British homeowners are benefiting from the reductions in Chinese wholesale solar prices. This has enabled many homes in the U.K to reduce their carbon emissions. Unfortunately the influx of cheap panels has also damaged the European solar producers who struggle to compete.

The price of PV (photo voltaic) solar panels has dropped by as much as a third this year alone. This has had a huge impact on the returns available for home owners turning to solar.And there is a boom at present as consumers try to install the low-cost equipment before the level of handouts via the government feed-in tariff (FIT) is reassessed in April next year.

Solar Century, a larger London-based supplier that also assembles PV equipment, says a large amount of its equipment is imported from China.Britain has come late to the solar party with government ministers preferring in the past to concentrate on wind power and only fairly recently trying to stimulate demand by offering subsidies to solar users.

This has meant PV manufacture has been concentrated in countries such as Germany and Spain where harnessing the power of the sun has been encouraged for many years.The US, and more recently China, have gradually latched on to the growing global market for solar and have been setting up factories in double-quick time.But the very low labour costs – and allegedly the very cheap finance available from state-owned institutions – has rapidly propelled China into pole position in the production of solar equipment.

The rapid build-up in capacity in the Far East is playing a major role in driving down the cost of panels, but it is also being blamed for a crisis at many German and particularly American rivals.Whatever the reason for solar manufacturers losing out, it should be easy to see a winner: the British homeowner. But it is also tough for consumers deciding which panels they should buy knowing any producer could out of business and shred any 25-year guarantee along with it.

The Chinese National Energy Administration has announced via the state run newspaper China Daily that they will be seeking to produce around 15 per cent of all the country’s energy by renewable means within the next 10 years.

China, despite being criticised for its heavily industrialised, polluting economy and images of Beijing obscured by dense smog during the 2008 Olympic Games, the government is taking proactive steps towards reducing carbon emissions with measures that would shame certain other attendees of the Copenhagen climate summit.

With the growing realisation of the fallibility on basing the huge Chinese economy on fossil fuel imports which could become untenable within the next 25 years, the Beijing government is planning to spend billions of dollars in investing in solar and wind farm sites in addition to research projects which could keep China at the cutting edge of green energy generation.

Renewable energy generation grew by 1 per cent in China in the last 12 months with the government hopeful that figures will grow from the present 9.9 per cent to 15 per cent by 2020. The Chinese government is keen to diversify its economy as well as its means of energy generation with the dual purpose of slowing the effects of climate change and making the economy more robust in the face of any potential fuel crises which could arise in the near future.

In spite of passing legislation designed to have an immediate impact on renewable energy uptake such as the feed-in tariff, a mechanism to incentivise investment in green technologies, government spokesman Zhang Guobao is realistic about the timescales involved in such projects. Speaking to China Daily, Zhang commented that,

“Power projects take a long time to be up and running, and we are basically allowing five years to complete them although it is a 10-year program, otherwise, the facilities cannot be put into use by 2020.”

Zhang added, “It appears that some local governments approved energy-guzzling projects during economic crisis so only by fully implementing our energy saving regulations can we realize economic growth with less energy consumption.”

Consultants Ernst & Young have released their annual global renewable energy country attractiveness indices with the big news being that China has knocked Germany from its number one spot, a position which they have enjoyed for the last seven years. The report indicated that in the lead of attractiveness are the US and China followed by Germany, India and Spain.

With various leading economies around the globe vying to become leaders in the renewable energy sector the Ernst & Young indices provides a tangible demonstration of how attractive the competing markets are to investors based on the measures taken by the respective governments. The commitments by the Chinese government to slow climate change through the reduction of carbon emissions has certainly been reflected in their rise in the investment indices.

Once the pariah of the international community with regards to fighting climate change, the Beijing government has demonstrated through legislation that they have a very earnest desire to slow the effects of climate change.

Recently the Chinese government announced 1.8 GW of solar installation throughout the vast country with investment incentivisation coming in the form of the Golden Sun subsidy scheme designed to transform the Chinese solar market from a purely manufacturing base into a world leader in solar PV installation. This, the report indicated was the key feature in China moving up the table from sixth place in 2007 to the joint number one position enjoyed today.

The report will come as an early Christmas present for the nations perched in the top 5 positions as it gives investors a comprehensive assessment of the most viable markets in which to invest based on criteria such as existing infrastructure, incentives and location benefits.

