Germany Rethinks Cuts to Solar Subsidies (FSLR, SPWRA, TSL, YGE, STP)

Today’s alt-energy news focuses on a change to Germany’s plans to cut back on subsidies for solar projects.  Germany has had the most liberal incentive program of any country for solar PV installations. Last year the government announced a cut of about 16% in the subsidies it pays to solar developers in 2011, and the announcement had an immediate — and bad — impact on a number of solar stocks. Solar makers First Solar, Inc. (NASDAQ: FSLR), SunPower Corp. (NASDAQ: SPWRA), Trina Solar Ltd. (NYSE: TSL), Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), and Suntech Power Holdings Co., Ltd. (NYSE: STP), all of which do substantial business in Germany, felt the pain. The cut, to the country’s feed-in tariff, was meant to reflect the falling cost of solar modules and Germany put in place a process to review — and likely reduce — the subsidy every year.

Germany was expected to add about 5,000-6,000 megawatts of new solar PV generation in 2011, down from about 7,000 megawatts in 2010. Then came the decision by the government to phase out all of Germany’s nuclear generation capacity over the next 11 years.

Germany’s nuclear generation capacity is just over 20,000 megawatts. The German government had anticipated growing the country’s solar generation capacity by 32,000 megawatts by 2020, but the loss of the nuclear generation is expected to increase that number significantly.

Under the subsidy plan adopted last year, the government was expected to cut solar subsidies twice a year, once at a base rate of at a variable rate established annually and a second time by an amount to be determined by the amount of new installations. The base rate cut for 2012 is set at 9%. For the second subsidy cut in 2012, the government was expected to slash incentives by another 6%.

Germany has now cancelled the scheduled 6% cut, which would have been effective in March 2012. For 2012, then, a cut of 9% in solar subsidies is planned, instead of a 15% cut. Subsidies were cut 16% for 2011.

Germany also caps the amount of new solar it will fully subsidize in any single year at 3,500 megawatts. New installations between 3,500-7,500 megawatts suffer a further cut of 3%. Above 7,500 megawatts, a maximum cut of 24% has been proposed.

To add 52,000 megawatts of solar generation in 11 years represents an annual total of about 4,300 megawatts. This is well within Germany’s capability, as it’s only 800 megawatts above the country’s minimum annual goal of 3,500 megawatts. And all the new capacity could easily come from solar PV.

Paul Ausick