Germany, perhaps the greatest success story for solar energy and a leading exponent and pioneer of the now widely employed feed-in tariff is seriously considering re-thinking its backing of renewable energy. Cuts in German feed-in tariffs while not welcomed by solar investors or those simply looking to make a quick Euro in green energy, are of course necessary and an important mechanism in regulating what can be an explosive sector.

Feed-in tariffs work by offering fixed, premium rates for renewable energy generated and used by small scale generation projects. While Germany has been a world leader in solar energy generation on the back of generous tariffs, it now seems that it in the current climate of austerity, the German government is perhaps rethinking its legislative bias towards green energy projects.

In a statement issued by Environment minister Norbert Roettgen, it certainly appears that the current stance is unequivocally pragmatic when it comes to backing solar energy over more traditional fuel sources. Indeed, pragmatism turned Teutonic bluntness when questioned on plans to further reinforce legislation designed at boosting solar investment,

“We’re in talks with the solar power sector to come to a reasonable further development. Those who want renewable energy should keep in mind that there is a need for society’s acceptance of it,”

Of course, while there is a need to regulate the the solar market in order to prevent a situation similar to Spain where the market became saturated, the fact remains that feed-in tariffs do not come out of the public funds. Instead, they come from the big utility companies obliged by legislation to purchase the units of renewable energy at the rate set by the tariff. This goes to add weight to the argument against reducing tariffs too drastically in Germany. Certainly, protectionism of certain industries at the expense of others is questionable but the figures for renewable energy in Germany speak for themselves.

Reports from the German finance ministry have shown that the revenue from renewable manufacturers alone came to over 16 billion Euros in 2009. In the same year around 294,000 Germans were employed in renewable energy with 64,000 of these working in solar energy. With these employment figures in mind and the fact that in Germany there is a real appetite for renewable energy investment, it would be politically naïve for any government to make too dramatic a cutback to tariff rates, even during these times of draconian spending measures.

As usual, it seemed that the UK was falling behind competitors from abroad from a reluctance to look to the future and fully back green energy through strong legislation. Solar markets in Spain, Germany and Italy to name but a few in Europe, attracted investment through incentive schemes in the form of feed-in tariffs. With the UK government finally introducing the Clean Energy Cash Back scheme in April 2010, it now appears that the financial mechanism is in place to help UK solar investment catch up with more mature markets overseas.

According to many within the industry, the UK now has everything in place to become a player in the global solar market.

“The UK market for solar PV is growing explosively. This is because the FITs [feed-in tariffs] bring a huge new raft of players – the energy users – into the market; broadening it way beyond the traditional energy industry. All renewable power sources are benefitting, but solar is doing best because it is so easy to apply,”

Commented Philip Wolfe, Director of Ownenergy and leading exponent of feed-in tariffs.

With the tariffs working as a means of incentivisation for investors who were once reluctant to invest in what was once an extremely expensive field, the tariffs offset costs and greatly improve the attractiveness of green energy investments. In all countries where tariffs have been introduced there has been a massive uptake in investment with individuals keen to take advantage of legislation-protected investments with healthy ROIs.

With regards to potential for the solar PV industry, Edwin Koot CEO of Solarplaza stated that,

“Having experienced the benefits that FITs have to offer, European countries are now looking to capitalise on the emerging UK market. We can already see signs of this happening for our upcoming UK PV Conference: where 67% of delegate registrations are from international companies, compared to just 33% from the UK.”

However, warning that in the current climate the UK solar PV industry is unlikely to achieve overnight success, Clive Collison of South Facing said,

“It will take time to develop the UK market. Currently there is a lack of knowledge so education of potential customers and businesses is needed. Right now, very few people understand the feed-in tariff system and the opportunities to their full extent.

It took Germany, Spain and Italy three years after the start of their feed-in tariff to reach a substantial market scale. No doubt a similar market development will occur in the UK. That is why conferences like the UK PV Conference are important, to educate the business community and customers and build the business infrastructure. There will be plenty of business for everybody.”

The rate of photovoltaic installations in Germany has continued at a faster than ever pace during the first two quarters of 2010. Far from slowing down after the record 4^th quarter in 2009, installation of solar panels accelerated through the new year. Accurate projections are hard to make, but there are suggestions that the market volume in the first half of this year could be 4 gigawatts. This is likely to make 2010 another record year for Solar. This demand has been fuelled by the discussions surrounding the reduction in the feed-in tariff in Germany, which has now finally been decided. At the recent Photon PV Technology Show in Stuttgart, there was much discussion surrounding how the PV market would continue to grow despite the feed-in tariff reduction. Many were optimistic that the market may be unaffected the changes.

