Will German Incentive Cuts Stunt the Solar Industry?

A lot of apprehension is circling the solar industry right now as Germany considers cutting its lucrative solar power incentives in 2010. A predetermined 10 percent cut automatically took effect at the start of the new year, and now the German government is considering cutting them even further. It’s a move that would hurt German solar companies and could significantly affect the solar industry as a whole.

The cuts would hit solar power at its core. Germany alone accounts for more than half of worldwide solar photovoltaic production, so a significant hit to Germany’s solar market would be felt the world over. On the one hand, slow demand during the global recession has facilitated a rapid drop in equipment prices, making solar power even more appealing to consumers. On the other hand, the fall in prices is taking a toll on solar power manufacturers and suppliers, a toll soon to be exacerbated by expected cuts to German incentives.

Will the cuts deal a mortal blow to solar power? No. But it may alter the playing field in the industry. German solar giants like Q-Cells and Siemens will take it the worst. Low-cost-per-watt manufacturers like Trina Solar and Yingli Green Energy Holdings of China, as well as First Solar in America, will have the most to benefit from, or at least, feel less of an aftershock.

According to Forbes, the reported cuts will take effect in early April, tacking another 17 percent on to the 10 percent cut administered at the year’s onset. The government may also cap subsidies for 2010 and following years. The real question pervading the solar industry is whether or not these cuts are coming too soon. Spain realized last year the damage that can result from abandoning solar subsidies too soon, as the country watched their commanding lead in solar electricity production it accumulated in 2008 spiral downward in ’09.

It must be said, however, that nothing short of an uproar can be expected from solar companies when subsidies are reduced. Private firms relish life in a world of subsidy where profits are almost certainly guaranteed and stockholders buy with confidence. But subsidies are always meant to be temporary, although the U.S. oil and gas industry seems to be immune to that logic, and sooner or later, German, Chinese, American and every solar industry in the world will have to fend for itself. But is it too soon?

2010 is expected to be a boom year for solar power, which is getting a great start ahead of projected cuts in Germany, and I can’t say for sure either way, other than to say that a 27 percent reduction still leaves subsidies at 73 percent of their former strength, which, I posit, still leaves Germany well ahead of many countries and markets. Furthermore, solar prices fell by nearly half in 2009, so is an extra 17 percent cut in subsidy really all that radical?

Photo Credit: Reuters