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A few words about rate-change bubbles (the first of which I covered in Turbulent times for solar power). The key factors are the following:
  1. Whenever politicians begin to speak about strong rate cuts, they are creating an uncertain investment environment, and thus those who consider an installation will bring their investment forward.
  2. If a strong rate cut is half a year or a year in the future, the industry will try everything to compensate for it by cutting prices (especially if, as now on the German PV market, there is strong price competition from developing-world producers). If (if!) it manages to match the rate cut, just before the rate cut, profit margins will be phenomenal, thus new investors will rush on the market.

The end result will be that, one one hand, the market will heat up rather than cool down as intended; on the other hand, development of the technology will be accelerated (and the lowered prices will then bring a spread of the technology in the rest of the world, too).

Now then, if the intent had been to just bring about a significant rate reduction, this could have been achieved without bubbles with modest cuts at a higher frequency, say every quarter or month. But, what was the rationale for strong cuts?

  • Was it to limit feed-in payouts? Feed-in payouts don't come from the government budget and thus tax income, but from distributors and thus indirectly from customers (where large industrial customers enjoy an exception). Thus, a demand for feed-in payout limitation would have to come from customers – but all polls show that, quite the contrary, even after 12 years of an established industry campaign that blamed all their price increases on the feed-in law, people would be willing to pay more.
  • Was it to restore equal opportunities for different renewables in getting capital? This is again fishy, because it ignores the different sources of investment different technologies can attract. A homeowner or a small company may choose to install PV panels on its roof, but is unlikely to play a role in the financing of an off-shore wind farm, a small hydroelectric power station, or a geothermal plant (not to mention solar power abroad like Desertec).
  • Or was it a (failed) attempt to stifle competition for established industries?

Of course, even if power customers haven't turned against a feed-in-law-supported mode of power generation, there is a rationale in synchronising rate reductions with price reductions: forcing the industry to not slag off with development that is to achieve further price cuts. Single large cuts, however, can stop development by choking the market. on the German PV market, however, for now we have accelerated development instead.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Jan 15th, 2012 at 06:39:18 AM EST
[ Parent ]
Very good summary argument, DoDo. I'm not sure that one could expect prices to change monthly, for i don't believe costs drop at that speed.

In fact, it would be more appropriate to see what margins are for the producers. Some of the price drops are due to technical/manufacturing progress, some to economies of scale, and some are simply strategic, expecting to capture market share.

These third kind of price drops may be actually dangerous for the industry, because it affects the financial headroom of the company, and increased market volatility. Neither of those conditions sends proper signals to the industry.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Mon Jan 16th, 2012 at 03:39:13 AM EST
[ Parent ]
Incidentally, what I wrote is now reportedly the industry proposal towards industry minister (and FDP party secretary) Philipp Rösler:

WDH/'FTD': Solarbranche legt eigenen Kürzungsvorschlag vor | FTD.de WDH /'FTD': solar industry presents own reduction proposal | FTD.de
Das neue Modell der stetigen Kürzung soll den Zubau reduzieren. Bisher wird die Einspeisevergütung immer zum 1. Juli und zum 1. Januar gekürzt. Davor kommt es regelmäßig zu enormen Schlussverkaufseffekten, die in Zukunft vermieden werden sollen. Noch unklar ist, ob die Anpassung in Zukunft vierteljährlich oder monatlich erfolgen soll. Aus Sicht der Branche ließe sich so das Marktgeschehen verstetigen.The new model of continuous reduction is designed to reduce annual new installations. Until now, the feed-in tariff is reduced on 1 July and 1 January. Prior to [these reductions] usually enormous clearance sale effects occur, which are to be avoided in the future. It is still unclear whether in future the adjustment should be made quarterly or monthly. From the perspective of the industry, this would be the weay to stabilize the market.


*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jan 19th, 2012 at 09:26:42 AM EST
[ Parent ]

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