Solar incentives to fall amid uncertain global economy

Another dark cloud is waiting for solar companies towards the end of every year: the decline of government incentives that in the past have pumped the growth of the solar market worldwide. The United Kingdom, for example, announced Monday a plan to halve its subsidies for solar panel installations in 2012.

The U.K. has a feed-in tariff that sets premium prices for solar electricity in order to guarantee a return for those who invest in solar. The prices dictate how much utilities have to pay to buy solar electricity under a long-term contract (and they have to buy all of the solar electricity that is available for sale), though it’s the consumers who end up paying for the subsidies.

Feed-in tariffs have made countries such as Germany and Italy among the world’s largest solar energy markets. But the tariff also is supposed to fall over time as more installations materialize and, presumably, the cost of those systems should fall as well. The German government recently announced a 15 percent decline in tariff for 2012.

Lowering subsidies forces manufacturers to lower their prices and intensifies competition. Solar panel prices already have plummeted around 30-40 percent this year alone because supply has far outstripped demand. As a result, profits have fallen in a big way for many manufacturers, factories have closed, and a spat over government subsidies has emerged between the U.S. and China. Prognosis for the 2012 market isn’t clear and will depend in part on the health of the still-weak economy.

Government support

Governments sometimes struggle with how quickly and how much the incentive should fall, and their decision (or indecision) can cause a big boost or bust in sales for solar equipment manufacturers. Typically the tariff drops when there has been a boom of installations in recent months or the past year.

“A recent surge in households installing solar PV has threatened to break the budget,” said the U.K.’s Department of Energy and Climate Change. “There were over 16,000 new solar PV installations in September alone – nearly double the number installed in June.”

The country started its feed-in tariff policy in April 2010 and has since seen over 400 MW of solar come online, or nearly three times the government’s projection. The cost of installing solar panels has dropped at least 30 percent in the U.K. since April 2010, the government said.

Underestimating the popularity of the feed-in tariff program also has bedeviled other governments and sometimes led to a dramatic shrinkage of a once booming markets (hello Spain).

Solar manufacturers had once hoped the U.K. would become a significant market. Sharp announced a near-doubling of its solar panel factory in England earlier this year.

Solar manufacturers have been hunting for newer markets that could perhaps offer more lucrative returns. The U.S., China, India and Japan have been on the roster. There isn’t a national feed-in tariff in the U.S., but many states have renewable energy mandates and rebates that have buoyed solar energy installations from small rooftop systems for homes to large solar farms serving utilities. The nuclear power plant disaster in Japan has prompted lawmakers to create a feed-in tariff program for solar and other types of renewable power, though they won’t decide on the amount of subsidies until next year.

Both China and India have passed policies promising solar incentives that will last for a decade or more.

The U.K.’s proposal calls for lowering incentives for solar electric systems up to 250 KW, with the deepest cut, by 55 percent, going to systems that are 4-10 KW. Residential installations would see as much as 51.5 percent fall. The smallest decline, at 14 percent, would affect projects of 150-250 KW. Installations that came online after Dec. 12 will be affected by the lower incentives, but their owners won’t start getting lower payments until April 1 next year.

Photo courtesy of Greenpeace, SolarWorld, Abound Solar.