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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
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