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Turbulent times for solar power

by DoDo Fri Oct 1st, 2010 at 06:17:05 AM EST

On 30 September, Germany's Federal Network Authority, which maintains an official registry of photovoltaic (PV) installations across the country, released its data for the summer months. From January to August 2010, a spectacular 4.88 GW of new capacity was added -- already well beyond last year's record total (3.8 GW), and on par with wind energy even when considering the lower capacity factor. However, intra-year development was marked by extreme fluctuations:

The reason for this development is the recent revision of the feed-in law.

Update [2010-10-8 14:5:41 by DoDo]: Now with updated price evolution.

Germany's feed-in law (the EEG), as originally drawn up in 2000, has two key features that haven't been adopted in many other countries:

  1. to ensure a stable investment environment for investors into renewable energies, the feed-in rate or tariff (FIT) is fixed for each plant over their entire FIT period (usually 20 years);

  2. to ensure a stable market for manufacturers, and to spur them on to achieve further cost reductions until "market prices" are reached, the FIT for new plants is reduced with an also fixed annual degression rate.

The problem with the fixed degression rate is that market and technology development doesn't run according to a simple power law. To mitigate this, the feed-in law is subject to regular reviews and revisions every few years, when degression rates are re-set, and rates are further differentiated according to plant type (the EEG became more complex with every revision).

However, developments were out of normal for photovoltaic. On one hand, when the government of Spain killed a massive solar bubble (and with it the expansion of domestic industry) with a radical FIT cut in 2008, the tight supply situation on the global market was over, resulting in a strong fall of prices, further boosted by cheap production in the Far East. In Germany, this of course meant increased profit margins for PV installers, that is, a new boom.

On the other hand, there were the feed-in law revisions. After a first increase of the degression rate, it was obvious that market prices still drop faster and more FIT cuts are needed, but the new conservative-(neo-)liberal federal government elected in September 2009 went about it in an extreme and chaotic manner. Their plans of successive intra-annual double-digit cuts looked more like a choking of the industry to protect the market share of friends in Big Energy, but unexpected strong resistance came even from conservative regional politicians (fearful of job loss in all the new plants).

In the end, the government could push through the rate cuts, albeit with some reductions, and, more importantly, months of delay. While current rates are some 40% below those of six years ago, 2012 rates are set to be less than half of 2008 rates:

  1. There are currently more than a dozen different FIT rates for different PV installations, but only those for own consumption are below and only those for small façade-integrated plants are above the band shown;
  2. From 1 July 2010, the FIT for greenfield (on the ground) plants was discontinued for arable land and became separate for converted and "other" areas, the "Greenfield" curve is for the last;
  3. I don't show the FIT before 1 August 2004 because the support system for PV was different.

When rate cuts are large, investors will try to finish projects just before the change -- the deadline effect. When, in addition, the government's plans are uncertain and the timing of rate cuts is haphazard, there will be a last-best-chance rush by investors. When, in addition, the threatening rate cuts are delayed by political wrangling, not only will investors get a few more months to finish projects, but the industry can attempt to reduce prices further, too.

Thus, instead of bursting a bubble and choking the industry, the government's bumbling already produced two bubble-ish peaks (see the December 2009 and June 2010 peaks in the diagram above fold). The bubble-ish nature of these peaks is further underlined by the increased share of large plants (from May to June, the share of plants greater than 100 kW jumped from 27.5% to 42%).

What's more, the PV market is still going after the 13% rate cut on 1 July -- as I expected. Although Q3/2010 and thus post-boom market price numbers aren't yet out, below you can see that market prices dropped even in the first six months of the new government (and thus through the first extreme pre-rate-change boom) Update [2010-10-8 14:5:41 by DoDo]: and dropped further in Q3/2010:

Price index for rooftop solar in Germany, finished <100 kW rooftop installations, pre-tax, from BSW-Solar.

Where this mess leads, I don't know, but I hope that, between the rate change bubbles, further stronger than expected market price reductions will be among the results. After all, PV has still a long way to go to catch up with wind in that respect.

There are some positive developments for rooftop solar owners, too.

Until 2008, any comparison of PV and other renewable feed-in rates was skewed by the issue of own consumption: people were paid for the electricity fed into the grid. A FIT for own consumption from small rooftop solar was then introduced. From July this year, this was expanded to bigger rooftop plants, and own consumption above 30% of total production has a higher rate.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Sep 30th, 2010 at 04:34:17 PM EST
albeit on a smaller scale.

A couple of years ago, France had virtually no PV generation. The government decided to get serious about it, and decent feed-in tariffs were fixed. In 2009, installations far exceeded expectations, and the government panicked. In March this year, they introduced new feed-in tariffs -- retrospective to the end of 2009. Jacobinism at its worst. The nascent industry, obviously, is in chaos.

Nevertheless there is still a lot of development. In particular, a 50% tax credit for rooftop installations means there's fast development in this sector. But no! they've fixed that too : yesterday they announced that it will be 25% next year, and eliminated in 2012.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Sep 30th, 2010 at 05:22:28 PM EST
To add a further parallel: I didn't mention in the diary what happened in 2004. Before, rooftop solar benefited from a direct subsidy, the 100,000 Roofs Program. This had a goal to install 300 MW, which was exceeded in 2003 and the program terminated. So experts and the industry called for an increase of feed-in rates to prevent the collapse of the industry.

At the time, the right-of-centre parties, which had a majority in the upper house of parliament, were pre-occupied with the wind power boom, and demanded a slashing of FIT rates there -- and thought it would be a nice compensation in the eyes of voters to support photovoltaics at the same time. Alas, now that new installations by that industry grew 30-fold from 2003 to 2009, they panicked, indeed...

By the way, do you have any numbers and/or links on installation stats in France?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri Oct 1st, 2010 at 04:10:07 PM EST
[ Parent ]
INSEE numbers  : Photovoltaic electricity production, in kTep (thousand tonnes equivalent petroleum)

Production : 2008  2009  2009 (to August)
Photovoltaic    2     4    14
Wind          349   489   667

This indicates the scale of the acceleration, and the very low base. In the 6 months to June 2010, France added 510 Mw of photovoltaic generation. Compare this to the more than 2000 Mw added in Germany, in the month of June alone...

So the reason the French government panicked is that it set its targets very low indeed.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Fri Oct 1st, 2010 at 04:53:02 PM EST
[ Parent ]
For the solar bubble in Spain, and its collapse, I refer to ManfromMiddletown's Here Comes the Sun? Solar Bubbles and Sustainable FITs in Spain, and a long exchange between the two of us kicked off by a comment by melo. The issue also came up in the comments to my Oil Drum article, where I got a link for Spanish stats. They currently have data up to June 2010, displayed below:

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri Oct 1st, 2010 at 04:56:22 PM EST

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