BMI View: We have maintained our forecasts for the German renewables industry this quarter as our fundamental assumptions about the market remain valid, and we do not expect to see a significant change in market conditions in the run-up to the general election in September. Further alterations to the country's FiT programme - which were announced in July and will focus on the solar sector - could prompt some investors to view the government's subsidy programme with caution ; however , the growth rates witnessed over recent years and throughout 2013, despite previo us alterations to the programme, suggest investor appetite will remain strong .
The German renewables industry has grown at a phenomenal pace over the last couple of years as the country continues to push for an expansion of renewable energy in light of the post-Fukushima nuclear phase out. Focusing primarily on wind and solar power, the country has firmly established itself as the European bellwether for green energy and is currently the global leader for installed solar capacity.
|Surging Renewables Capacity|
|Wind, Solar and Total Non-Hydro Renewables Capacity Growth, 2005-2012|
Although we have a cautiously optimistic outlook for the country's wind sector, we believe that solar capacity will exceed that of wind by the end of our forecast period in 2022 despite solar technology being a less - than - ideal choice for power generation due to its restrict ive capacity factor and Germany's comparatively low insolation levels. In fact, the runaway success of the German solar industry has been the focus of much attention throughout 2013, as power output from solar facilities reached record levels in April and then again in July.
The German government has established a target of 66 gigawatts ( GW ) of installed solar PV capacity by 2030, with 52GW expected to be installed by 2020. We have long held a constructive outlook for the country's solar sector, and we have maintained our forecasts across the renewables industry for this quarter as our views remain in play , particularly as we believe market conditions will remain stable leading up to the general election in September (see, 'Energiewende To Dominate Pre-election Debate', June 05) . As such, we believe 36.7GW of solar capacity will be installed by end-2013, and we anticipate that capacity will reach roughly 54.6GW by the end of our forecast period, in line with the country's targets.
|Solar Still Strong|
|Solar Capacity and Generation, 2012-2022|
Although, we believe growth in solar capacity during 2013 will be lower than in 2012, initial reports from the federal network agency suggest that newly installed capacity during H113 totalled nearly 1.8GW, which will reportedly result in capacity exceeding government targets for the year. Consequently, it was announced at the end of July that the government's solar feed-in-tariff (FiT) will be cut by 1.8% a month between August and October. This is not the first time we have seen changes to the country's FiT programme. Alterations to the tariffs have occurred yearly since 2009, reducing the subsidies on offer. Additionally, a cap on solar installations was introduced in June 2012, which removes support entirely for solar PV projects once total installed capacity across the country has reached 52GW.
Renewable incentives are subject to growing controversy and, increasingly, questions over their sustainability. We have noted in our previous analysis of the German market that the spiralling costs of 'Energiewende' are likely to put a strain on government coffers and lead to higher consumer electricity prices - a view that we are beginning to see play out. According to Bloomberg, German consumers saw record high electricity bills this year, following a hike of 47% in the FiT surcharge component of the bill. Therefore, it comes as no surprise that the government has cut solar tariffs, especially as capacity targets are very likely to be fulfilled for solar installations.
|Average Solar Tariff (EUR/KWh), 2009-2012|
Despite this move to cut tariffs, we believe that investor appetite will remain strong . Previous alterations to the subsidy scheme have done little to dent investor confidence in the past, as evidenced by the rapid growth rates over recent years and throughout 2013 . The announcement may prompt some of the more risk- averse investors to view the government's subsidy programme with caution , whilst we believe that this presents only a downside risk to our market projections and consequently, have not factored it into our forecasts .
That said, in spite of the German solar boom, domestic solar manufacturing companies are not faring particularly well. It was announced in June that Siemens will close its solar power business ; with the company's Solel Solar Systems unit ha ving reported a US$1bn loss in the period since 2011. Siemens placed the business on the market in October 2012 but has failed to secure a buyer. More recently, in July , it was reported that German companies Gehrlicher Solar and Conergy had filed for insolvency. We attribute the woes of these companies to the challenging operating environment for manufacturers based on a combination of interrelated factors; growing competition between manufacturers, a drop in solar panel prices and oversaturation of the market. The issue of oversupply for German manufacturers has been exacerbated by the flood of cheap products from China - an issue that has been a 'hot' topic in the media over the last few months. For example, in May, the German government led a majority of EU members to oppose punitive duties on imported Chinese solar panels proposed by the European Commission (see, 'Solar Duties: Much Ado About Nothing', May 28); however, it seems that in some cases the damage has already been done.