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Germany battles over the future of solar energy

Germany solar industry 2012 02 17
Solar panels soak up the rays in Berlin. Germany now has half of the world's entire solar energy capacity. (Andreas Rentz/Getty Images)

Germany battles over the future of solar energy

Germany politicians try to reign in the struggling solar industry.

BERLIN — Last year Germany produced a record amount of energy from solar panels installed on rooftops and in fields across the country.

With a total of about 25 gigawatts of installed panels, Germany now has half of the world's entire solar energy capacity.

An unprecedented 7.5 gigawatts of panels were added to the country’s energy system in 2011, twice the government’s target.

One would think that for a country firmly committed to ambitious targets for renewable energy and emissions reductions, this would be a good thing. Instead, politicians in Berlin are furiously negotiating to find a way to slow down this rapid expansion, due to the huge costs involved in paying for solar power.

Two ministries in Berlin have been at loggerheads over their different priorities in tackling the problem. While Economics Minister Philipp Roesler, leader of the Free Democrats, wants to make the energy costs cheaper, the Environment Ministry, headed by Norbert Roettgen, a member of Chancellor Angela Merkel’s Christian Democrats has to balance economic interests with Germany’s climate goals.

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Solar, it appears, will be the likely loser, as both ministries foresee less support for the industry in the future.

The current debate is focused on the solar subsidies that are largely paid for out of consumers’ pockets.

Critics argue that the costs have shot up, as solar expanded from just 1 percent of energy in 2009 to 3.5 percent in 2011. It’s on target to rise as much as 4.5 percent this year. This expansion is pushing up energy costs in general for the German economy. 

Supporters say prices are already starting to fall, that the majority of expenses have already been invested. They say that support for the industry needs to be maintained now more than ever.

In a sense, Germany’s solar energy policy is a victim of its own success.

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Over a decade ago, politicians enacted a complicated subsidy system designed to kick-start the green-energy sector, which faced enormous competitive barriers when pitted against mature energy sources like coal and nuclear. 

The Renewable Energy Sources Act of 2000 set up a system under which energy companies were obliged to buy all electricity generated by green-energy producers at elevated prices, known as a feed-in-tariffs. 

The government established feed-in-tariffs, or FITs, that gradually decreased over a 20-year period, to reward rapid adoption of renewables, while also ensuring that green-power generation would eventually become competitive.

In practice, the cost of producing solar dropped more quickly than the tariff cuts. That meant that customers were in effect simply ploughing money into massive profits for the booming solar industry. 

Politicians in Berlin have become alarmed that the policy is becoming harmful for Germany. The rapid rate of panel installation has translated into high costs for utility companies and customers. Moreover, overcapacity and competition from cheaper solar modules, produced in Asia, mean that many domestic companies can’t compete. Around half of the panels now being installed in Germany are imported from China.

The result has been a spate of German solar companies going bust.

To address the problem, the government has already doubled the pace of tariff decreases each year from 5 percent to around 10 percent.

The Environment Ministry is now proposing cutting the tarrifs more rapidly so that they keep pace with the dwindling costs. Roettgen has told solar industry representatives that he would like to reduce these subsidies on a monthly basis instead of twice a year.

However, the economics minister is proposing much more drastic measures. In a draft bill Roesler sent to lawmakers in January, he envisages capping German solar panel installations to just 1 gigawatt a year on average through 2020.

The proposal has alarmed the already struggling solar manufacturers. Environmentalists say it could undermine efforts to develop renewables to compensate for the nuclear stations that Chancellor Merkel has decided, since Fukushima, should close by 2022. Germany’s current target is for green technologies to provide 35 percent of the country’s energy needs by 2020.

For Roesler, the issue is political. He is hoping his opposition to solar subsidies will boost his profile. His party is languishing in the polls, and the issue gives him an opportunity to argue that he is protecting the consumers. There are many — not only in his own party but