Germany Solar Feed in Tariff may See 2% Cut each month 2012, System Cap at 3 kilowatts due to 7.5 GW 2011

Germany has seen the biggest increase in solar installations in the history of solar energy with 3 GW in the month of December 2011 alone. For perspective this is almost equal to the installed capacity of the Chinese solar energy which has almost 6-7 times as much electricity generating capacity . The massive surge in solar capacity has made even the 15% cut in Feed in Tariff in Jan 2012 look too small. The reason for this huge increase in solar panel demand has been the reduction in solar panel prices by almost 60% which has led to 10% + returns for solar systems. While the existing EEG law will lead to another 15% cut in July 2012 , there might be another 5 GW of solar panels being installed in Germany in the first half of 2012 . Germany power grid is already being strained with 25 GW of solar panel capacity. More installations in such a short time could lead to damage to the grid. The German government wants 4-5 GW of solar installations while the industry is installing 7.5 GW in 2011 and 2010 . This is despite sharp cuts to Feed in Tariffs.

German December Surge in Solar Installations

The influx of cheap solar panels from China has let the December 2012 explode to almost 2-3 GW according to the German solar association BSW. The high rates of return of over 10% due to super cheap Chinese solar panels at 80-90c/watt has been the major reason for the explosion in demand which could be the biggest month in Germany ever. While German Solar Market has remained robust as ever,the German solar panel producers like Solon, Sunways have been vanquished with a number of major solar companies failing and getting acquired. The Asian solar companies have been the major beneficiaries of this demand growth in Germany and Europe.

The massive rise in demand will imply that according to the EEG ,t here will be a 15% cut in July 2012 after a 15% cut in January 2011. This would bring the solar FIT prices quite low and provide a restraint to the galloping German solar energy installations which is reaching more than 25 GW .

The returns are still high in 2012 with existing FIT , so the German government may have to plan additional cuts with plans of

a) cut of 2% FIT every month in 2012 to slow down the installations and bring down the solar system IRR

b) a cap on feed in tariffs to solar systems of  3 kilowatts only .This will prevent larger solar installations and building of large solar farms

Note Germany Feed in Tariffs have always followed many twists and turns each time as installations have always exceeded expectations.

The German Solar Feed in Tariff cut scheduled for July 2010 has got another twist with the Upper House of German Parliament Bundesrat not passing the Law in its current form.The one-off German Feed in Tariff cut has seen enough twists and turns to make a person go giddy . It all started with the new German government deciding to cut the highSolar FIT which was leading to outsized returns for investors installing solar panels in Germany leading to a situation similar to Spain’s  2008 solar frenzy .The reason was that the solar module prices had gone down by almost 50% in 2009  with the FIT rate ( higher subsidized electricity rates given to generators of renewable energy) going down by the only scheduled 10% .So in addition to the annual 10%  2010 cut , the German government decided to add another 16% Feed in Tariff cut byMay 2010 which led to a huge uproar from the industry.This led to a lot of bargaining between the industry,the coalition partners of the German government and the various industry lobbies.Ultimately the law went in with almost the same percentage of cuts but the cut was delayed from May to July . With the German Lower House Bundestag passing the government proposal , the Bundesrat’s approval was only supposed to be formality.However it seems that the Eastern German states which have the most to lose in terms of jobs and taxes from these cuts want to reduce the quantum of the cuts which in their original form would lead to a ~35% cut in one year.The law which is supposed to go into effect by July 1 might see more delays as it leads to more negotiations.