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Blueprint for success?

How Germany became the global leader in solar energy

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Germany, Solar energy, ANALYSIS

Observing the dark clouds that cover the sky over Berlin for great parts of the year, it is hard to believe that this mostly cold and damp northern European country has managed to become the global leader in solar energy.

But Germany’s installed solar capacity, according to its solar industry federation BSW, has already surpassed 37GW, more than that of any other country across the globe.

When compared to other regions in the world, Germany at a first glance doesn’t seem to be the ideal spot for harvesting the power of the sun: solar irradiation levels here range between 800 and 900 kilowatt hour per square meter each year.

In the Middle East and North Africa region (MENA) irradiation levels are between two and a half times to three times higher. In Dubai, for example, close to 2,200 kWh of irradiation per m² are the yearly average. So why did Germany become the frontrunner in the global solar industry and not other, apparently more adequate regions?

“The stable and predictable regulatory framework put in place in the country has greatly contributed to this solid market development,” Frauke Thies, policy director at the European Photovoltaic Industry Association, explains to Utilities Middle East.

“At the end of last year, solar was already covering more than 6.5% of German electricity needs, making a great contribution the country’s power system and entire economy.”

Guaranteed support
A milestone for the rapid expansion of Germany’s solar capacity was the passage in 2000 of the Renewable Energies Act (EEG) that introduced feed-in tariffs (FITs) for solar (and other renewable) power that are granted for a period of 20 years.

The EEG with its guaranteed support has kick-started not just the explosive development of the solar industry in Germany, but actually helped create a global mass market that was able to continuously drive costs down to what now have become competitive levels in many regions of the world.

“The cost of solar electricity generation has fallen by 80% in the past ten years,” says Milan Nitzschke, vice president at Germany’s largest solar PV manufacturer SolarWorld. “It’s a no-brainer to invest in PV now. Much less guarantees are needed than before.”

Germany’s idea to grant FITs for 20 years, which is backed by political guarantees, was a key element in giving banks enough security to finance solar investments, Nitzschke explains. The EEG and long-term support obviously didn’t emerge out of nothing.

As early as in the 1970s, Germans became highly suspicious of atomic energy and since the 1986 nuclear disaster of Chernobyl a majority is strongly opposed to it.

Lacking natural resources apart from coal, German universities and institutes such as the renowned Fraunhofer ISE institute early on started to research alternative forms of energy generation, supported by a growing ecological conscience and the rise of the Green Party that opposed nuclear and favoured renewables.

While solar and wind power already were on the rise, after the 2011 nuclear meltdown at Fukushima, Japan, German Chancellor Angela Merkel quickly recognised that the population would no longer tolerate atomic power and committed not only to a phase out of nuclear energy, but also to clear targets for the build-up of renewable capacity.

“Germany is a very special country worldwide. Political parties from left to right for many, many years have sustainability and renewable energy in mind,” says Paul van Son. In the past five years, he has led the Munich-based Desertec Industrial Initiative Dii (that has produced vast research on MENA’s renewable potential) and from next year on will head renewable activities in the MENA region and Turkey out of Dubai for German utility RWE.

“There is a sort of basic sympathy in the population for emission-free, no radioactivity power, making technology renewable.”

Many countries across the globe have imitated Germany’s EEG and introduced FITs - with varying degrees of success. Support mechanisms should undergo a “stability check,” Thies from EPIA stresses. “They need to be technology specific, predictable and dynamic at the same time,” she says.

“This means that support levels have to be adapted on a regular basis, based on objective and transparent criteria.”

Germany indeed grants different FIT levels for different renewable technologies, dependent on their level of market maturity. And support is subject to a regular digression with the intention that renewable technologies gradually decrease their reliance on dedicated support mechanisms and eventually become competitive with other energy sources.

Not everything has gone without glitches. Germany in past years hadn’t lowered FIT levels for new projects fast enough, and created a boom and bust cycle, leading to the record installation of more than 7GW of PV each year from 2010 to 2012. That was much more than power consumers could stomach, who in the end are financing the renewables build-up via a supplement on their electricity bills.

Also, Germany’s high support levels indirectly financed a massive build-up of a solar PV panel industry in China that rapidly was able to produce much cheaper than its peers in Europe. That, together with an accelerated decline in FITs from 2012 on, led to the demise of many German panel manufacturers, who either went bankrupt or were bought by Asian or US firms.

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No retroactive changes
Yet despite the pressure from rising energy prices, Germany avoided retroactive cuts in already promised renewables support which some of its European neighbours enforced.

“Retroactive changes as in other countries are unthinkable in Germany,” SolarWorld’s Nitzschke emphasizes. By contrast, Spain - the darling of the solar industry still six years ago - cut solar support retroactively. That not only destroyed the solar industry in the country, but also made some investors in other sectors shun the Southern European economy that already suffers from its severe financial and economic crisis.