With the success of China as a potential solar PV market, analysts in the UK will not have missed the direct correllation between government action and market attractiveness, something which the report explicitly highlighted. The UK enjoyed limited success, moving up one point to sixth, an increase based on limited government action taken so far in the form of the creation of the Department of Energy and Climate Change (DECC), the introduction of the Energy Act in November 2008 and the recent announcement of the Clean Energy Cash Back system, essentially a feed-in tariff to be introduced in April 2010.

The UK’s position of sixth could be bettered by the next indices published by Ernst & Young at the end of 2010 but will depend greatly on the initial successes of the UK market in the light of the newly implemented tariff system. At the present moment members of the lobby group We Support Solar are arguing that the UK government will have to increase the tariff rate if the UK is to compete with the emerging solar tiger economies with manufacturing bases much closer to home.

For more information on the Ernst & Young global renewable energy country attractiveness indices, please visit:

http://www.ey.com/Publication/vwLUAssets/Industry_Utilities_Renewable_energy_country_attractiveness_indices/$file/Industry_Utilities_Renewable_energy_country_attractiveness_indices.pdf

A reduction in the price of solar panels means the return on investment for solar energy installations is better than ever in Germany. In response, the construction rate in the second half of this year has skyrocketed. Toby Ferenczi discusses the implications for the world’s largest solar economy.

 What would you say if your financial advisor told you about an investment product that had guaranteed returns of 15%, was extremely safe and was government backed for 25 years? If you happen to live in Germany you may well be being told just this. Under Germany’s Renewable Energy Act (the EEG), anyone with a solar photovoltaic system can sell the energy produced to their local utility at a fixed and elevated price (in English this is often called a feed-in-tariff or clean energy cash back scheme). Germany introduced this scheme in earnest back in 2004, and since then the country has been the world’s largest solar energy market (except in 2008 when Spain introduced their own feed-in-tariff) meaning that over half of the world’s solar panels are installed in Germany. So if solar has been booming in Germany since 2004, what’s so special about what’s happening in 2009? The reason is that this year could well be Germany’s biggest year for solar installations by a factor of two, despite a major recession.

 According to the Münchner Merkur, a local Munich paper, the utility E.On is currently connecting 200 solar installations to the electricity grid in Bavaria every day, a level so high that it is struggling to keep up with demand. One leading industry analyst claims that installations in Germany will reach close to 4GW this year; equivalent to a market size of €16bn and a surface area the size of 4000 football fields. This is particularly staggering given how quiet the industry was at the beginning of the year when no banks were lending and investors were nursing their wounds. Since the end the second quarter however, many people have become aware of the window of opportunity, including everyone from families to major investors. Most installations (80-90% of market) are small rooftop installations, but some of the largest solar parks in the world are also currently under construction in Germany.

 The explanation for the surge comes from simply looking at the return-on investment. Under the EEG, the feed-in-tariff is supposed to decrease for new installations each year by around 10% with the hope that eventually solar energy will survive without subsidy. In the aftermath of the financial crisis, the price of solar panels fell by 30% or more, meaning that the amount of money you can get back from your investment is unprecedented. Many Germans now appear to be taken with the idea of investing in a solar electricity system, something they can see and touch, rather than the ambiguous stock market that hurt them so badly.

 There is of course a dark side to this solar energy bonanza. Whilst the feed-in-tariff was supposed to create an economic incentive for renewable energy, it wasn’t supposed to help rich people get richer. Supporting the scheme costs the German taxpayer a significant amount, so a policy that creates an unbeatable financial product for people with access to roofs or land raises some ethical questions. Several reports of the ruthlessness with which landowners pursue the construction of large power plants have emerged. Millions of euros are at stake in making sure solar parks are finished before the year-end to have access to this year’s feed-in-tariff, and some landowners have been accused of not taking the well being of local communities into account.

 The newly elected German government will certainly be scrutinizing the situation very closely as they are expected to make a decision on the feed-in-tariff reduction in the next few weeks. Anti-feed-in-tariff lobby groups claim that the law is now simply handing money to the swathe of Chinese manufacturing firms that can now produce solar products at lower cost than the German firms.

 The feed-in-tariff will undoubtedly and necessarily take a big cut next year, but this will hopefully lead to more sustainable growth of the solar industry. As the price of solar electricity decreases further, the moment when it competes with conventional energy on its own terms will be brought forward. When consumers are able to make bumper returns from solar without the governments help, that will be an investment product worth fighting for.