Subsidy cuts could put German solar in the dark

German Solar Subsidies Cut

Earlier this month the German government proposed a cut of 15 percent on the subsidies it gives solar power providers, reflecting what the government deems the sector's success, but the move drew sharp criticism from the industry.

The cut is set to come into force in April for roof installations and in July for open field sites. Both cuts come in addition to an annual decline in subsidies that is already dictated by Germany's Renewable Energy Act.

Not even a week after the proposed subsidies were announced stocks in solar technology companies fell in German trading as Chancellor Angela Merkel's Christian Democrats called for even bigger cuts in solar subsidies than the environment ministry was requesting.

The plans to cut solar cash had Germany's solar sector balking at cuts saying they were "too high for the industry to handle".

Too much, too soon

"Solar cells are now about 30 percent cheaper than they were two or three years ago," said CDU legislator Michael Fuchs.

"This means that we can also reduce state subsidies accordingly."

But there are concerns the cuts are too much, too soon for the industry, currently the world's biggest market for solar energy in terms of installed capacity, and that growth could be stunted by the move.

"These excessive subsidy cuts are threatening one of our country's most important job and economic motors," says president of the solar sector's federal association, BSW, Guenther Cramer.

Germany's solar sector had a turnover of around 10 billion euros in 2009, and employs some 60,000 people, and the government's generous incentives have done much to encourage such impressive numbers.

Now the cuts have faced more significant opposition from The Christian Social Union.

Cuts will weigh heavy on companies

Hans-Peter Friedrich, CSU leader in parliament, said the proposal by Environment Minister Norbert Roettgen to cut the feed-in tariff should be pushed back by three months to July 1 for rooftop systems and September 1 for open field systems.

Any law is almost impossible to pass without the support of the CSU, one of three parties in Merkel's center-right coalition with the CDU and the Free Democrats. Friedrich claims the extra time would give the sector a valuable transition period to avoid damaging fallout from the measures.

Cuts in public support will weigh on companies like Q-Cells, Phoenix Solar and SolarWorld, which depend on demand from Germany, so Merkel et al must consider their choice carefully. The cuts are indicative of how well the sector has performed even during a recession, but time will tell if it performed well primarily because of state support or if demand is high enough to help it cope with less government subsidies.

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