Saturday, February 11, 2012

Fits Over FiTs in Germany

There's a big Feed in Tariff review going on in Germany right now. The solar rags and popular press have been splashed with he said, she said solar rumors and speculation for the past month. In the left corner you have the pro-solar prematurely gray Environmental Minister Norbert Röttgen, Christian Democrat (CDU) and in the right corner there's the curiously Asian looking Economics Minister Philip Rösler of the Liberals (FDP).

FUN FACT: Turns out Philip Rösler isn't curiously Asian looking... He actually is Asian, Vietnamese to be more specific - he was adopted as an infant from a Roman Catholic orphanage near Saigon. His parents raised him well. The guy is a physician turned politician - not too shabby. Talk about rags to riches.

Rösler is every solar advocates worst nightmare - a young, handsome, smart politician with a hard on for killing solar subsidies. Rösler wants to put a cap of 1000 MW on annual PE installations - a measure that would effectively strangle the PE market in Germany. Röttgen is open to tweaking the FiT but he opposes a hard cap - suggesting instead that they continue using the "breathing cap" mechanism to guide future subsidy cuts.

What is the breathing cap?

In outline, the breathing cap is a series of set-point corridors that determine how far the FiT gets cut every 6 months. The higher the installs the higher the cut. Under 1500 MW you cut by 1.5%. 1500 to 2000 MW gets a 4% cut. 2000 to 2500 MW get cut by 6.5% and so on up to a >7500 MW category that gives a 15% cut. One set of cuts occur at mid-year with another occurring at year-end. For example, if mid-year installs are at 3000 MW there will be a 9% cut. If year end installs reach up to 7000 MW there will be an additional 12% cut. For simplicity I've distorted the details somewhat but look here for more precise information.

What's wrong with the breathing cap?

Nothing, except the prices for photoelectrics have gone down faster than the FiT degressions. For two years in a row Germany has installed twice as much PE as intended. After last year's 7400 MW the Germans went back to the drawing board and reworked their FiT to add steeper degressions and an additional mid-year cut. was a good plan but anemic first half installation figures coupled with a struggling domestic manufacturing sector resulted in regulators skipping the planned mid-year FiT cut. In hindsight, that turned out to be a mistake. Nosediving panel prices produced very attractive economic returns which in turn led to a shit-load of second half installations. To put things in perspective, Germany installed about as much solar in one quarter as the U.S. has installed in total.

What's the plan Stan? Drawing boards, bargaining tables and backroom deals. We now take you live to our super secret fly on the wall feed.

Rösler: We must cap annual installs at 1000 MW

Röttgen: Sumo scheiße am steil!!! OK... wait a second... How about we pull forward the planned mid-year degression up to March/April and institute smaller monthly degressions.

Rösler: We must cap annual installs at 1000 MW

Röttgen: Fick mich in den Arsch Ziege!!! OK... um... work with me here. How about we pull forward the cuts, do the monthly cut thing too but then also add a cap to how much production you can get the FiT for.

Rösler: We must cap annual installs at... wait, what was this you just said about a production cap?

Röttgen: Breaks down like this. In Southern Germany you get about 900 kWh for each kWp installed for a well placed rooftop system but ground mounted systems with optimal placement and tracking can get more like 1100 to 1200 kWh/kWp. So I'm saying let's not throw the baby out with the bath water. Let's put a cap on FiT payments at say 900 kWh/kWp. That won't effect the end-user market but it will squeeze the larger projects - the excess production above 900 kWh/kWp will have to be sold separately on the open market.

Rösler: Hmmm... But then next year we could turn the cap down to maybe 800 kWh/kWp.

Röttgen: Yes, exactly... The end-users won't care. Thanks to direct consumption rules they'll only be selling 500 or 600 kWh/kWp at FiT rates anyways. But each year we'll be able to force the project developers to sell more and more of their production at market rates. Not a bad plan eh?

Rösler: Ahh... About a third of installations last year were ground mounted projects. This feature would curtail those installations somewhat. I think we can work this out.

Röttgen: Right on. Ya know... one other thing we could do would be to implement an MPR based price for the production over 900 kWh.

Rösler: What's an em pee ar?

Röttgen: The Market Price Referent (MPR) is the "predicted annual average cost of production for a combined-cycle natural gas fired baseload proxy plant." They use the MPR as a price benchmark in California - we could modify it to fit our own conditions and use it as a go-no-go economic test.

Rösler: What kind of numbers are we talking about?

Röttgen: A twenty year contract price is around 7 cents/kWh. That's slightly higher than current wholesale electricity rates but you'd have to expect a premium to account for the environmental benefits.

Rösler: So you pay the developers based on the value of the electricity.

Röttgen: Right, and if the developer doesn't like the guaranteed rate they are free to go ahead and set up their own off-take agreements for their non-FiT production. Das ist gut, ja?

Rösler: Ja... Ya wanna grab a beer?

Röttgen: Do bears shit it the woods?

Well see how things go. Word may come as early as Wednesday.

No comments:

Post a Comment