• "Quo vadis solar?" Reduction of solar power tariffs in Europe
  • May 13, 2011 | Author: Andreas Kloyer
  • Law Firm: Sibeth - Frankfurt am Main Office
  • In the light of the urgent need for budget consolidation and the rising electricity prices, state subsidies for electricity from renewable sources are being drastically reduced not only in Germany, but in the whole of Europe. This especially affects the incentives for photovoltaic installations.

    On 2 February 2011 the German cabinet passed the reductions in the renewable electricity tariffs which had already been announced. This will mean severe cuts for the solar energy sector. As agreed between the German government and the German Solar Industry Association, the subsidies will be reduced by between 3% and 15%  -depending on the predicted output of new installations. These changes will affect roof installations from 1 July 2011 and installations on open land from 1 September 2011. The general reduction of the remuneration by 9% as from 1 January 2012 will remain. In total if there is a high volume of newly built installations, the remuneration rates could fall by up to 24% taking into account the prior reduction and the legally fixed total reduction. It must also be taken into account that the tariffs have already fallen by about a third from the end of 2009 to the beginning of 2011. However, the German parliament and the Federal Council still need to approve the cabinet proposal.

    The situation is similar in Spain: Shortly before Christmas, the Spanish cabinet issued a new law (Royal Decreto) which stipulated a reduction of the feed-in tariffs by approx. 40%. According to this law, the number of hours for which solar electricity is remunerated will be limited. By 2013 the number of hours for the affected photovoltaic installations is to be limited to 1250 hours per year. From 2014, depending on the topographical situation, it will be limited to 1230 to 1750 hours. By way of compensation, the law stipulates that the feed-in remuneration for a solar installation is to last three years longer, i.e. a total of 28 years. The draft law has already been passed by the congress, but it was rejected by the senate. However, only minor improvements should be expected in the negotiations.

    After two reductions in the feed-in tariffs in 2010, France now plans further cuts. To gain time for a change in the law, a three month freeze for approvals until 8 March 2011 was passed for installations with an output of more than 3 kW. A remuneration of 0.42 euros per kWh instead of 0.55 euros per kWh is being discussed, which would mean a reduction by 24%.

    Drastic steps are being taken in the Czech Republic to reduce the cost of solar power incentives. With the exception of roof installations with a maximum output of 30 kW, solar energy incentives are being completely discontinued for all new photovoltaic installations.

    Installations which did not fulfil all of the requirements for incentive payments by 28 February 2011 are regarded as new. In addition, the revenue from the operation of solar installations which begin to operate this year or last year will now be subject to a withholding tax of 26% to 28%. The tax is to be levied for three years and to apply to installations with a capacity of more than 30 kW. As further measures, tax exemptions are to be abolished and the charges for using farmland to build solar installations are to increase by up to 500%. In addition, a gift tax of 32% is to be introduced for emission certificates received free of charge for the years 2011 and 2012. These changes in the law are particularly serious in connection with the previously resolved reduction of the feed-in tariffs by more than the scheduled 5% per year. For installations with a capacity of over 100 kW, this means a reduction of approx. 55% for 2011 compared with 2010.

    The new provisions in Italy are less severe. The proposed flat rate reduction of the feed-in tariffs by 30% has not prevailed. Instead the changes are far more differentiated and balanced. In the first third of the year, the tariffs for roof installations will be reduced by 4.75% to 13.28% depending on the size, and for all other installations by 9.3% to 14.2%. During 2011 the remuneration will be reduced further every four months. In 2012 and 2013 the incentive rates for roof installations will fall by 2%, and for other installations by 6%. In addition to the reductions, incentives will be limited to 3,000 MW for non-integrated systems and 200 MW for roof installations.

    Incentives in the UK continue to be more attractive. Installations which are installed at the latest by 31 March 2012 will receive a feed-in remuneration of up to 41.3 pence or 0.49 euros per KWh. Generators who do not use the power themselves, but feed it into the grid, receive "income from exporting energy" which amounts to 0.035 euros per kWh. As a further incentive, the valid tariff is increased annually according to the rate of inflation. The feed-in remuneration is also guaranteed for a period of 25 years. But as it was already apparent that far more solar systems were being installed than had been predicted, so at the beginning of this year the UK government announced that the feed-in tariffs would be reviewed one year earlier than planned.

    Since January 2009, Greece has also paid a fixed feed-in remuneration to the operators of photovoltaic installations. According to the new tariffs, as from February 2011 one MWh from an installation of less than 100 kW which is connected with the grid will be remunerated with 419.43 euros. Installations with a higher capacity will receive 372.83 euros per MWh. A higher remuneration will be paid to unconnected isolated systems: 466.03 euros per MWh for installations with a capacity of no more than 100 kW, and 419.43 euros per MWh for installations with a higher output. These subsidies and the high level of sunshine make Greece an attractive investment location.

    Finally, an interesting incentive programme is also planned in Romania. Under this programme, in addition to the price that can be achieved for power on the free market, photovoltaic installations will also receive six green certificates per MWh. The certificates are traded in a defined price range from 27.00 to 55.00 euros and served as proof that mandatory quotas for power from renewable energy have been fulfilled. With incentives paid for a period of 15 years and a high degree of sunshine, Romania could become a new attractive location for investment in photovoltaics.

    On the one hand, the solar energy sector will certainly suffer from these new provisions. Large markets such as Spain, the Czech Republic and Germany are becoming less and less attractive. These changes, some of which are retrospective, will cause the operators of photovoltaic installations to worry about the security of their investments. And this uncertainty will make it more difficult to finance new projects. The main losers from these changes are large installations on open land. Smaller installations on buildings are hardly affected by the changes.

    On the other hand, the ambitious climate protection goals of the European Union also lead to new markets. It remains to be seen whether these new markets can compensate for the decline in the main markets.