Germany to move to Reverse Auction

Germany has been the most successful country in installing solar power with more than 35 GW of cumulative solar power installed. The success came due to the country’s enlightened EEG law, which decreased solar FITs every year without putting hard caps on solar installations. This led to a continuous boom in solar energy installations between 2008 and 2012, as solar panel manufacturers and installers kept cutting costs to keep the returns competitive for solar developers. However, the country faces a huge subsidy burden for 20 years, on account of these huge installations that were developed.

This has increased the country’s electricity prices by almost 5-10%, as Germany passes on the cost of the subsidies given to solar producers to electricity consumers. Given the pro-green nature of German citizens this has not produced a backlash till now. The industry has been protected by paying lower electricity charges though this has become problematic with consumers.

Germany which has molly coddled green energy producers till now, wants to reverse auction for new solar power capacity of ~500 MW each year for the next 3 years. Solar producers were till now assured of fixed prices for 20 years, with preference in grid connectivity and infra issues. But this will now come to an end, as solar power producers will have to bid for waste land in which they will build these projects. This is similar to India where reverse auctions have been the norm while allocating solar power capacity. This has resulted in high competition and low costs for the Indian government. Unlike German producers who made high returns and profits, the Indian developers have had to struggle with low IRRs.

I think it’s a good move on Germany’s part, despite the protests by their solar association BSW. Germany has more than enough solar capacity and given that solar power has become more or less a mature technology, it does not require too much support. Market forces should determine the price for solar power now. Using of wastelands is also a good idea, as more of the solar farms earlier were built on agricultural land.