19.07.2010
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Peak demand parity, part one

The future of German FITs

How Germany is tweaking its feed-in tariffs in preparation for grid parity.

In July, new feed-in rates took effect in Germany. There has been a lot of press coverage about these one-off cuts, but in the process something important has been largely underreported: Eigenverbrauch, a term that essentially means "own consumption." In a way, it is a bit like net-metering, but with a major difference; you actually have to consume the power you produce when it is produced – or store it for later use. In other words, "own consumption" is net-metering with demand management at the household level – not demand management at the grid level, a crucial difference we will come back to.

Germany has long been a model country for feed-in tariffs (FITs). But one widely held assumption, especially in the Anglo world, is that grid parity will mean that no subsidies at all will be needed. For instance, Vote Solar’s Adam Browning claimed a few years ago, “If you start with a feed-in rate, grid parity is where you need to switch to net-metering.” It's a convenient argument for those who, like Browning, already support net-metering and do not wish to switch to FITs.

But Europeans are also familiar with the idea that FITs are only needed in the interim and that we are approaching an era in which no policies will be needed to promote renewables at all. As Wacker’s CEO Joachim Rauhut told the Financial Times Deutschland, "We cannot have subsidies in perpetuity.” Here, net-metering is misunderstood as being the absence of a policy, although solar advocates like Browning have had to fiercely fight for it and although there are many various net-metering designs. The question of what to do with “excess production,” for instance, is a policy issue that will not go away just because we have reached grid parity. But that need not concern us at the moment.

The point is that a number of North Americans and Europeans alike would agree with what Matthias Ruete, EC Directorate General for Transport and Energy, stated back in 20081: "By 2020, renewables will be so strong that we will be able to do without a dedicated renewables policy." Ruete believes that emissions trading is all we will need 10 years from now. And as Centrotherm’s CEO Peter Fath stated at the Photovoltaic Technology Show in Stuttgart at the end of April, Germany may reach grid parity in 2013, “and then we may not need any FITs ten years from now.”

Eike Weber, head of Germany's Fraunhofer ISE, spent a number of years in California as a solar researcher and is very knowledgeable about the differences between FIT's and net-metering. Like most people who have compared the two policies, Weber is a strong proponent of FITs - but only up to the point of grid parity. Last winter, he told me he would like to “allow German households to take the higher retail rate down to the level of zero consumption and have any excess production paid for with the [then slightly lower] feed-in rate.” As Armin Schmiegel of Hamburg’s Voltwerk, who is currently project director of the Sol-ion project to store solar power in batteries, told Berlin’s PV Magazine (08/2010), "You could even completely go off grid" with battery systems now being designed partly for Germany’s own-consumption policy. And as Solarworld's CEO Frank Asbeck recently stated in a interview in Germany's ZEO2 magazine, "the feed-in rate will be the retail rate" after grid parity.

The argument seems logical on the face of it: why accept a feed-in tariff below the retail rate? You would naturally want to have the higher retail rate at least for the amount of power you offset, right? In several important respects, Germany's "own consumption" is a preparatory step in that direction -- it is a way of phasing out FITs and phasing in something that could be thought of as real-time net-metering.

But grid parity need not change the way we compensate for solar power. In fact, if we allow everyone to install a solar array large enough to at least compensate for their own consumption, we will quickly reach a point that could be called "peak demand parity" -- where installed photovoltaic capacity is at least as great as peak demand in the country. At that point, any additional photovoltaic capacity installed would increasingly produce electricity that cannot be immediately used. In the process, electricity will suddenly become cheap on power exchanges in the early afternoon on sunny days, which will drastically change power markets.

Simply put, grid parity will not be the game changer everyone expects; peak demand parity will. And it's coming sooner than almost everyone thinks. Although Germany only got around one percent of its electricity from photovoltaics in 2009, the country may come close to peak demand parity within the next decade.

In this series of articles, we will take a look at the design of German solar policy, which already anticipates grid parity but does not yet see peak demand parity coming. Far from meaning the end of dedicated solar policies, grid parity will mean that we need properly designed feed-in tariffs more than ever going into the future. The German example will be illustrative for the rest of the world because, in all likelihood, Germany will reach peak demand parity first.

Craig Morris directs Petite Planète and is the author of Energy Switch. He blogs on mundane matters at Always Greener.

[CM1]Matthias Ruete, EC Directorate General for Transport and Energy, in: Nikionok-Ehrlich, Angelika; Köpke, Ralf (2008): Der Kuchen wird aufgeteilt, Energie & Management, 15 February 2008, p. 4.

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