The German economic ministry has approved the draft of a law that would accelerate the decline of subsidies for solar power in the country, sending the proposal to the Bundestag.

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 (see overview). That so-called "feed-in tariff" already declines 5 percent each year for rooftop solar-power projects and 6.5 percent each year for ground-mounted projects.

But the draft of the Renewable Energy Sources Act that Germany's environmental ministry submitted Wednesday – with which the economic ministry concurred -- calls for a steeper drop of 9.2 percent for rooftop solar projects and 9.8 percent for ground-mounted projects in 2009, a 7-percent decline in 2010 and an 8-percent decline in 2011.

The draft, which the German parliament is expected to consider next year, after the winter recess, matches a proposal the environmental ministry released in October -- with the exception of the 2009 decline, according to two research notes by Jesse Pichel, senior research analyst at Piper Jaffray.

The environmental ministry had originally proposed a drop of 7 percent in 2009, but the economics ministry had wanted reductions of 9.5 percent, according to one of the notes, dated Oct. 15. The current draft appears to be a compromise.

Still, the draft is "as expected," Pichel said. "It's very positive for the solar industry, as it gives visibility into the subsidies for many years."

In a research note in October, Pichel wrote that the accelerated decline would "separate men from boys," as panel prices would have to decline up to 10 percent to keep margins stable. He added that companies without enough silicon would see "pronounced" margin degradation.

But Travis Bradford, president of the Prometheus Institute, a Greentech Media partner, said the tariff reduction is slightly more than what the market has expected.

"Germany sets the market-clearing price for the global module market, so what happens in the German market affects everybody else in the world," he said. "This definitely signals a shift in thinking. And a shift in thinking for the market that sets the global price is a [significant] signal."

Still, Bradford cautioned against reading too much into the draft.

"It's marginally bad news for producers and marginally good news for consumers outside of Germany, who might be able to get more panels," he said. "Let me emphasize the word 'marginal.'"

Bradford added that the expected 2009 decline could accelerate demand for German projects next year as companies try to lock in the higher rate.

In a research note Wednesday, Jeff Osborne, an analyst and managing director at Thomas Weisel Partners, also said that might happen.

He added that while he is positive about the visibility the draft gives solar investors, "we are still left with the key question of how the German solar market will react to the larger-than-expected price declines in 2009."

He added that while he is positive about the visibility the draft gives solar investors, "we are still left with the key question of how the German solar market will react to the larger-than-expected price declines in 2009."

He doesn't expect to see strong orders "exiting 2008," according to his note.

Daniel Englander, a research associate with Greentech Media, also said producers might see a drop in demand in 2009 as buyers readjust to the lower tariff.

"Producers will need to be careful to not manufacture too much capacity," he said.

Of course, these comments are based on the draft becoming law. But the drafted tariff reductions are still only a proposal at this point.

The draft must pass through the parliament before taking effect, and Pichel said it's still possible the parliament might decide to raise the tariff rates from the current draft.

And as stakeholders prepare for the debate to begin in Germany, another debate on feed-in tariffs is beginning in California.

As part of the 2007 Integrated Energy Policy Report, the California Energy Commission on Wednesday recommended that the Golden State adopt a feed-in tariff for renewable-energy projects of up to 20 megawatts and collaborate with the utilities commission to evaluate tariffs for larger projects.

The tariff, intended to help California meet its renewable goal of 20 percent by 2017, would initially be set at the market price.

If it happens, California would be the first state in the United States with such a feed-in tariff.