Why Germany’s shrinking solar subsidy is good

June 10, 2008   by Jozef Winter

Last week the German government announced that it would be lowering the current subsidies that it provides for individuals and companies that purchase and install solar power. Their environmental ministry is proposing a cut of 9.1% next year, while other lawmakers say the rate should be closer to 30%. This cut, while lower than the expected latter figure, was welcomed with a sigh of relief, but is still a cut, leading many to speculate troubles for the solar industry ahead, but I look upon it from a different angle.

Germany is the world leader in solar power, with $8.8 billion in sales and the biggest buyer of panels in the world. It wasn’t always that way, and about 10 years ago the government started their subsidies, both in the form of direct rebates and guaranteed prices per kilowatt-hour produced (up to a staggering $0.74 per KW/h). Such incentives encouraged many to start producing their own power, and there are now over 1.5 million solar systems running in the country. The industry is set to expand by 20% annually over the next decade and add another 70,000 jobs to the already 40,000 employed in the industry.

While the news surrounding the subsidy changes have sent stocks see-sawing, they haven’t created large shifts and in many cases have increased share market values. The drop in subsidies, in my mind, is a clear indicator that the industry is now at a point where their success is guaranteed and no longer needs the help of the government to be profitable. This is evinced by the fact that following the announcements of cuts, Bosch said it will be investing over 500 million € for a controlling share of Ersol, a major solar manufacturer, and might even put in nearly double that for full control. Clearly an industry in crisis would not even contemplate such a move.