Cloudy horizon
January 21, 2010
German Environment Minister Norbert Roettgen on Wednesday proposed a 15 percent cut in state subsidies for new roof-mounted solar power, with the cut to take effect from April. Roettgen also said tariffs for solar power generated from open field and farmland sites would be cut by 15 and 25 percent respectively, starting from July.
The announcement had many representatives of Germany's solar sector balking at cuts they said were too high for the industry to handle. But if Chancellor Merkel's CDU has its way, the cuts will be even bigger. CDU legislator Joachim Pfeiffer said the government would be seeking to reduce subsidies by as much as 16 to 17 percent, while his colleague Michael Fuchs went further.
"Solar cells are now about 30 percent cheaper than they were two or three years ago," Fuchs said. "This means that we can also reduce state subsidies accordingly."
However large the cuts, they will certainly impact companies like Q-Cells, Phoenix Solar, and SolarWorld, as they depend on demand from Germany, the world's biggest market for solar energy in terms of installed capacity. SolarWorld's shares slumped 88 cents or 5.9 percent at the end of trading in Germany on Wednesday, while Q-Cells fell by 36 cents, or 3.3 percent.
Proponents of the cuts say the industry is overly subsidized and needs more pressure to act efficiently and become more competitive.
"Such a step will lead to more consolidation, but this is what the sector needs," said Olaf Koester, manager of the VCH Investment Group's New Energy Fund.
Others, aware of the pressure on the government from consumer groups, say it would be wise for the industry to make concessions now
"Subsidies simply have to be reduced significantly, otherwise, an unfettered expansion of capacities would drive up electricity bills and could trigger consumer protests," said Anne Kreutzmann of the pro-solar magazine "Photon."
Too much, too soon?
But the overwhelming feeling among industry insiders is that the government is asking for too much, too soon. David Wedepohl, press spokesman for the solar sector's federal association, the BSW, said the drive to cut subsidies wasn't coming from consumers, and pointed to a recent study by the Forsa polling institute.
"What the study has found is that 71 percent of the German adult population is even in favor of a 5 percent surcharge on their electricity bills to be used for the development of photovoltaic technology – instead of the 3 percent at present. So, there's really strong backing in the population for solar energy generation," Wedepohl said.
"These excessive subsidy cuts are threatening one of our country's most important job and economic motors," BSW President Guenther Cramer said.
According to BSW figures, Germany's solar sector had a turnover of around 10 billion euros ($14.1 billion) in 2009, and employs some 60,000 people. Germany's generous incentives have kept the country at the forefront of the solar industry; now, some experts worry that this will no longer be the case. They predict an emigration of leading solar technology companies, more bankruptcies and weakened investor confidence.
"The cuts which have now been proposed are shaking the very foundations of Germany's solar industry," said the Federal Association of Renewable Energies (BEE) President Dietmar Schuetz. "If the environment minister wants to realize his ambitious goal of having Germany be almost completely reliant on renewables by 2050, he has to ensure that stable subsidies are in place, instead of creating uncertainty for investors."
Cuts not a surprise
Some analysts emphasize that, although the cuts may turn out to be bigger than anticipated, they're hardly a surprise.
"It was only a matter of time before the German government would announce cuts," Raymond James analyst Pavel Molchanov told Dow Jones. He thinks other European countries, such as Italy and France, could see demand for photovoltaic technology rise, helping offset declines in Germany.
"If we think about it, this was a country with 80 million people installing as much PV capacity as the other 6 billion people on the planet put together," he said.
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Editor: Susan Houlton