German lawmakers appear to be looking at a whole new way of setting theirsolarfeed-in tariffs.

The country's environment minister, Norbert Roettgen, told a newspaper that the government wants to "develop a mechanism that reacts flexibly to market developments. The current regulation is too rigid" (via Bloomberg).

The comment, though vague, points to the possibility that the newly elected and more conservative coalition government might change its solar incentive policy to adjust the tariffs throughout the year. The current policy calls for the tariffs to fall once a year, at the beginning of the year.

Feed-in tariffs are solar electricity pricing set by the government to boost clean energy generation. Utilities (and by extension the public) are required to pay those premium rates for any solar power fed to the grid, whether it's coming from large solar farm owners or homeowners. 

The policy has helped turn Germany into the world's largest solar market and a model for other countries. Many European nations, such as Spain, France, Italy and the Czech Republic, now have their own feed-in tariffs.

But Germany is experiencing something similar to what Spain went through in 2008. Back then, Spain had more lucrative incentives and attracted so many power projects that the amount of new generation capacity shot up to roughly 2.7 gigawatts in 2008 from 560 megawatts in 2007.

The Spanish government reigned in the feed-in tariff program by setting a national cap of 500 megawatts in 2009, because the program was costing the public dearly.

After a lackluster first half of 2009, when credit crunch was severe and project financing was hard to come by, solar companies began to experience a pick up in demand thanks to Germany. In fact, Germany saw about 1.47 gigawatts of new installations from January to September this year, and its solar industry association thought at least another gigawatt could be added by the end of the year.

The boom has prompted public debates about whether Germany's subsidies are too generous, and whether the policy has benefited non-Germany solar companies (mostly Chinese manufacturers) at the expense of Germany's own.

The new federal government elected in September has hinted all along that it would change the feed-in tariff policy, though to what extent remains to be seen.

The feed-in tariffs already are set to decline between 9 percent to 11 percent in 2010. They could fall another 10 percent to 15 percent by the middle of next year, wrote Jesse Pichel, a financial analyst with Piper Jaffray, in a research note Friday.

The German government could end up adjusting rates at different times of the year to keep the internal rate of return for each solar project to the single digit, Pichel wrote. The IRRs have reached 20 percent in some cases this year because the solar panel prices had fallen by as much as 50 percent.

If the German government does lower feed-in tariffs further by mid-2010, that could prompted developers to speed up their work on the projects and complete them before the rates fall.