The Feed-in Tariff and Installed Costs in Germany

In a few weeks Germany is going to drop their Feed-in Tariff rate from 39.14 cents/kWh down to 32.88 cents/kWh. *CORRECTION (JULY 27TH) 34.05 CENTS/KWH. As a direct consequence of this rate reduction we should see a drop in the average price of PV systems from 2900 Euro/kWp down to around 2450 Euro/kWp during Q3 and Q4. *CORRECTION (JULY 27TH): AFTER REVIEWING IRR DATA IT LOOKS LIKE PRICES WILL STAY RELATIVELY STABLE IN Q3 & Q4. PERHAPS FALLING TO THE 2700 TO 2800 BUT EVEN THIS IS IFFY. On January 1st 2011 the Feed-in Tariff rate will drop from 32.88 cents down to around 28 cents/kWh. This should lead to the price of PV systems dropping from 2450 down to around 2200/kWp during 2011. **CORRECTION (JULY 27TH): I'M GUESSING FOR PRICES TO GO TO AROUND 2500 IN Q1/Q2 OF 2011 AND STAY RELATIVELY STABLE THROUGH THE YEAR. I'M DOUBLE DOG-DARE GUESSING FOR PRICES OF 2100 TO 2200 IN 2012.

I might be a tad off with my price projections but the overall point is that the FiT reduction will lead to a drop in system prices. If my math is right, Germany should hit grid parity at an installed cost (pre-tax) of around 2200 Euro/kWp. So, from my perspective it appears as though this price point will be hit sometime next year. *CORRECTION (JULY 27TH) SOMETIME IN 2012 SEEMS MORE LIKELY NOW. NOTE: GRID PARITY DOES NOT CREATE A SUSTAINABLE MARKET.

That's interesting in an of itself but in the back my mind I keep thinking that if Germany can reach 2200 Euro/kWp, a similar location with access to the same basic capital & labor ingredients should be able to match these installed costs - maybe not tomorrow or the next day but within the next 5 years. I think this is a reasonable assumption. But then I think - California gets 1200 to 1400 kWh per kWp compared to Germany where you get 800 to 900 kWh per kWp. Your LEC in California is going to be 30% lower!

German Photovoltaic Thumbrule

A fellow by the name of Kollector coined this thumbrule...

The installed cost of the photoelectric set should not exceed the ten year payout of the feed-in tariff.

Example: A set that delivers 850 kWh/kWp in its first year will deliver approximately 9700 kWhs/kWp over ten years of work. The following examples give a rough picture of how this thumb rule predicts installed costs will trend between now and the beginning of 2011.

--If the value of the feed in tariff is 39 cents/kWh (current FiT) the installed cost should not exceed 8275 kWhs x .39 cents/kWh = 3227 €/kWp.

--If the value of the tariff is 33 cents/kWh (FiT as of July 1st) the installed cost should not exceed 8275 kWhs x .33 cents/kWh = 2730 €/kWh.

--If the value of the tariff is 26.5 cents/kWh (projected FiT as of Jan 1st, 2011) the installed cost should not exceed 8275 kWhs x 26.5 cents/kWh = 2193 €/kW.

With Chinese panel cost falling under a euro per watt it looks possible to achieve installed prices in Germany of under 2200 €/kW. One interesting question to ponder goes something like: will sunnier markets outside of Germany start producing higher rates of return for PV investment such that Germany no longer drives the market clearing price of panels?

Another interesting question is, how will Germany transform the FiT structure once grid parity is reached (installed costs of 2200-ish €/kW). Will the self-consumption premium result in smaller PV sets compared to the oversized 10 kW+ sets that have become common? Will batteries come into common use? Hmmm... Neglecting the cost of input energy and assuming a daily charge/discharge cycle, what are the LCOE for batteries over their lifetimes? Something for the EV car guys to deal with.