Solar Feed-in-Tariffs Still Revered in Europe Despite Revisions

The commom wisdom among renewable energy proponents on subsidies has long been the more, the better, but state supports have proved to be too successful leading to reductions in some European countries to one type of state support — the guaranteed payment rate for solar generated from photovoltaic (PV) installations.

Media reports in 2008 told how solar subsidies in Europe, which commonly take the form of a feed-in-tariff (FiT) which guarantees an above-market price for renewable energy to producers, led to an overheating of the market and subsequently to supply bottlenecks in that industry, to oversupply of solar parts and a concomitant drop in prices or to oversupply of energy.

In 2008, the solar market was overheating in Europe, particularly in Spain. At the time, Jim Jubak, a market analyst for MSN Money, argued that, driven by FiTs elsewhere, solar did fine in the U.S. in spite of unstable incentives. He does, however, emphasize the need for state supports to achieve the economies of scale that will move solar toward parity with traditional energy sources. Similarly, The Wall Street Journal reported that the expectancy of credits expiring drove up orders and prices, but acknowledged the need for stable incentives to assign resources to the U.S. market in the long run. 

Solar boomed especially in Germany, the world leader in PV, because of its generous FiT. In 2009, all renewables, including solar, passed the 10% mark of Germany’s energy mix and German Environment Minister Dr. Norbert Röttgen announced in August 2010 that renewables will contribute 20 percent by 2020. Solar contributed 2% in 2010, but is predicted to generate 10% of German’s energy mix by 2020, according to statistics from the German industry association for solar, the Bundesverband Solarwirtschaft (BSW).  

The European Photovoltaic Industry Association (EPIA) projects that PV could provide up to 12% of the EU electricity demand by 2020 “provided specific boundary conditions are met, and be competitive with other electricity sources in as much as 76% of the EU electricity market by 2020″ without external price supports or subsidies. Globally about 23 GW (16 GW in Europe and 1.6 GW in the U.S.) were installed at the end of 2009 which produce about 25 TWh of electricity annually, according to May 2010 figures provided by the EPIA. The U.S. Energy Information Administration reported that in 2009, renewable sources of energy accounted for about 7.7% of total U.S. energy consumption.

Review of FiTs in Europe
The most profound challenge to the FiT scheme has happened in Germany, where the famed Renewable Energy Sources Law (EEG) is being reduced in two stages in 2010, a move that was pushed through by the center-right coalition government led by Angela Merkel. By July 1, the payment rate for PV will be reduced from 8-13%, depending on the type of PV installation (13% for rooftop installations) and an additional 3% reduction will be applied by October 1 to all types of PV installations.

The main arguments to reduce the FiT came from the Christian Democrats and their coalition partners, the Free Democrats, that the EEG discourages technological advances and lowers the acceptance of solar with the public because of higher consumer prıces for energy, UPI reported. But Social Democrats, especially long-time supporters of the EEG, say that lowering rates will endanger jobs in the renewable energy sector and set back efforts to increase the contribution of renewable energies.  

Ronald Upmann, a spokesman for solar industry group BSW, emphasized in an email to The Faster Times that the EEG is not a form of state-assistance, but a law that ensures a certain pay rate for each KWh of solar energy delivered. It’s not paid by the state, but by all electricity customers as part of their electricity bill. Asked when this instrument, which is intended to be temporary, should be phased out, he wrote “when the industry succeeds in reducing the costs of solar energy.” The law also aims for this by annually reducing the tariff rates for PV electricity. “This year, for example, there was a reduction since the price for solar electricity systems fell so much that the lawmakers saw the necessity of adjusting the rates again to the price development.”

According to the EPIA 2009 Industry Outlook, Germany is still the world leader in PV, but the reduction in the EEG will have a dampening effect on the market.

Alexander Leinhos, Director of Corporate Communications for the German solar components producer Conergy AG,  told the Faster Times in an email: “The whole solar energy industry has opposed the reduction in the EEG since the beginning seeing it as too harsh and not helpful for the consistent and needed future growth of the German solar market.” 

