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Germany Unwinds Solar Gravy Train

The German government will begin to pare back its generous subsidies for solar-generated power with an up to 15% cut in feed-in tariffs. The trimming won’t start until July, and will be dependent on how much solar input is actually being generated by the scores of rooftop panels that have been installed in the most solarific of European countries.

Feed-in tariffs are an odd beast in the government subsidy world. They are designed to be yanked just as soon as they start to really crank, otherwise the government can go broke bribing people to do something they are happy to do anyway. The German government pays above market rates per watt of solar power that solar module owners feed back onto the grid – that’s why they are called “feed-in” tarrifs.

In the last year, the up-front cost of solar panels has significantly declined. This has made installation a no-brainer for many in Germany. Solar factories around the world have been  working to capacity precisely because both manufacturers and solar buyers knew that Germany’s tariff would not stay so generous, so installations shot up while the deal was still good.

Many experts I talk to – especially about the solar market – complain about the way government subsidies can create a boom and bust cycle for materials and goods. In this case, U.S.-based Evergreen Solar has already blamed shrinking subsides in Europe for piling on to the circumstances that are pushing solar prices to the floor. The company says it will shutter its Devens, Mass. solar wafer plant because under current prices (most recently $1.90 per watt), the factory cannot compete with Chinese makers. The closure means 800 people will lose their jobs.

On the other hand, Germany’s feed-in tariff spurred an estimated 8 gigawatts of new solar capacity in 2010. Bloomberg reports the addition makes the country the home of fully half the market for solar. It would be hard to argue that feed-in tariffs don’t work well, but one might argue that they work too well. For governments, it is a delicate balance to reward solar generators while having the ability to swiftly and deftly lower the payback when the market conditions change.

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