Today the German Parliament approved an agreement made with the federal states that will cut the feed-in tariff for electricity generated by solar power. The feed-in tariff (FIT) is a policy mechanism designed to encourage the adoption of renewable energy sources and help accelerate the move toward grid parity, which is the point at which alternative means of generating electricity is equal in cost, or cheaper than, grid power.
Under the tariff, German electric grid utilities are required to buy power generated from renewable sources such as solar, wind, biomass, hydro, and geothermal, and funnel it into Germany's local grid network. Additionally, the FIT sets the rates at which utilities must pay to generators of renewable energy. These rates are different for each technology based on the cost of generation and they are lowered every year to encourage more efficient production of renewable energy. As of 2008, the annual reductions were 5% for electricity from photovoltaics.
The cuts recently agreed upon by Parliament, however, go well beyond these preplanned annual reductions. Retroactive to July 1, the cuts will be set at 13% for rooftop systems, 12% for open-space systems and 8% for surfaces designated for land-use change, Bloomberg News reported. The three tariffs will be decreased by an additional three percentage points on Oct. 1.
Solar power industry representatives said in response that the new law would increase pressure on German solar technology companies who are already facing stiff competition from producers in China. German Chancellor Angela Merkel, however, is reported in the same Bloomberg News report as saying that subsidies must be pared down because solar panel prices have fallen by as much as 40%, leading to a glut on the German market. Her government had pressed for even deeper cuts because of rising electricity prices for consumers.
In spite of the cuts, the feed-in tariff has made Germany far and away the world's largest PV market. According to Reuters, the country accounted for 51% of global solar system installations in 2009 and some experts predict that the market could double that mark in 2010. By contrast, the second largest market was Italy, which accounted for just 9% of global installations. The strong German renewable energy market is responsible for 300,000 new jobs in clean energy, according to another Reuters report.
The FIT, along with decreasing system prices and rising electricity prices, has also enabled the German market to approach grid parity sooner than expected. As PR Newswire reported, energy from renewable sources is expected to be competitive with conventional sources in the private user electricity market by as early as 2013.
Germany is still on track to reach the renewable energy goals set by the government in 1999. These targets included increasing the share of RES in the electricity supply by 12.5% by 2010 and 20% by 2020.
Germany has already exceeded the target percentage for 2010. According to a report released by the German Ministry of the Environment, the ratio of renewable sources in total electricity consumption now stands at 16.1%, with photovoltaics making up 6.6% of renewable energy-generated electricity. In fact, energy from renewable sources made up 10.1% of Germany's total energy consumption in 2009. It is estimated that these policies lowered Germany's carbon dioxide emissions last year by 74 million metric tons. As a result of this success, the German Environment Minister has raised the 2020 target to 30%. Renewable Energy World reports that by 2030 as much as 50 percent of Germany's electricity will be coming from renewable energy sources.
Feed-in tariffs are used in about 30 countries worldwide, including in the United States in states such as California, Oregon, Florida, Vermont, and Hawaii, although none of these states' FITs are as strong as Germany's.
There is growing interest in FITs in the U.S. Solar Industry News has reported that the University of California, Berkeley yesterday announced the results of a study examining the economic benefits of a comprehensive FIT in California. California's existing FIT, which went into effect at the beginning of this year, allows only small renewable energy systems of up to 3 megawatts (MW) to sell the electricity they generate back to their utilities, whereas the FIT considered in this study would cover systems with a maximum 20 MW capacity.
The analysis shows that enacting a robust FIT in California would not only be able to achieve the state's 33% by 2020 renewable portfolio standard (RPS) on schedule, but would also generate billions in revenue and investment for the state.
As the Solar Industry News article reports:
The study's key findings include that three times the number of jobs will be created if a FIT is enacted to complement the RPS. This translates into roughly 280,000 more jobs over the next decade, or an average of 28,000 jobs per year, with more jobs created in the early years, because wholesale distributed generation projects can come online quickly.
Another key finding includes over $2 billion in additional tax revenue for the state. Further, the study found that a comprehensive FIT would stimulate up to $50 billion in new private investment in the state with the potential for those renewable energy projects to be eligible for another $15 billion in federal tax benefits.