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PV solar under pressure in Germany

By Dave Elliott

PV Solar has been expanding rapidly, reaching over 40GW globally so far, but to some extent has become the victim of its own success. The expansion was in part a result of the various Feed In Tariffs (FiTs) introduced around the EU, but as the market built and PV cell prices began to fall, demand rose and the built-in FiT price degression mechanisms did not drop prices fast enough. The end result was that large extra costs were passed on to consumers, and in reaction to that, emergency FiT caps or cut-backs in FiT tariff levels were introduced – in Spain, Germany, France, Italy and the UK.

So, although there is talk of PV reaching grid price party within a few years in some locations, perversely, things have not been looking so good for PV, at least in the short term, including in Germany, which had seen the largest expansion, to around 25GW.

Speigal On-line carried a critical review in January, pointing out that ‘in Germany, solar is by far the most inefficient technology among renewable energy sources, and yet it receives the most subsidies. Some 56% of all green energy subsidies go to solar systems, which produce only 21% of subsidized energy’.

It went on ‘For the same cost, wind supplies at least five times as much electricity as solar, while hydroelectric power plants generate six times as much. Even biomass plants are still three times as efficient as solar. Because of the poor electricity yield, solar energy production also saves little in the way of harmful carbon dioxide emissions, especially compared to other possible subsidization programs. To avoid a ton of CO2 emissions, one can spend €5 on insulating the roof of an old building, invest €20 in a new gas-fired power plant or sink about €500 into a new solar energy system’.

So Spegiel says ‘Solar energy has the potential to become the most expensive mistake in German environmental policy’.

Based on a report from Rhine-Westphalia Institute for Economic Research (RWI) it says that PV systems connected to the grid in 2011 alone will cost electricity customers about €18 billion in subsidy costs over the next 20 years and that, if all commitments to pay subsidies so far are added together, ‘we have already exceeded the €100 billion level.’

However that’s a long term projection, to 2020, and FiT levels can and should change as PV costs fall. The Federal government has already made large cuts in the FiTs for PV (15% in January with a further 20-29% cut now proposed), and is devising a new FiT scheme which, while retaining the key feature of guaranteed prices and guaranteed feed-in of the power, relates more directly to market changes.

Some see these cuts as too drastic. There have been major ‘Stop to solar energy exit’ demonstrations around Germany, with slogans like ‘we are the energy transition’. Some radical critics claim that the reason for the cuts is that the spread of solar PV undermines the power and profits of the utilities- who have always been hostile to the FiTs.

Certainly the RWI is well known for its critical views on the green energy programme and the Feed In Tariffs. Its new report predicts that the surcharge for PV will soon increase to 4.7 cents/kWh which, for the average family, would amount to an additional charge of about €200 a year, in addition to the actual cost of electricity. But a review by the Wuppertal Insitute of some of RWI’s earlier price predictions suggested that they were overestimated by up to 42%, and claimed that ‘investing in these technologies is also the main driver for reducing the specific costs of these technologies and thus increases the chances of successful climate protection in Germany as well as abroad.’ See www.wupperinst.org/uploads/tx_wiprojekt/EEG_Expand_report.pdf.

Nevertheless, Speigal is insistent that the emphasis on PV was ‘jeopardizing the country’s transition to renewable energy’.

This is basically the line adopted by SRU, the German Advisory Council on the Environment, which, as I reported in a previous Blog, has argued that far too much money was being invested in solar energy. See
http://environmentalresearchweb.org/blog/2011/11/germany100-renewables–but-les.html.

The SRU says that “Solar energy has recently experienced nothing less than an extreme and even excessive boom,” and claims that PV is undermining the development of the other renewables, since the high FiT pass-through costs to consumers were so provocative.

The SRU suggested that, rather than the 100 GW PV contribution it presented in one scenario, support for PV be throttled back drastically in the German renewables programme. It claimed that the overall programme could actually benefit from this, and could still reach the national target and beyond- to meet almost 100% of demand by 2050, without much PV, which could be expanded later on if needed and if cheaper.

So is PV is out of the picture for now? Certainly there have been cut backs and there may be more, as the political and economic climate tightens. Spain for example, hard pressed by the euro crisis, have recently halted payment for all the FiTs entirely. Germany has avoided that, but PV is clearly still in trouble. Spiegel concluded ‘For a time, it seemed that at least the German solar industry was benefiting from the generous subsidy rates. But the green economic miracle has, in the case of the solar industry, turned out to be a subsidy bubble.’

We have seen the same pattern emerge in the UK, and the same response- cuts, up to 70% in some cases. But this is all very short-termist. PV costs are falling and will continue to fall, in part due to the FiTs. Without the FiTs that process will now slow. You could say that we should not give up at this stage. Although the FiTs cost consumers a lot, they have succeeded in setting PV up. So now it will boom. FiTs at progressively lower levels could now cost less and help it move on faster. However it seems the political will is not there for that.

This is not to say there isn’t a future for PV solar. It is well suited to meeting some end uses- daytime office power and summer air-conditioning especially, something that will become increasingly significant as climate change begins to impact. And as part of an interactive smart grid system, with demand management and storage back up , it can feed in power alongside other renewables, and energy efficiency, and play a major and increasing role. But we have to get the balance right and the message from at least some observers in Germany is that so far it has been overdone. And some argue that other renewable options will be cheaper, easier and possible better.

At the same time, we ought to avoid knee jerk reactions. In a recent report for the governments advisory Committee on Climate Change UK consultants Mott Macdonald saw PV as amongst the cheaper renewable by 2040 for the UK, possibly in the range of £43 – 78/MWh, although more probably in the range £63- 120/MWh. The only comparable options were on-land wind, put at £52 – 55/MWh by 2040, and biogas production from sewage at £51/MWh, although that is a much smaller and already developed resource. Should we really be cutting back on PV? See www.spiegel.de/international/germany/0,1518,809439,00.html.

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