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:
- cuts will not take effect on July 1, but just two weeks from now on March 9;
- 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;
- part of the power generated by all other systems will also have to be directly marketed; and
- 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.
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.
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)