24.02.2012
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Energy policy

Cuts to solar FITs proposed in Germany

The changes to feed-in tariffs for photovoltaics announced late yesterday are even more drastic than expected earlier in the day – and if adopted in their current version, they will almost certainly lead to legal uncertainty and lawsuits.

The four most drastic changes are:

  1. cuts will not take effect on July 1, but just two weeks from now on March 9;
  2. new systems larger than 10 megawatts will no longer be eligible for feed-in tariffs – their power will have to be directly sold on power markets, which is already common practice in the US in PPAs (Power Purchase Agreements), for instance;
  3. part of the power generated by all other systems will also have to be directly marketed; and
  4. there will be additional monthly cuts for the rest of this year.

Below 10 megawatts, there are to be three categories: arrays up to 10 kilowatts, from 10 kilowatts to a megawatt, and from one megawatt to 10 megawatts. For the smallest group, rates will be reduced from the current 24.43 to 19.5 cents per kilowatt-hour. Because the smallest category currently stops at 30 kilowatts, arrays from 11 at 30 kilowatts will actually see their rates fall by just over 32 percent from 24.43 to 16.5 cents – the new price for mid-sized systems. Arrays in the largest category will have their rates cut by just over 26 percent from 18.33 to 13.5 cents per kilowatt-hour.

 - Merkel's governing coalition continues to make drastic, rushed changes to energy policy that leave investors far too little time to react. Source: German government
Merkel's governing coalition continues to make drastic, rushed changes to energy policy that leave investors far too little time to react. Source: German government

The Market Integration Model – the requirement for direct sales – means that only 85 percent of the power from the smallest category is eligible for feed-in tariffs. In practice, the other 15 percent will have to be consumed by the household immediately or stored for later usage (such as in batteries) without having been exported to the grid. Because 19.5 cents is considerably less than the average retail rate in Germany of around 24 cents, the change is not unattractive for homeowners, especially since it should not be a challenge for most homes to consume 15 percent of their own production internally – estimates are that up to 30 percent is generally feasible without any battery systems. For larger systems above 10 kilowatts, 10 percent has to be consumed internally or directly marketed.

Additional monthly cuts in the amount of 0.15 cents will also be made from May 1 to December 31, resulting in an average decrease for the year as a whole in the amount of more than 40 percent according to Hans-Josef Fell, energy policy spokesperson for the Greens and a principal architect of the original policy from 2000.

 - The Stasskirchen Solar Park installed in 2009 in Bavaria would no longer be eligible for feed-in tariffs if it were built after March 9. When it was constructed, its capacity of 54 megawatts made it the eighth largest PV plant in the world.
The Stasskirchen Solar Park installed in 2009 in Bavaria would no longer be eligible for feed-in tariffs if it were built after March 9. When it was constructed, its capacity of 54 megawatts made it the eighth largest PV plant in the world.

Ironically, these changes were made to reduce the cost impact of solar, but in a few ways the new regulations make things more expensive. First, it would obviously be less expensive to stick with the current system of separate accounts and have homeowners consume all of their power at the retail rate and receive the – now lower – feed-in tariff for the solar power produced. In that case, they would effectively be "receiving" 4.5 cents less per kilowatt-hour. Proponents of the policy argue that the new approach is a transition to deeper grid integration (demand management), but in fact homeowners will be able to consume 15 percent of the solar power they produce themselves without investing in any battery systems or buying smart appliances, so no transition to demand management is likely. And second, arrays larger than 10 megawatts produce the cheapest solar power – and those are now the ones no longer eligible for feed-in tariffs.

As could be expected, the industry has reacted with dismay. BSW-Solar head Carsten Körnig argues that "further PV growth would not change the retail rate" because the days of expensive solar are now over. But the criticism is not limited to the solar sector. For instance, Detlef Wetzel, vice-chair of labor union IG Metall, agrees that the cost of electricity will hardly be affected, but the new law destabilizes the investment environment. Felix Matthes of Germany's Institute of Applied Ecology agrees that the changes will not bring us closer to the German government's stated goal of greater market integration for photovoltaics, but rather the changes will "destroy investor trust in the stable, halfway consistent regulatory frameworks we have had up to now." Deutsche Umwelthilfe, the German chapter of Friends of the Earth, agrees that grid integration is a necessary goal for PV but says the proposed rules "lack imagination."

Perhaps the hardest thing to understand about the legislation is the timeframe. At the moment, we are only talking about a proposal that still has to go through the Bundestag – but that is a formality, though the item still has be put on the agenda within the next two weeks. The Bundesrat, the chamber of Parliament representing the rights of Germany's 16 states, could, however, slow everything down; while it cannot outright veto the changes, it could ask for clarification, dragging the matter out far beyond March 9 – in which case the government might very well hand down the new rates retroactively at a later date.

The likely outcome will be a slew of court cases no matter what. After all, a slew of investors are currently involved in the installation of solar arrays, and now they suddenly have a deadline of two weeks from today. Those who made those investments in good faith, trusting that the government would not make any further changes before July 1, will very likely sue the government – and probably win the case.