The scale of activity means that Germany’s dominance of the world solar market remains. In 2009, over 60% of the world’s solar panels were installed in Germany and it is likely that this trend will continue in 2010. This is having a big impact on markets in the rest of Europe. There is currently an extreme shortage of inverters for commercial and domestic rooftop installations and there are also reports of shortages of solar panels from the leading manufacturers.

This shortage is being felt across the UK PV industry. As demand in the UK steadily grows, installers are finding it more challenging to source the right products in a short time period. Many installations are being carried out without an inverter, meaning that customers are forced to wait several weeks for the inverter to arrive and they can start collecting the feed-in tariff. If you are considering getting a PV system for your home then make sure to ask your installer about their lead time for products.

Fortunately there should be an end to this shortage. The inverter manufacturers have been working very hard to increase manufacturing capacity, and some of that new capacity should be coming on-line later in the year. After the feed-in tariff change in Germany in July demand is expected to reduce to some extent which should free-up availability for the rest of Europe. SMA, the world’s leading manufacturer of inverters with a market share of close to 40% are expected to resolve their supply issues by the end of the summer, meaning that their highly sought after small inverters, the SunnyBoy series, become significantly easier to come by.

This will be important for the UK. Prices of PV systems in the UK are still significantly higher than in the rest of Europe. The shortages prevent new wholesale distributors from entering the market and keep costs high. As the market becomes less supply constrained we expect that the industry will become more competitive, allowing an advancement in price reduction. With the great feed-in tariff we have now, any cost reductions mean better returns for the customer, and will hopefully motivate more people in the UK to ‘go solar.’

The long discussed changes to the German feed-in tariff are still in debate after a report released Monday by Germany’s regional government assembly called for a relaxation of the planned cuts. This means that the changes, which were originally planned to come into effect in April and have already been pushed back until June, may be yet again delayed. The bill we continue to pass its way through the German parliament over the next two months.

Whilst everyone appears to be in agreement that the feed-in tariff should be lowered faster than originally planned in light of dramatic price reductions in PV systems, there is controversy over much it should be lowered and how the structure of the tariff should be changed. There is a big debate for instance, concerning the level of a ‘self-consumption’ bonus, whereby producers of solar energy are rewarded for any electricity they use themselves rather than export to the grid. Also in discussion is the difference in feed-in tariff paid to ground mounted solar farms compared to rooftop installations.

Meanwhile, solar installers are experiencing a continuation of strong demand. At the end of 2009, the rate of new installations reached an all-time high with around 2GW installed in the fourth quarter alone as customers rushed to install before the 2009/2010 feed-in tariff drop. The threat of new cuts in the feed-in tariff are only increasing the incentive to install in 2010.

An interesting pattern is emerging, whereby the PV market experiences surges in the run-up to a feed-in tariff change. This cyclical pattern creates extra incentive for the government to decrease the feed-in tariff and looking at the market it seems that prices are set to fall further over the next year or so. These factors may well push us into the realm of parity with retail electricity prices in Germany by 2013.

In the UK, the feed-in tariff is unlikely to be altered before 2012, although we will carefully scrutinize the aftermath of the forthcoming general election. Already commentators in the UK are speculating that the UK may experience its own mini ‘PV-rush’ in the run up to 2012. However, as Germany has repeatedly shown, one ‘PV rush’ can lead to another.

Several of the thin film PV manufacturers (see previous article) have announced ambitious plans to start selling their products in large volumes. In particular, NanoSolar, Solibro, Solar Frontier and MiaSole are makers of the new “CIGS” type of modules that promise to achieve high efficiency and lower cost than the thin film modules currently available. It will take time for these new technologies to be accepted for their reliability, but it is likely that at least some of the companies offering these products will succeed. News has been announced that a solar park using Nanosolar’s modules is already under construction.

Several of the developers of large PV projects in Germany, such as Phoenix Solar and Gehrlicher, are currently testing new technologies whilst at the same time being cautious about their forecasts for the German market. Phoenix Solar recently announced that it cannot provide details of its development strategy until the details of the German feed-in tariff have been finalized.

These developments should act to further decrease the price of PV.