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PV solar in Germany

By Dave Elliott

PV solar continues its spectacular price reduction and that’s led to large-scale deployment, as in Germany, which now has around 36GW in place, and globally, with around 180 GW. PV was initially expensive, but prices are now much lower, thanks in part to Feed In Tariff systems around the EU, as under the EEG law in Germany, which has helped create a large market. With FiT levels now cut, will it continue to expand?

Setting the scene, a Fraunhofer Institute report, ‘Recent Facts about PV in Germany’ , looks at the cost of getting the price down-and at who paid. It notes that in Germany consumers, rather than industrial energy users, have born the brunt of it: ‘policy makers determine who finances the transformation to renewable energy. They have decided that energy-intensive industries, i.e. those who spend a high proportion of their costs on electricity, are to be exempted from the EEG surcharge to a large extent. Industries are to be relieved of costs totaling an estimated 5.1 billion euros in 2014. The total electricity falling under this exemption amounts to almost one-fifth of Germany’s entire power consumption’.

It’s often asked, given that PV costs more than wind, why was is supported so heavily? The report says: ‘Excluding external costs, the proportion of the EEG surcharge allocated to PV power generation amounted to ca. 55% in 2013. As PV was only expected to account for around 25% of the energy covered by the EEG in 2013 it is receiving preferential support. This is neither surprising nor unintentional.[…] PV was expected to have the greatest cost reduction potential. In reality, developments greatly exceeded all expectations, with power from newly installed PV plants already receiving significantly less remuneration than wind power from new off-shore [wind]installations (initial tariff incl. bonuses).’

This funding system has to be compared with the continuing subsidies for nuclear and fossil fuel. The Forum Green Budget Germany says that ‘up to now subsidies for the renewable energies have amounted to €54 bn. To compare, from 1970 to 2012 subsidies for hard coal amounted to 177 billion euros, for brown coal at €65 bn and for nuclear energy at €187 bn respectively.’ And as in most other countries, the rising cost of energy has mainly been due to fuel cost rises, not to renewable energy support.

The expansion of renewables has squeezed out some conventional generation, in part, as the Fraunhofer report notes, since, in Germany, power consumption has been declining since 2007. But in addition,‘the construction of new renewable power plants decreases not only the relative market fraction of the four big power suppliers in Germany but also it reduces their absolute turnover’, especially since PV can meet peak demand, undermining the economics of gas-fired peaking plant. Similar trends will occur elsewhere as PV and wind expand. There will also be more stress on transmission, although the report notes that, with roof-top PV,‘the feed-in of solar electricity takes place predominantly in a decentralized manner and hardly makes any demands on an expansion of the German national transmission network’.

Then there’s the variability issue. PV output varies, as does that from wind. The report looks to the development of energy storage as key option, but sees that as expensive in the short term: it only makes economic sense when price differentials are high- and PV reduces them. Though domestic battery units might have an interim role, storage will only lift off as coal and nuclear decline and renewables grow. Instead, flexible power and grid systems are seen as a key initial response, with smart grid/demand management, and possibly supergrid links, for grid balancing. At present, ‘PV and wind power are increasingly colliding with conventional power plants with slow start-up and shut-down processes (nuclear, old lignite power plants). These power plants, which are almost only capable of covering the base load, must be replaced by flexible power plants as quick as possible. The preferred power plant choice is multifunctional electrically powered CHP plants fitted with thermal storage systems’.

In addition to providing backup, with biomass used for some plants, the emergent more flexible system can also reduce the often wasted or dumped surplus output from wind and PV, they say to less than 2% by 2032. It’s also noted that ‘due to the particular climate in Germany, high solar irradiance and high wind strength have a negative correlation’. So they can often compensate for each others variations. In which case, ‘a balanced mix of solar and wind capacity is markedly superior to the one-sided expansion that would be brought about through the introduction of a competitive incentive model’ i.e. the competitive market quota /auction model being introduced in Germany, the UK and soon across the EU. And, it notes that, although nuclear and coal plants aren’t much use at balancing variable PV, during heat waves, when cold cooling water is scarce, PV helpfully reduces the load on the fossil and nuclear plants.

So there are some useful additional benefits. And of course prices have fallen rapidly: ‘Newly installed, large-scale plants have already achieved grid parity in 2011 for domestic consumers. Since then, the feed-in tariff has continued to drop well below the gross domestic electricity price. Since the beginning of 2012, newly installed, small rooftop installations also have achieved grid parity’. And by 2013, grid parity was also achieved ‘for many industrial customers’.

Will this process continue? The Fraunhofer report is none too sanguine. To some extent PV has become victim of its own success. Since prices have fallen, the FiTs have been cut, but maybe too much: ‘the EEG feed-in tariff for PV power is [being] reduced more rapidly than that for any other renewable energy source’. That may halt the growth of the market and slow further price cuts, so the whole positive cycle stops: ‘the smaller the amount of new and increasingly cheap PV installations annually, the slower the average EEG feed-in tariff will decrease’. The report notes that, as a result of the extreme drop in the feed-in tariff, along with the increasing amount of limitations dictating the construction of new systems and grid feed-in over the past few years, the number of new PV installations in Germany substantially declined by 55% in 2013. In the same year, new installations increased worldwide by almost 20%’.

Moreover, under the new reduced FiT system, consumers using self-generated power don’t do well. They have to pay the fixed cost of grid connection, even when they are not using it, and from August 2014,‘a fraction of the EEG surcharge is to be imposed on the self-consumed electricity from newly installed systems larger than 10 kWp.’ In addition, after 2020, ‘the feed-in tariff will gradually expire for the oldest plants, as their 20-year payment period begins to expire.’ That will reduce the cost of the FiT, but otherwise, the report says, given ‘the additional degressions agreed upon and the phase out of the EEG feed-in tariff for new PV systems at a threshold of 52 GW installed capacity’, FiT levels are likely to stay at around their current, reduced, level. ‘Based on the existing EEG, a further expansion of PV will increase the total remunerations paid only a moderate amount. [The] additional measures to throttle the expansion of PV will not affect a decrease in the total remuneration. Such a measure would, however, cause a slowdown in the construction of very inexpensive PV systems.’

Looking further ahead, although there are obvious problems with the current policy, the report says that ‘it is already possible to envisage the technical and economic aspects of an energy system based on 100 percent RE’. And it says PV can and should play a major role: although the BMU’s existing scenarios ‘are based on the assumption that around 53 GW of PV capacity shall be installed in the country by the end of 2020,’ a 100% renewable study commissioned by the Federal Environment Agency, ‘works on the assumption of a total installed PV capacity of 120 GW in 2050’. And it says it could do better than that, possibly reaching 275 GW.

Overall, it’s a useful report, looking at all aspects of PV, including potential problem areas, like pay back time (~2 years and falling) and land use (PV is not allowed on arable land in Germany now). All in all, it makes a strong case for pushing ahead more with PV.

For a somewhat different view, suggesting that PV has been pushed too much, see:

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One comment to PV solar in Germany

  1. I see that PV is now at 38GW in Germany-still expanding. Though wind is at 40.5GW

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