Germany’s Solar Identity Crisis

Germany broke its own solar energy installation record in 2011 and added 7.5 gigawatts, the country’s regulators said Monday. The question for the reigning solar market now appears to be: how much more does it want?

Or rather, how much more German consumers want to pay for solar energy, which still commands higher prices than conventional sources of power. The country added 7.4 gigawatts of photovoltaic systems in 2010 and with the new record for 2011, political debate has surfaced once again about the fate of the country’s solar incentive policy. German’s minister of economy, Philipp Roesler, has proposed to cap the country’s annual installation at 1 gigawatt in order to reduce the costs of the program to consumers.

The proposal has been criticized by the minister of energy, Norbert Roettgen and is no doubt unpopular among solar companies. The country is the largest solar energy market in the world thanks to the feed-in tariff program is put in roughly a decade ago. The feed-in tariffs, which are really not tariffs by government-set pricing that utilities must pay to solar energy producers, have been falling throughout the years, as they are designed to do whenever installations hit a certain number.

This type of rolling cap is more flexible and typically prompts a rush to erect solar arrays right before an expected decline in solar pricing. The new, lower set of tariffs (15 percent drop) went into effect at the beginning of this month. That anticipated decline prompted developers to add 3 gigawatts in December alone.

If the country installs 225 megawatts from January through April, the solar electric pricing is set to fall by another 15 percent. An annual cap, on the other hand, will shrink the German market significantly, much like the annual cap that caused the Spanish PV market to go from 2.7 gigawatts in 2008 to 69 megawatts in 2009, according to the European Photovoltaic Industry Association.

Germany politicians have debated and enacted additional reductions of the solar incentive before. The debate also often centered on whether the solar market had grown enough to no longer require much government help. At the end of last year, solar accounted for only three percent of Germany’s power mix. The 1-gigawatt figure has been proposed before, in early 2011. Back then, the idea was to cut the feed-in tariffs for every 1 gigawatt installed.

While Germany remains an important solar market, many manufactures and project developers have fanned out in greater numbers to newer markets such as the United States, China and India. China and India both have feed-in tariffs now, so the market growth should last for a while, or until the governments changed their minds.

The United States has no feed-in tariff policy but a hodge-podge of mandates by certain states to add renewable power generation. While the U.S. market has grown quickly in recent years, analysts are expecting a slower increase in 2012 partly as a result of the demise of a federal program that provided cash to cover 30 percent of a project’s cost.

Solar manufactures also expect the impact of the solar market crash of 2011 — where solar panel prices fell around 40 percent as a result of an inventory pileup — to linger at least in early 2012.