Another mistake when building up a solar sector to avoid is to rely exclusively on large utilities to provide the renewable power.

“A variety of actors is very important,” Nitzschke emphasises, also in relation to MENA, where solar development is only starting to take off. Germany, by granting an equal access to support for small players such as private owners of rooftop PV installations, farmers, or cooperatives, has managed to achieve a very broad base of solar producers with a vested interest in getting costs down.

“It is a mistake to only bet on (large) electric utilities,” Nitzschke says.

Although Germany’s solar industry has been weakened by the struggle at PV panel manufacturers, the sector still employs 56,000 people and a variety of companies continue to do reasonably well, from solar developers to craftsmen installing solar installations on roofs.

“Despite the recent downturn, Germany remains one of the biggest markets in Europe, with a dense network of experienced companies all over the solar value chain,” EPIA’s Thies points out.

Europe’s share in the global accumulated PV capacity is set to narrow to a bit more than a third in 2018, down from about half this year, EPIA estimates in a market outlook published in mid-2014. While EPIA’s forecast for Europe’s annual new installation varies between 8.3GW and 13GW in 2018, it is clear that a large chunk of that will continue to come from Germany.

The government, in a recent reform of its renewables legislation, has set a target of 2.4-2.6GW in new solar installations each year and will give FIT support until the country’s total installed solar capacity reaches 52GW. By comparison, the total accumulated installed capacity of the Middle East and Africa combined in 2013 didn’t even reach 1GW, according to EPIA.

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MENA’s ‘gigantic’ potential
But the association also predicts an increasing shift in installations towards Asia and the MENA region. MENA in 2018 will account for between 7% and 10% of global new solar PV installations, the association estimates.

“The potential is gigantic,” reckons SolarWorld’s Nitzschke, but acknowledges that there are some insecurities in the region and that not all planned solar projects are being built (on time), as delays at Masdar have shown.

SolarWorld itself is heavily betting on expanding its presence in the Middle East through its 29% cross-share holding with Qatar Solar Technologies, a company owned by the Qatar Foundation and thus indirectly by the Qatari government.

QSTec is currently building up a polysilicon factory in Qatar, which is slated to produce an initial 8,000 tonnes per year from the first half of next year on, which could be expanded to more than 45,000 tonnes a year.

Polysilicon is the raw material for solar PV cells. SolarWorld also helped QSTec in building 300MW in module manufacturing capacity in Qatar that opened last summer (in 2014).

Despite the example of Qatar, countries rich in oil and gas in general lag behind solar developments, while countries poor in fossil resources such as Morocco, Tunisia and Jordan lead the pack, driven by the need to find indigenous energy sources after the tremendous surge in oil prices in 2008.

Morocco, for example, is currently building a 160MW first phase of the Ouarzazate concentrated solar power (CSP) plant, constructed by Saudi Arabia’s ACWA Power, and the World Bank already approved funding for a second, 350MW phase. CSP and other solar thermal technologies are rare in Europe as they require higher irradiation levels to become competitive, but could become a major pillar in the energy supply of MENA due to their energy storage possibilities.

But even fossil super-powers such as Saudi Arabia are rethinking their policies and starting to recognize that they can make much more money by exporting oil and gas than by burning it at home for cheap – but subsidised – electricity production from fossils.

“Little by little, those countries will create normal market conditions. That will make renewable energy competitive,” says Dii’s Van Son.

Solar in the MENA countries in coming decades will show a very fast growth that will outpace that of countries like Germany, he predicts.

“The growth potential in MENA is unlimited,” Van Son claims. “At Dii, all our surveys show that in 30 to 40 years, MENA countries can make almost 100% of their supply renewable, emission free.”

To reach such rapid growth, the region would be well-advised to learn from the success and avoid the mistakes Germany made.

Milestones of German solar
- 1990 – Germany’s accumulated PV capacity stands at 0.6MW
- 1991 – Germany passes electricity feed-in law that forces power grid operators to accept energy produced from renewable sources into the grid and establishes a minimum remuneration.
- 2000 – Germany passes its key Renewable Energies Act (EEG) that introduces feed-in tariffs (FITs) for PV and other renewable energies, fixed for 20 years. The accumulated installed solar capacity reaches 76MW. FITs rise from €0.0823 per kilowatt hour to above €0.48 per kWh.
- 2010 – Accumulated solar capacity reaches 17.3GW
- 2011-2013 – Global overcapacities, cheap Chinese competition and repeated FIT cuts cause the demise or sale of many German PV panel manufacturers such as Q Cells or Conergy.
- 2013 - Solar power as share of overall electricity consumption tops 6.5%
- June 2014 – Germany reforms the EEG, introducing a government target of 2.4-2.6GW per year in new solar installations. FITs drop to between €0.089 and €0.1288 per kWh, (depending on the size and location of a project.)
- Sept. 2014 - Germany’s accumulated solar installed capacity reaches 37.3GW

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