Germany's Solar Fallout

Several sources now report that Germany plans to decrease the (feed-in-tariff) FIT by ~15% starting April 1 for smaller installations (unless you also consume the electricity you produce in which case you get a 5 eurocent/kwh kicker which could put you roughly back to the current FIT) and the same -15% on July 1 for larger commercial installations. Also utility scale/farm field installations will see an extra 10% (for a total of 25%) reduction in FIT July 1.

I predict this will result in a continuation of current stampede on the German market for the next 5 months, and module prices to hold steady until summer. Expect at least 2GW to get crammed into Germany by midyear. In the second part of the year, either a) the German market will contract ~50% to 0.5GW/qtr or b) panel prices will drop up to 15%; or some combination of each. [A 15% price drop will be shared out with installers and others in the supply chain--so it probably won't be a complete disaster--just painful for all.]

If b) happens, panel prices in the second half of the year drop by up to 15%, this will be a record year in terms of GW installed worldwide, as several markets in Europe and Asia (not to mention the US) are poised to expand quickly. Margins of panel makers will dip in the second half, but revenue growth will still be double digits for the year.

If a) panel prices do not drop in the second half, then I expect there will be a boatload of pain as the solar industry hits a negative demand shock from Germany’s recent decision. In this scenario the tide of panels that is currently rushing into Germany gets diverted to any port in the storm and less mature solar markets like France, Italy, Greece, Ontario, Korea will be flooded with 100s of MW of panels and possibly scare these FIT paying market regulators into slamming their doors shut (as Spain did and now Germany is doing in a gentler fashion), until there is nowhere left for the panels to flow. Solar will be "hung out to dry"...as policy makers pull back from offering incentives and the quickly growing incentive driven industry crashes to earth (possibly even damaging prospects for other renewable industries).

My view is that less than a 10% cut in Germany’s FIT would have been business as usual (full steam ahead!) and that a 20% cut or more would have led to a year over year market stall/contraction. So a 15% cut will likely lead to moderating global growth (15% rather than 35% if Germany cut by less) for 2010 with wholesale panels at year end costing ~$1.70/W ($6/W installed) vs ~$2/W ($7/W installed) today.

This is basically guesswork looking ahead based on what we've just learned this week, there are so many variables...a big (10% or more) exchange rate move in any one of several countries could scramble these projections completely. But I see an 80% chance that scenario b) occurs and we get a profitable and growing--although much slower rate than it looked like just a month ago--leaner solar panel market emerging by the end of the year. Still there is certainly a modest chance we get a) and things turn out much rougher (and it will be tumultuous for those in the fray) than I am expecting--FWIW.

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