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Germany to Speed Solar-Subsidy Cuts to Undercut Boom

Germany’s Environment Ministry and the solar industry agreed to cut subsidies six months earlier than planned to slow growth in the world’s largest market for photovoltaic panels that turn sunlight into power.

The above-market rates paid for solar power will be lowered in July by 3 percent to 15 percent for new installations if more than 3.5 gigawatts are forecast for this year, the ministry said today in Berlin. The estimate will be based on data for projects connected to the distribution grid in March through May.

Chancellor Angela Merkel’s government is paring aid to curb the cost to consumers who pay for subsidies in their power bills after solar-panel prices fell about 50 percent in the last two years. That spurred a boom in new installations on rooftops and fields and led to a glut on the German market.

“In the interests of power users in Germany, solar energy must be cost-efficient and adjusted to market-price developments,” Environment Minister Norbert Roettgen said in a briefing today in Berlin with Guenther Cramer, head of Germany’s BSW solar industry group. “A solar market that grows too quickly and overheats would push up power costs.”

If the forecast for Germany is more than 3.5 gigawatts, as analysts expect, a portion of the cuts that originally were planned for January 2012 will be moved to become effective in July. Early reductions then will be deducted from the percentage cuts planned for next year, which were set in law at as much as 24 percent, a ministry statement released today shows.

‘Urgent’ Response

Germany might install 6 to 8 gigawatts in new solar photovoltaic capacity in 2011 out of about 20 gigawatts worldwide, Bloomberg New Energy Finance forecast Jan. 12.

“The fact that industry and government and opposition parties agreed on these cuts so rapidly illustrates the urgent need to slow German PV market growth from an estimated 8-9 gigawatts in 2010 to a more sustainable level in 2011,” Francesco D’Avack, a solar analyst at Bloomberg New Energy Finance, said by e-mail today.

The Environment Ministry said it will implement cuts of 15 percent if capacity forecast for this year is more than 7.5 gigawatts. The reduction will be of 12 percent if new projects exceed 6.5 gigawatts, 9 percent if they top 5.5 gigawatts, 6 percent for more than 4.5 gigawatts and 3 percent if over 3.5 gigawatts, according to the agreement. The scaled plan needs approval from Parliament to become effective.

Fixed Cap

This agreement on flexible adjustment to financial support makes it possible to avoid introducing a fixed cap to the market, Gunther said in a BSW statement today. “A fixed cap would not only cancel out competitive market forces, but would also prove counterproductive to the objective of further reducing the price of photovoltaic systems,” he said.

A limit on solar installations and further tariff cuts are still on the table, according to Joachim Pfeiffer, Bundestag member and economics spokesman in the chamber for the ruling CDU party.

“We need to look at subsidy cuts again, as well as the possibility of reducing the 20-year payment for solar generators,” he said by telephone today. “We must also examine whether we need to set a cap from next year. I don’t rule out the implementation of a cap.”

Today’s compromise wrought by the government and industry over solar subsidies is a “stop-gap,” a temporary move that will stem surging subsidies that increase power prices, he said.

Building Boom

Germany pegged subsidies last year on an assumption new solar capacity would grow by 5,000 megawatts. It actually grew by some 7,000 megawatts, equal to about 6 new medium-sized conventional electricity plants, according to the environment minister. That’s why the country had to speed up reducing subsidies, he said at the briefing.

Cutting tariffs is one way to limit the cost of further solar capacity build-up, according to D’Avack. “But in the past such cuts have lead to even faster market growth as installers and developers rushed to connect systems before the decline in tariffs, making the problem only worse,” he said.

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