Germany cuts solar subsidies as summer price levels rise
The German parliament adopted the law cutting solar subsidies by up to 15% late on Thursday, in a bid to lower the cost of solar power generation. The cuts will become effective in July - six months earlier that previously planned - because of the unprecedented growth in the solar sector last year.
The government had previously said that the scale of the July cuts depends on how much new capacity is added in March, April and May, and could be as large as 15% if more than 7.5GW is added during the period (see EDEM 2 February 2011).
The fact that German solar capacity nearly doubled in 2010 has not resulted in a downward move on the wholesale markets, with analysts expecting summer delivery prices to outturn above levels recorded during the summer of 2010.
According to German power analysts, the monthly spot Baseload price during June, July and August this year is expected to average €50-53.00/MWh, with Peaks pegged at around €70.00/MWh.
Their expectations put summer spot values several euros above those recorded in 2010. ICIS Heren data shows that Day-ahead Baseload and Weekend indices calculated throughout June, July and August 2010 averaged €43.26/MWh, while Peakload levels for the same period were around €54.57/MWh.
Opinion over why levels should be so high varied, with some suggesting that current spot levels are underpinning prices further along the curve. Others are attributing the gains to uncertainty surrounding summer solar generation levels.
"Last year's price levels were still largely affected by the recession and industrial demand was low," one analyst said.
"The problem is that all this solar capacity, although impressive, will only generate around 3% of daily power demand," another noted.
Despite the uncertainty, traders and analysts agree that higher available levels of midday generation could suppress Peakload levels, as well as alleviate potential cooling water concerns, if the summer of 2011 proves to be a hot one.
"Last year's levels might not be representative due to the fact that we had a relatively mild summer. Apart from a short hot period quite early on, when rivers were still cold from the winter, we haven't had a proper heat wave," one trader pointed out. "If this summer proves to be hotter than average, then solar power could give us the necessary backup. If other plants have to be switched off, solar power would help prevent price spikes, but wouldn't seriously depress overall price levels."
Utilities appear unconcerned about levels of potential solar generation, and while most of them refused to speculate whether conventional power plants would have to be switched off if high levels of solar generation jeopardised grid stability, Vattenfall told ICIS Heren, solar power represents little or no risk. "The [German] Federal association of energy and water BDEW pins the [solar generation] rate at 2.0% for 2010. Furthermore, compared to wind energy, production from solar energy is less intermittent, and its entry into the grid can be planned in advance," a spokeswoman said in an e-mail.
The fact that solar panels produce power mainly during Peakload supply already appears to be having an effect on the quarterly summer products. ICIS Heren data shows that Baseload to Peakload ratio levels for Q3 '11 are currently much lower than they were at the time of delivery for Q3 '10 (see chart).
"Whichever way you look, some effect should be felt, and as most of the generation is expected in Peakload hours, it is only natural for those levels to be affected," one German power trader noted. MV
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