German PV Subsidy Cuts Point to Q2 Price Plunge
Germany's decision to reduce PV subsidies, if carried out, is expected to have a dramatic negative effect on the worldwide PV system market.
Alexander E. Braun, Senior Editor -- PV Society, 1/21/2010
The German government has preannounced plans to reduce feed-in tariffs (FITs), subsidies established to encourage the adoption of renewable energy sources, by 16% and 17% for new roofs and open-field sites, respectively, installed after April 2010. The final decision, planned within the next 10 days, comes on top of a just-implemented, pre-planned, FIT reduction of 9% for smaller rooftops and of 11% for large rooftops and ground installations. Compared to the 5-10% decrease that had been expected, the magnitude of this announcement is dramatic.
The move to slash subsidies on certain types of solar installations will result in a dramatic demand reduction and price plunge in Germany for PV panels and systems in the second quarter, according to iSuppli Corp. (El Segundo, Calif.). "Germany's decision to cut its solar subsidies in the second quarter will make installations less attractive for the country's consumers," said Henning Wicht, senior director and principal analyst for iSuppli. "Because of this, German consumers will rush to make solar installations in the first quarter and then stop in the second quarter. As a result, iSuppli anticipates the German market will overheat during the first three months of the year and then collapse during the next three months."
German solar installations should surge during the first quarter, starting at 200 MW in January, then rising to 300 MW in February, and 500 MW in March. However, installations are expected to plunge to 50 MW in April and remain at the 100 MW level in May and June. "As a result of the decline in installations, solar system prices in Germany could drop by 7.5% from April through the end of 2010, compared to less than the 5% normal rate of decline," Wicht said.
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The German government was prompted to reduce its FIT because PV system prices declined more than expected in 2009 due to the country's aggressive subsidies during the year.
Because Germany is the world's largest market for solar installations and it accounted for 51% of global PV system installations in 2009, its FIT reductions could have a worldwide effect. To put the market impact in perspective it should be considered that Italy, the second-largest solar nation, accounted for only 9% of global installations.
"The massive oversupply and downturn seen in the global solar cell industry in 2009 was largely due to Spain's decision to change its FIT policies, which led to a collapse in demand," Wicht said. "Germany's move could have similar impact on the global solar market during the second quarter of 2010. However, there is a major difference: The German FIT does not limit the size of solar installations, whereas the Spanish FIT restricts installations to 400 MW to 500 MW per year." Assuming that solar system prices continue to drop, installations in Germany would have an opportunity to recover, unlike the case in Spain, Wicht added.
Conditions in the German market are expected to improve in the third quarter as lower prices lure consumers, and as consumers decide to buy before a further FIT reduction. After holding steady at 100 MW in July (only one-fourth of the installations forecasted in March), installations should rise steadily until November when they could reach 400 MW.
