German Environment Minister Norbert Röttgen (CDU) announced that the government was proposing to cut feed-in tariffs for new roof-mounted solar power by 15% from April.
Open-field sites and farmland installations would follow in July with 15% and 25% cuts respectively.
People who mount solar panels on their rooftops and utilise the energy for personal use would, however, receive higher tariffs.
The environment minister said that the planned cuts were due to the success of the solar sector, which had led to over-subsidisation of the industry. The feed-in tariffs have come under pressure, as the price of solar panels has dropped by around a third due to oversupply in the past year.
But the solar industry warned that the cuts, which will come on top of annual reductions under the German Renewables Act, would lead to job losses. Moreover, concerns were raised about the wider paralysis of the global solar market, which is largely driven by Germany, by far the biggest market in the world.
The Federation of Renewable Energy (BEE) said that coupled with the standard reductions under the Renewables Act, these additional cuts would bring down subsidies by at least a third by early 2011.
"The proposed cut threatens the foundations of the German solar industry and the shift to an age of renewables. If the environment minister wants to implement his ambitious plans to base Germany's energy supply almost entirely on renewable energy by 2050, he must provide for reliable subsidy conditions instead of spooking investors," the BEE said in a statement.
France pricks a bubble
France last week (13 January) also announced that it would cut its feed-in tariffs for rooftop systems by 24%, from 55 euro cents to 42 euro cents per KWh.
The move was part of a larger overhaul of renewable subsidies, which also saw adjustments to tariffs for geothermal and biomass plants.
The world's highest tariff at 58 euro cents per KWh was reserved for panels integrated into residential buildings or hospitals and schools. Other constructions like offices and industrial sites would get lower tariffs: 50 cents for existing buildings and 42 cents for newly-built ones.
The government said the new tariffs "would apply only to new projects" and were aimed at pricking a "speculative bubble" that had been developing in the market since November 2009. Therefore, the government said it would not accept applications handed in by generators after 1 November if they had not already applied for a grid connection. They could reapply under the new tariff conditions.
Photovoltaic industry for sustainable tariffs
The European Photovoltaic Industry Association (EPIA) stressed that it would be important for both France and Germany to follow the evolution of market prices in their feed-in tariff systems.
"We are advocating the implementation of sustainable policy support schemes. That support should lead to an accelerated penetration of solar energy but avoid a market overheat and possible speculation," said Adel El Gammal, secretary-general of EPIA.
He warned, however, that if feed-in tariff cuts were too high, this would have a detrimental impact on the industry. "It would for instance eliminate smaller actors too early, which in some cases would have innovative ideas," he said.
"I believe that this reduction in France will allow sustainable development," the EPIA chief argued. Moreover, he said the French move would encourage the development of integrated PV, which focuses on added value downstream and creates local jobs.
When setting the level of feed-in tariffs, all financial elements and the market structure need to be considered, El Gammal stressed. This includes looking at the amount of red tape, investment subsidies and tax rebates as well as the system price, he said.
All things considered, the attractiveness of investment in national markets should be high enough to allow rapid but sustainable growth but below levels that would create a speculative bubble, according to El Gammal.
"The range we would be looking for is that the attractiveness of PV investment is typically 6-10% for private investors and 8-12% for business investors," he said.
EPIA hopes to see each member state's support policy converge within these ranges. Although higher support at an early stage could create demand, feed-in tariffs would then be progressively adapted to sustainable levels, El Gammal said.