The German Parliament appears to be nearing a decision onsolarsubsidies, with the ruling political parties tentatively reaching an agreement to cut the feed-in tariff by as much as 10 percent next year (see Green Light post).

The decision came far quicker and spelled out a far less dramatic reduction than anticipated, as some have pushed for cuts as high as 30 percent next year and 9 percent in 2010.

The changes would modify the rates mandated by a law that requires utilities to buy all the solar electricity generated at a fixed price for 20 years.

The German law has been credited with making the country the top solar market in the world where it now holds roughly half of the installed global solar-electric capacity. The law has also been credited with jumpstarting the industry. Solar companies have been anxiously awaiting a final decision, as the tariff has essentially set the price for the solar-panel market globally.

The Christian Democratic Union and the Social Democratic Party’s deal would reduce the tariff by 8 percent in 2009 and 2010, followed by 9 percent in 2011 for energy generated from rooftop solar panels, which represent about 70 percent of the solar installations in Germany, according to a research note Friday by Jeff Osbourne, an analyst with Thomas Weisel Partners. Reuters reported that the cuts would be steeper for other types of solar panel installations.

The overall rate decrease for all installations would be an average of 10 percent in 2009, 7 percent in 2010 and 8 percent in 2011.

That's higher than the 9.2 percent drop for rooftop projects and 9.8 percent for ground-mounted projects that Germany's environmental ministry suggested in December, but shareholders were apparently relieved that it wasn't higher. Solar shares shot up on the news, with Q-Cells shares up 9.8 percent to €78.15 ($121.53) and shares of SunPower Corp. up 6.8 percent to $81.14 in recent trading.

Utilities are paying between 38 and 54.2 euro cents per kilowatt-hour for German solar installations completed this year, according to German investment-promotion agency Invest in Germany. That so-tariff already declines 5 percent each year for rooftop solar-power projects and 6.5 percent each year for ground-mounted projects.

A 10 percent drop would equate to between 34.2 euro cents to 48.8 euro cents for 2009 projects.

But the agreement isn't a done deal. The two ruling political parties still have to nail down details of their pact, which they are expected to do on Monday. The parliament could vote on it next week, according to Osbourne. The agreement also would include increases in the government's support for wind energy and biomass projects.

The Christian Democratic Union and Social Democratic Party have tussled over the amount of solar energy subsidies for months. The conservative Christian Democrats have advocated for a larger cut, arguing that the government has done its job supporting an industry that already has grown tremendously.

The two parties arrived at this compromise after an eight-hour negotiation. Some industry analysts had expected the negotiation to stretch into the summer.

Some German lawmakers and companies have forecast a shaky future for the country's solar electric industry and its dominance in the world market if the government yanks away a big chunk of financial support. Some lawmakers had initially proposed a rate cut of 9.1 percent in 2009 and no cuts in 2010 (40 euro cents) and 2011 (0.36 euros). Then a study by German research institute Rheinisch-Westfaelisches Institute fuer Wirtschaftsforschung, or RWI, said the cut should be as high as 30 percent.

"Given the 40,000 to 50,000 people employed in the photovoltaic industry in Germany and high unemployment rate there, we never saw such a cut as plausible as it would undermine the health of the PV industry in the region and lead to significant job losses," said Thomas Weisel's research note.

 

But others argue that the subsidies have caused the solar industry to grow too fast, at a pace that is not sustainable and comes at a steep cost to consumers. Besides, the growth has led to a gradual decline in the cost of generating solar electricity, which could cost about the same as conventional energy generated by fossil fuels by 2015, some analysts have said. Julie Blunden, vice president of external affairs at SunPower Corp., said she's pleased the political parties are working toward a resolution, but added that it's too early to comment as the decision has not yet been finalized.

Ron Kenedi, head of U.S. solar operations for Sharp, said that all solar incentives are important to the industry and that the deal shows that Germany recognizes the benefits that solar has brought to the country.

"Any kind of incentives that are given for solar anywhere in the world is much-appreciated in the industry, and the Germans and the Europeans have certainly been leaders in incentivizing solar power on the ground and on the roofs," he said. "This is something our government could use as an example of how to keep the industry stable and even to enhance it."

Still, he said that he expects the United States to soon overtake Germany to become the largest market in the world. The U.S. solar industry has for months been trying to extend the country's renewable-energy tax credit, which set to expire at the end of the year, but Congress has so far failed to pass the bills that would extend it.

"I'm a firm believer that the U.S. is the fastest-growing market in the world and I do believe that in a short period of time, it will be No. 1 in the world -- no matter what is happening elsewhere because of a confluence of factors," he said, citing high energy costs and political concern about climate change and energy independence. "There's just a big change happening in the U.S. and we're going to see that equate to the biggest solar market in the world in a short time."

South Korea, as well as China, Italy, France and Greece also are considering new initiatives that could make them big markets, Travis Bradford, president of the Prometheus Institute, said this week.

Epuron on Thursday announced it had completed its first project in South Korea and planned to expand there (see Epuron Expands into South Korea).

-- Editor Jennifer Kho contributed to this story.