Leinhos noted that Conergy is particularly well-equipped to cope with the decrease in prices and volume that may ensue because of its excellent setup. “In recent history we were able to decrease our production costs and will continue to do so in the future to handle market price decreases even better.” Furthermore, he expects sustained customer demand because of Conergy’s premium quality products. Leinhos also emphasized Conergy’s research into new and innovative solar trends and the fact that  they already offer the technologies for these trends.

While the new EEG will affect Conergy in Germany, Leinhos points to the company’s global presence. “We are the German solar company with the highest turnover outside Germany. We are present in 16 countries and therefore all major solar markets around the world. This helps us to balance potential market changes in single countries.”

Asked about whether an FiT should be put on hold during overheating, Upmann replied that it would “certainly be a false and fatal signal leading to a market collapse.” The best example is Spain, he wrote, where after such an overheating the supports were radically reduced, which in turn led to a collapse of the market. The formerly very attractive Spanish market hasn’t yet recovered.

As Greenwire reported, the FiT Spain launched in 2007 made that country the world’s top solar market, but it had to be revised in 2008. The FiT guaranteed rates of up to €0.44 per KWh for new solar panel installations by September 2008. This created an artificial market and, unlike Germany, Spain had no system to reduce tariff rates if its capacity targets were exceeded. In reaction, the government increased its target, which led to a rush by developers to meet the deadline before the rate went down by 30 percent. Demand from Italy and France, which also have FiTs, provided a market for some of the excess supply resulting from the Spanish collapse.

The Czech Republic has also taken steps to adjust its FiT. Dow Jones reported that the Czech Parliament voted in March 2010 to allow the Energy Regulatory Offıce (ERO) to lower the FiT, which had been limited to a 5% reduction annually on new solar installations. The move came after an oversupply of electricity from solar threatened to overload the electricity grid while leading to a potential increase in end-user power prices.

Among several other European countries with an FiT,  Belgium’s generous FiTs helped drive significant growth in PV, but are slated for reduction in 2010. Meanwhile, Greece has one of Europe’s most favorable FiT schemes and the UK introduced one in 2010, according to the EPIA publication Global Market Outlook for Photovoltaics Until 2014.

U.S. Subsidies for Solar
FiTs are not present in the U.S. except for state initiatives such as in California, but the U.S. has had solar incentives in the form of an Investment Tax Credit (ITC) since 2005, which had been renewed on an annual basis until it got an eight-year extension as part of the the Emergency Economic Stabilization Act of 2008. In a news release from the Solar Energy Industries Association (SEIA), SEIA’s President and CEO Rhone Resch praised the legislation for delivering policy certainty and said that by 2016 solar is expected to be the cheapest source of energy.

Considering U.S. incentives, Leinhos of Conergy said the ITC — an upfront federal incentive which rewards investors after year one, rather than over 20 years — is inferior to an FiT, but is the best the federal government can do (since federal energy legislation is quite difficult to implement in the USA). “If one figures the economics of a large FiT versus the ITC, the FiT is a much bigger financial subsidy and makes doing solar simple. The toughest part of solar in the USA is having to find someone to buy the power and then negotiate what this ‘green power’ is worth.”

The Bottom Line for FiTs: A report released from the EPIA following the 25th European Photovoltaic Energy Conference and Exhibition in Valencia, Spain Sept. 6-10 concludes that FiTs are the unilateral support of choice, but in order to avoid stagnation or overheat, they “must be adapted on a regular basis to integrate the dynamic evolution of technological progress and increasing cost competitiveness of PV systems.” PV still requires supports to be competitive with traditional energy sources and to help refine these policy instruments, the EPIA emphasizes. To that end, its newly launched European Photovoltaic Observatory (a set of ongoing recommendations) will analyze grid connections and their ability to transmit electricity as well as legal requirements and financial incentives to advise governments on successful implementation of support policies.

At least when it comes to the EEG, supporters urged caution when making adjustments. ”In our estimation the EEG is so successful because it is a steady, household-dependent support instrument which gives planning certainty to investors, by guaranteeing payments for 20 years for a PV installation,” BSW’s Upmann said. He added that inspection and adjustment of the pay rate can be a sensible instrument for regulation, but it should always be taken in proper proportion and should not overburden the industry.

And Conergy’s Leinhos noted: “Solar in Germany became a success story thanks to the EEG. Major changes or even a phase out on a short-term basis endanger the sector.”

Photo by Pink Sherbet Photography

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