on the top of the list when it comes to solar insolation (strength of sunlight), so what is this country doing right that makes the solar power industry flourish to this extent?

The Germany Renewable Energy Act

The German Renewable Energy Act (in German: Erneuerbare-Energien-Gesetz, EEG) started in 2000 with a goal of growing the renewable energy sector in the country. EEG encourages cost reductions for renewable energy and better energy efficiency over time.

How successful has the Germany Renewable Energy Act really been?

As a result of EEG and the incentivized development of renewable energy, more than 110 million metric tons of carbon dioxide emissions were cut only in 2010 – a number that is increasing every year. The amount of industry jobs in the renewable energy sector has grown from 30,000 to 350,000 from 1998 to 2010. The costs of solar panels have been cut in half over a period of five years:

Image credit: Wikimedia Commons

Price reductions and growing power capacity is a direct result of the implementation of the German feed-in tariff, which is an intrinsic part of EEG. A feed-in tariff is undoubtedly the best way to grow the renewable energy sector in any given country.

How does a feed-in tariff scheme work? 

The basic gist is this: Government incentives are used to reduce the investments for renewable energy projects by paying a fixed amount for the amount of electricity generated. The rates are fixed for a certain period of time. This is a simple and direct way to incentivize investments, which in the long term encourages efficient and high-performing systems.

This is basically the same as how power purchase agreements (PPAs) work, but in the case of feed-in tariffs, the rates are much higher. As the industry matures, the rates of incentives are lowered accordingly, which is why the German feed-in tariff has been cut on several occasions since it`s introduction. However, investors are still guaranteed a certain return on investment – an absolute necessity for further growth.

The cost of feed-in tariffs is not born the year of installation as they are with tax credits, but instead spread out over a number of years. The incentivized costs are distributed over all consumers; however, initial costs are lower with feed-in tariffs.

Numbers from 2012 have revealed that the German feed-in tariff scheme has so far cost about 14 billion euros annually for wind and solar installations – the equivalent of 18 billion US dollars. Solar power installations received somewhere between 35.5 – 51.7 eurocents for every kWh they produced in 2007-2008.

How on earth does Germany cover these costs?

They are put on top of the domestic cost of electricity. Homeowners pay an extra surcharge of about 3.6 eurocents (0.046 US dollars) for every kWh. This accounts for about 15% of the total cost of electricity in a typical German household.  Not only is EEG responsible for the success of solar PV in Germany, but the act has also resulted in a 40% drop in peak electricity, which has lead to savings in the range of 520 – 840 million euros for consumers (mitigating the surcharge).

There is no doubt that the German Renewable Energy Act has been a tremendous success and potentially can serve as an archetype for similar initiatives in other countries. In fact, many countries have already followed suit. In the US,on the other hand, only a handful of states including California and Florida, have introduced feed-in tariff schemes at time of writing. However, several other states are in the process of doing so.

It will be interesting to see where how the German feed-in tariff scheme is doing ten years down the line, and if the government decides to further cut the incentives.

The federal government in Germany has set a target of 66 GW of installed solar PV capacity by 2030, which will be reached if the annual goals of 2.5–3.5 GW added to the grid are met. By 2050, Germany is aiming to produce one fourth of all its total electricity from solar power.

Article written by Environmental Engineering student Mathias. He writes more about solar panel costs at his green tech site Energy Informative.