If so, it would not be the first time that Merkel's coalition has taken unnecessarily drastic action in energy policy. Already, Swedish power giant and nuclear plant owner Vattenfall is suing the German government for billions after Merkel's coalition decided to switch off roughly 40 percent of the country's nuclear power capacity overnight. Most legal experts expect the firm to win the case. But the German government does not seem concerned – on the contrary, Merkel's coalition has decided (PDF) it no longer needs to revise the Renewable Energy Act in order to change feed-in tariffs. From now on, the Ministries of the Environment and Industry are to simply reach an agreement on their own and hand down the new feed-in tariffs as a decree. (Craig Morris)

Correction: the article originally stated that "90 percent has to be consumed internally or directly marketed" for systems larger than 10 kilowatts, but the correct figure is the other way around at 10 percent. The passage above has been changed.

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4 Comments on "Cuts to solar FITs proposed in Germany "

  1. Karl-Friedrich Lenz - 27.02.2012, 01:54 Uhr (Report comment)

    You write:
    "For larger systems above 10 kilowatts, 90 percent has to be consumed internally or directly marketed."
    You got that backwards. For these systems, *10* percent has to be consumed internally or directly marketed, the payment of the feed-in-tariff is reduced from 100 to 90 percent.

  2. QuasiPhoto - 26.02.2012, 04:48 Uhr (Report comment)

    Here you can find prices on components. Suntech modules are selling for .87 Euro/Watt (pre VAT). They have a 10 kW KACO inverter for .20 Euro/Watt (pre VAT). These are quality components. Add these prices to the previous component breakdown and you get about 1500 Euro/kW. This gives you an idea of how far prices can come down.
    http://www.photovoltaik-shop.com/index.php?osCsid=2fda0242e323e62aa9fc97a87c3d50af

  3. Photomofo - 26.02.2012, 01:34 Uhr (Report comment)

    Here's an old system breakdown from March of 2010
    http://www.photovoltaikforum.com/angebote-f41/bitte-um-anlagenbewertung-12-3-kwp-schueco-yingli--t45842.html
    Panels - 2.02 Euro/Watt Inverters - .33 Euro/Watt Racking - .156 Euro/Watt Cabling - .038 Euro/Watt Mechanical installation labor - .195 Euro/Watt Electrical installation labor - .068 Euro/Watt Surge Protector - .012 Euro/Watt Total - 2.819 Euro/Watt
    This system was priced close to the average for March of 2010 (2864 Euro/kW).
    http://www.solarwirtschaft.de/fileadmin/media/pdf/BSW_Solar_Factsheet_1110.pdf
    If you swap out the panel and inverter prices from this quote for current prices you can get a feel for current system price breakdowns. It appears that 1500 Euro/kW for a similarly sized systems is currently achievable.
    http://www.solarserver.de/service-tools/photovoltaik-preisindex.html
    Here is a kit system for 1000/kWp
    http://www.photon-solar.de/images/photon/30kw-pv-paket_photon_27012012.pdf
    Factor in installation costs and you're probably around 1250 Euro/kW for a 30 kW system. Maybe these numbers are a little off here or there but they should be in the ballpark. Assuming 1250 Euro/kW and generic financing assumtions the new FiT (16.5 ct/kWh) with provide a 10% IRR. The IRRs go up dramatically if you can self-consume 10, 20 or 20% of the electricity.
    Here is the IRR calculator I built to understand the economics.
    http://www.4shared.com/file/5i0jRxRP/Economics_of_Photoelectricity_.html
    Maybe my IRR calculator doesn't work. Maybe my numbers are off. I don't mind if I'm coming up with the wrong answer but the general method is valid. If the industry wants to argue that these new FiTs won't work they should make an IRR calculator available to the public and break down the math.

  4. Juy - 25.02.2012, 20:06 Uhr (Report comment)

    15 percent is only the beginning. Next year it will bump up to 20% then 30% and so on. In the near term consumers will not buy smart appliances because they have to (all large appliances should be smart by law) but because the FiT is now significantly lower (5 to 7 ct) than the retail rate.
    It's easy enough to reverse engineer where the FiT rates should be if you are trying to target a specific IRR. If these rates are really so bad the critics are free to show why - mathematically. From my perspective the rates make sense. Note that the new German rates are very close to the rates that the U.K. came up with. I don't think this is a random coincidence. The U.K. FiT architects are probably using similar assumptions.
    4 to 10 kW: U.K. = 20.3 ct/kWh, Germany = 19.5 ct/kWh. 10 to 50 kW: U.K. = 18.3 ct/kWh, Germany = 16.5 ct/kWh 50 to 100 kW: U.K. = 16 ct/kWh, Germany = 16.5 ct/kWh 100 to 250 kW: U.K. 15.6 ct/kWh, Germany = 13.5 ct/kWh 250 to 2000 kW: U.K. 10.3 ct/kWh, Germany 13.5 ct/kWh
    I agree that the architects of this plan need to put in place some rules for the 10/15% of production that won't get the FiT rate. The obvious solution would be to provide a reduced FiT rate for any over-production.
    I wish the industry the best of luck with whatever compromises they're after.

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