Subsidies help Germany stay top of world's solar power league

By Hugh Williamson in Berlin
Published: July 28 2008 03:00

Germany has reinforced its status as the world leader in solar power generation, after less stringent cuts in renewable energy subsidies than had been anticipated.
Although not the world's sunniest country, Germany is among the global leaders when it comes to the number of solar panels adorning household roofs.
Germans have cashed in on generous government incentives to boost the country's reliance on the sun's energy.
Yet the industry needs to adapt to growing international competition to secure long-term growth, experts argue.
In what is seen as a victory for Germany's growing legion of solar cell makers and suppliers, proposed cuts in subsidies of up to 30 per cent have been watered down to only 9-10 per cent a year until 2011.
The cuts replace annual reductions of about 5 per cent at present, under plans endorsed by the parliamentary upper house this month, after lower house approval.
Germany boasts more than 50 per cent of the world's installed solar power capacity, thanks to the subsidies, known as feed-in tariffs that give households with solar panels a fixed income for 20 years from electricity sold to the national grid.
The resulting industry, with about 60,000 employees, has a turnover that could rise to €13bn (£10.2bn, $20.4bn) a year by 2010, compared with about €7bn in 2007, according to industry estimates.
The country is the third largest producer of solar cells, with a 20 per cent market share, compared with China with 28 per cent.
Experts predict that in the long term solar energy may provide up to 30 per cent of Germany's power needs for electricity and hot water, compared with less than 1 per cent today.
This is seen as vital, both to reduce greenhouse gas emissions, and for energy security after oil price increases and the decision to phase out nuclear power.
Spiralling energy costs globally have spurred German demand for solar equipment used to heat household water.
Many regional authorities have backed this sector - which is separate from the industry built around the feed-in subsidies - and Marburg in central Germany this month became the first city to require households to install such equipment as part of house construction or renovation. They face €1,000 fines if they refuse.
Yet companies that have profited richly from Germany's solar boom will in future have to adapt more quickly to continued pressure for subsidy cuts and lower prices, according to Michael Schmela, editor of Photon International, a solar industry magazine.
"Germany will remain the world leader in installed capacity for some time, but companies based here will increasingly produce in cheap locations, such as Asia, to cut costs," he says.
Other countries, especially Spain and the US, are rapidly expanding solar power generation, leading to a shift in focus in this increasingly global industry.
According to a report this month by IMU, a Berlin-based think-tank, Germany's share of the world's newly installed capacity will fall to 28 per cent in 2010, from 58 per cent in 2006. The US is set to double its share to 18 per cent over the same period.
Mr Schmela argues that the feed-in subsidies should be cut more rapidly, to force companies to reduce costs in producing panels and the necessary solar cell production machinery.
The German government - and ultimately the country's taxpayers - may face a total bill for feed-in tariffs of up to €100bn, he calculates. This official backing for solar power is highly expensive compared with other environmental initiatives, he says.
Carsten Körnig, head of BSW-Solar, the sector's business association, says companies are getting ready for lower subsidies but need a smooth transition.
Cuts that were "too abrupt could severely damage the industry's development," he says.
The industry is also under pressure over trade union complaints of low pay and tough working conditions in solar cell factories.
Many companies, from the US and elsewhere, have set up solar plants in eastern Germany, the country's weakest economic region, with pay as low as €7-8 per hour, notes the IMU report.
Copyright The Financial Times Limited 2008