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Germany to cut solar electricity subsidies at 52GW

28 Jun 2012 17:37:03 | edem


Germany will cease to subsidise new solar generation once the installed capacity has reached 52GW, but solar power will continue to have preferred access to the grid.

The deal between the government and the federal states was agreed this week in a mediation committee and confirmed in an official press statement late on Wednesday (see EDEM 27 June 2012).

Currently, Germany's total installed solar capacity stands at around 27GW, according to the environment ministry. Germany's Association of Energy and Water Industries' (BDEW's) figures place the photovoltaic generation fleet at 24.5GW by May ( see EDEM 8 June 2012).

The deal allows solar feed-in tariffs to be cut by more than 30%, and would apply retroactively from 1 April 2012. Feed-in tariffs will be reduced on a monthly basis.

The government was also successful in keeping the capacity growth range between 2.5-3.5GW over this year, which the federal states originally wanted to have increased.

However, 2.3GW of solar power has already been installed, according to German energy regulator BNetzA, making a further cut to the subsidy rate likely this year. Some German trading sources suggest that the 52GW capacity figure could be hit within the next 12 months.

The amendment also allows the reduction of the subsidy rate automatically if the capacity growth is higher than the government's goal. The subsidy rate could be revised downwards every quarter, which BDEW said would prevent a run of project developers installing as many solar modules as possible before the new rate applies, in a statement on Thursday. However, some traders were sceptical.

The original draft law was rejected by the states in May (see EDEM 11 May 2012). The greatest changes in Wednesday's agreement to the original draft impact small solar plants, but freestanding plants larger than 10MW remain exempt from subsidies. On the other hand, solar plants between 10-40kW will receive more subsidies than originally planned.

Capacity rush

"All the investors will now jump on the bandwagon to get their panels up as the feed-in tariff offers very reliable guarantees for the next 20 years," one market participant said.

Fears that Germany will cut subsidies drove a surge of solar instalments in 2011, with 7.5GW coming on line over the year (see EDEM 9 January 2012).

"The Calendar Year '13 Baseload looks very overpriced taking the solar subsidies into account," the source added. Some believed that the Benchmark contract would fall as low as €47.40/MWh in the short term, but prices are expected to drop much lower for Q2 '13 and Q3 '13 delivery.

However, others disagreed. "I would not have thought that we will see a surge in solar instalments now," another source commented, adding that any big developers would have brought most of their capacity online already. "The subsidies are now not as good as they were in 2011, so it's not that profitable any more."

Even so, the source estimated that solar capacity would grow at a rate of 6.5GW per year. "This is still a pretty significant annual increase," he added.

Sparks and darks under pressure

Germany's reduction of subsidies to solar instalments could pressure gas-and coal-fired producer margins even further.

Additional installed solar capacity in the grid would decrease the need for gas- and coal-fired generation during the summer months. Installations generating close to maximum levels could also depress power prices to marginal, technical levels for traditional coal- and gas-fired generators. Some sources have said that at prices below €40.00/MWh, fossil fuel generators would be running at a loss.

Clean spark spreads for Baseload electricity for Q3 '12 have been in decline since the end of last year (see graph), while clean dark spreads have also softened since the start of May.

Many gas-fired generators are already only fuelling up during Peakload hours when prices are above €50.00/MWh, while it has been largely unprofitable to run gas plants during Baseload hours since the end of 2011. According to ICIS data, Peakload prices in Q2 '12 have averaged €49.23/MWh. MD/SR

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