Germany Plans Record Cuts in Solar Subsidies to Limit Boom

Germany, the world’s biggest market for solar power, plans record reductions in subsidies for the industry as part of a program to rein in a boom in installations.

Environment Minister Norbert Roettgen said he plans to cut premium rates for solar power by between 20.2 percent and 29 percent from March 9 and decrease them further each month beginning in May. Plants larger than 10 megawatts won’t get support after July 1.

Chancellor Angela Merkel, encouraging renewable energy to replace nuclear power stations that close by 2022, wants to chop in half annual solar installations after incentives for the industry pushed capacity past government targets. The cuts are deeper than the 15 percent reduction ordered on Jan. 1 and will hurt manufactures such as Q-Cells SE and Conergy AG.

“Germany’s energy overhaul will only be successful if there are adaptions,” Roettgen said at a press conference today in Berlin. He said Germany’s solar subsidy system “is a success story in sparking installations and cost reductions.”

Shares of solar panel makers plunged after the news. Suntech Power Holdings Co. was down 5 percent, Canadian Solar Inc. 6 percent and Solarworld AG by 7 percent. Trina Solar Ltd. fell 9.7 percent even after forecasting an increase in shipments this year.

European countries including the U.K., Italy and France have accelerated subsidy cuts for solar energy in the past year to adapt to falling panel prices and control runaway growth.

Double the Goal

Roettgen and Economy Minister Philip Roesler agreed on the program after debating for months exactly how to rein in the industry. They’re adjusting the feed-in tariffs that grant above-market rates for solar power and spurred installations last year more than double the government’s goal.

The draft agreement, which Merkel’s Cabinet is scheduled to endorse next week, targets 2.5 to 3.5 gigawatts in installations this year and the next, down from a record 7.5 gigawatts in 2011. Thereafter, yearly targets will be reduced by 400 megawatts to reach 900 to 1,900 megawatts in 2017.

“What’s planned here is a solar exit law,” Carsten Koernig, head of the lobby, said in an e-mailed statement. “The energy overhaul won’t succeed like that. Tens of thousands of jobs in one of the most important industries of the future are in danger.”

Today’s subsidy cut is the most severe since Germany in 2004 began supporting the industry with a feed-in tariff, which grants above market rates for renewable power. Solar panel prices fell 46 percent last year after Asian manufacturers led by Suntech Power Holdings Co. boosted production.

Prices Plunge

Officials responsible for setting subsidy levels across Europe have struggled to keep up as the price of solar equipment tumbled in recent years.

The cuts will put further pressure solar companies such as Q-Cells and Conergy, the German solar manufacturers that are already struggling with rising competition from China, where the world’s three largest panel makers are based.

The new feed-in tariffs will be 0.135 euro for ground-mounted solar parks with no more than 10 megawatts and rooftop plants with between this size and 1 megawatt. Smaller rooftops will get 0.165 euro and those will less than 10 kilowatts will qualify for 0.195 euro.

As of May 1, the rates will reduced by 0.15 euro every month until the end of the year and remain in place during 2013. Rates will then be cut further every January between 2013 and 2016, according to the proposal.

“The cuts will drag module prices down and squeeze margins,” Henning Wicht, lead solar analyst for IHS iSuppli, said in Munich before the decision. “Module prices in Germany will have to come down at least 10 percent.”

Roesler has previously called for limiting solar installations to about 1 gigawatt per year, while Roettgen, whose ministry is responsible for the subsidy law, has in the past opposed a fixed limit. That a cap has not been established is “good news”, Wicht said.

A total of 50 companies including Solarworld AG and SMA Solar Technology AG are protesting against the subsidy reductions.