German feed-in tariff reductions delayed till 2010

The German Ministry of the Environment announced today that reductions in the feed-in tariff for renewable energy would be be pushed back by one year to 2010.

The changes to the Renewable Energy Sources Act were originally expected to go into effect starting in 2009.

In a research report, CIBC's Adam Hinckley said this means good news for the solar industry.

"We believe demand from Germany may be more robust than we had previously expected in 2009 and that module pricing may be under less pressure," said Hinckley.

Under the current feed-in tariff system, the rate paid to solar power providers declines 5 percent annually for rooftop installations, and 6.5 percent for free-field installations, beginning on the first day of the new year.

Over the summer, the Ministry of the Environment released a draft proposal to accelerate the tariff reductions to 7 percent annual reductions for rooftop and 8.5 percent for free-field, which were set to begin in 2009.

Today's ruling, which also affects feed-in tariffs on electricity from hydro, wind, geothermal, and biomass, and gas from landfills, mines, and sewage treatment plants, delays the beginning of tariff reductions until 2010.

"We believe this announcement is a positive for the solar supply chain, as we had growing concern that 2009 would be a softer year in Germany due to a pull-in of demand in 2008 to take advantage of the higher tariff rates," said Hinckley.

He also pointed to the likelihood of a 2009 slowdown in the Spanish market, which is expected to reduce its tariff in October 2008.

"While the Spanish market will likely cool off, we see a more consistent demand environment in Germany offsetting some of the slowdown in Spain and thereby lowering the potential module price declines," he said.