Germans show green investors and politicians how to build Solar

Global Solar Capacity

It is estimated that the UK has a total installed solar capacity of 661 MW, about 1% of global installed capacity(68GW, or 68,000MW) and which grew at 28,000MW in 2011. The growth in solar is largely due to feed-in-tariffs introduced in Europe to meet renewable energy targets and in particular Germany which has installed capacity of 25,800MW (38% of global installed capacity).

As you can see from the chart opposite total UK solar capacity installation figures pale in comparison to Germany -25,800 MW versus 661MW.

European countries made up 75% of solar installed in 2010. Big solar programs include Italy with around 12GW, Spain, France and the Czech Republic. China and America are also growing their solar capacity, both adding more than 1GW this year alone.

China increased its target for 2015 this year from 5 to 10GW, hoping to get 50GW by 2020 (almost matching Germany's target of 52GW), but had only 0.8GW at the end of 2010. The US had only 2GW at the end of 2010, with much based in sunnier states such as California.

There is also increasing solar activity in the Middle East and surrounding areas, with a 10MW solar park in Abu Dhabi, where more large projects are planned, and a 400MW project in Oman that has been announced today.

2011 Installations in the UK

In the UK there has been a lot of fuss over 'unsustainable' solar growth. In December 180MW was added to UK Solar, taking the total installed under our feed-in-tariff to 593MW. In Germany in the same month 3000MW of capacity was added (shown graphically below). This is not just over 15 times the amount which was installed in the UK in December, but five times, in one month, the amount installed in the UK since the feed-in-tariff was introduced in April 2010.

New solar photovoltaic installations per month over 2011, data from DECC and Bundesnetzagentur

Recent proposals for the UK solar Feed in Tariff to be cut from 43.3p to 21p per kWh have been found unlawful, a decision that the government is currently in the process of appealing. The outcome of this legal process is uncertain, but the tariff cut is all but certain, just slightly delayed. The skill with a renewable subsidy is to reduce them methodically and predictably in a way which industry is able to plan for. In this way renewable power can achieve sufficient scale to drive costs down to the end consumer. Germany regularly reduce their tariff, as they do every year, by 15%, this may fall even further, to a 24% drop, if new installations pass a certain limit. The issue in the UK seems to be that the Coalition Government do not have a consistent vision for renewables that they understand, or that the Treasury buys into. The renewable agenda has really been inherited from the previous Labour govenment and so the issue has become a bit of a political football. Where, one might ask, is David Cameron? Who is driving this forward?

Falling costs of solar panels and energy prices

The aim of introducing solar in the UK is to try to reduce the long term cost of power in the UK consumer. It has been predicted that solar energy will reach grid parity i.e. it will cost the same as the average cost of power from the National Grid. At the moment this seems a distant hope, but in Germany in the summer solar is of such a scale that during peak demand electricity prices have been capped. In Germany solar is reducing the ability of electricity companies to hike prices during peak demand.

There are two key factors in achieving grid parity. The first is the rising cost of fossil fuels and the second is reducing the cost of installing solar in the UK. Economies of scale are so important here. In Germany a study recently showed that it cost $2.80 per watt to install solar power compared to $5.20 per watt in America. In other words, the scale of the German industry makes the process half the cost of that in the US.

Of course it is not just the scale of the German industry, but the scale of production facilities and in particular Chinese production facilities which is helping drive costs down. The Chinese solar Feed in Tariff was brought in in August last year, at a rate of around 11p per kilowatt hour to help domestic demand. At the same time though Chinese solar companies receive benefits from the government in the form of loans and favourable land renting laws. This has been contested by the US solar industry, and there is currently a trade dispute around the “dumping” of cheap Chinese solar panels on the US market. However, the Chinese action has meant that the Chinese solar panel production industry has been able to produce at very low cost, and to continue production and expansion even when demand has been weak. This has meant that the cost of solar energy has gone down rapidly, but it has also meant that companies that produce solar panels have come under intense competition, particularly damaging for US solar companies such as Solyndra.

The Future for Solar Energy and what this means for environmental investment

The problem for the solar industry is that demand has been created by countries like Germany introducing feed-in-tariffs to bolster demand at a point when the pure ecomonics do not stack up. Germany has a progressive energy policy and is particularly motivated to continue due to its anti nuclear stance.

The problem in other countries, such as the UK, is that at a time when the government is acutely conscious of rising short term costs due to the financial crisis, political decisions are being made almost in a panic, without the long term future in mind. The German example should be a beacon to UK politicians and should be a lesson to David Cameron, that long term policy is a good idea and can work for the UK consumer. The way that the Coalition has dealt with the solar industry so far is a shambles and needs better political leadership.