Block’s Indicator of Sustainable Growth

by Ray Block

The Financial Times energy source blog (May 16 2010) reports that Germany, with the largest Solar PV installations in the world, is about to reduce the gross feed in tariff subsidy on solar rooftop installations by 16 per cent.

The cut in feed-in-tariff incentives, along with an 11 per cent reduction in incentives for solar installations on conversion sites, and the scrapping of support for solar installations on agricultural land will come into force from July 1 2010. Predictably, shares in some of the leading solar companies have fallen.

PV-tech.org in a background note reported on April 16 2010 that feed-in-tariff laws place an obligation on energy companies to purchase electricity from renewable sources at a premium price. In Germany, the national gross feed-in-tariff provides access to the grid at a set price per kWh and is guaranteed for 20 years. This makes solar PV and other renewable energy investments secure for producers, investors and suppliers.

The German Government began offering incentives for renewable electricity generation with the introduction of the Electricity Feed Act. The scheme was enhanced with the adoption of the EEG in 2000, leading to a nine fold increase in solar installations. A more updated and refined FiT became law, with an amended EEG in 2004. The new law committed Germany to increasing electricity supplied by renewable energy sources to 12.5 per cent by 2010, and to at least 20 per cent by 2020.

Angela Merkel’s government in May 2010 said that the reductions of solar subsidies were necessary, because panel prices had fallen by as much as 40 per cent, causing overcapacity of silicon panels on the German market. The FiT rules give solar energy producers an extra 8 euro cents for each kilowatt hour generated when they use more than 30 per cent of the total produced.

Bank of America Merrill Lynch says that with “solar prices around E50/MWh in Europe currently, solar is costing consumers around E60 billion more than they otherwise would have paid for electricity. German households are paying E130 annual solar subsidies and rising rapidly. We fear an increasing backlash against overly generous subsidies.”

With all Eurozone countries warned to reduce their sovereign debt and government deficits, there will be a sharp reduction in FiT subsidies. Early in 2010, France cut its solar subsidies. Italy is next on the list, and the other high subsidy countries will follow suit.