Posted by Michael Mendolia
For many years now, the rapidly growing photovoltaic industry has been primarily a European phenomenon – in 2011, 75% of all new installed capacity was located in Europe – and the countries getting the most attention have been Germany and Italy. With over 24.6 GW of cumulative capacity at the end of 2011, Germany has maintained its status as the leading country in terms of total installed capacity, but last year Italy was the top market, with 9.3 GW of new PV connections compared to 7.5 GW for Germany. Nonetheless, prospects for continued growth in Germany and Italy are now considerably bleaker, due to recent sharp cuts in governmental subsidies, compounded by the ongoing financial crisis in the euro zone.
In Germany, Angela Merkel’s government has been striving to reduce the pace of annual photovoltaic growth, after last year’s installations significantly surpassed the 2.5-3.5 GW target, making the costs of the related incentives unexpectedly high. A plan to reduce subsidies by as much as 29% as of April 1st was blocked by Germany’s upper house of parliament, the Bundesrat, in May. After weeks of negotiations, Germany’s parliamentary mediation committee finally settled on a compromise to cut solar power subsidies. Under the deal reached, the government will maintain a target of new solar installations between 2.5 and 3.5 GW per year, but there will be a cap on subsidies when installed capacity reaches 52 GW, which the European Photovoltaic Industry Association (EPIA) has suggested could occur in Germany no earlier than 2016. The agreement also put in place a new incentive for mid-size roof systems (10-40 kW) at 18.5 euro cents per kW/hour, which was higher than anticipated; otherwise, new installations will be subject to subsidy cuts, retroactive from April 1st, as proposed earlier. According to the German Environment Minister, these changes will support the expansion of solar energy, while avoiding excessive growth. While this compromise maintains the large subsidy reductions (20-30%, depending on system size) proposed by Angela Merkel’s government, one concession to the solar industry was that the annual targets for new installations were not lowered or capped, as previously discussed. Since the deal was approved by the mediation committee, which includes representatives from Merkel’s party as well as the opposition, it is widely expected that a final vote by the German Parliament is merely a formality.
Meanwhile, in Italy, the government is similarly attempting to curb further photovoltaic growth. It was announced in April that a new renewable energy law (known as Conto Energia V) will come into effect when the photovoltaic feed-in tariffs reach €6 billion, which is expected to happen sometime between July and October this year. The new law will most likely include reductions in incentives, an annual installation cap (probably in the range of 2 to 3 GW, similar to the German scheme), and less support for ground-mounted systems (which may only be allowed on contaminated land or landfills in the future). In consequence, Italy’s roof-top sector, which is currently quite small, will be poised to grow, though analysts have predicted that Italy’s overall photovoltaic installations in 2012 will amount to no more than 2 GW, representing less than a quarter of last year’s installations.
There is no doubt that Europe will continue to be a significant market for photovoltaic energy in the coming years, and both Germany and Italy will certainly be notable players, particularly as the markets there are already been well-developed, with established supply channels and trained installers. However, it is not unthinkable that other countries or regions could be the bright stars of the future, based on the convergence of a complex set of factors including utility electricity pricing, governmental incentives, ease of connection to the electrical grid, and the existence of a robust supply channel. While governmental subsidies have driven market growth over the past decade, the solar industry’s long term success is dependent on achieving cost structures which make solar energy attractive even in the absence of such incentives. As the price of solar panels continues to fall, especially with the influx of low-priced Chinese products, grid parity has already become within reach for some large projects.