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:
- 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);
- 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:
- 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;
- 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;
- 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.