The German government has agreed to accelerate the next round of cuts in state-mandated photovoltaic incentives by three months to April 1 after a record-breaking expansion of solar power in 2011.
Government sources said on Wednesday the cuts of 20 to 30% would be moved forward to April 1, news that sent share prices tumbling.
On Thursday Environment Minister Norbert Roettgen and Economy Minister Philipp Roesler announced that the cuts would be moved forward even more, to March 9, to thwart any last-minute boom in projects, a further blow to producers.
Shares in European solar companies plunged further on Thursday, with sector bellwethers SolarWorld, SMA Solar, Q-Cells, Renewable Energy Corp (REC) and Centrotherm down by between 3.2 and 12.8% by 1540 GMT.
US-based First Solar and China's Suntech were down 5.64 and 4.9% in early Wall Street trading.
Roettgen told a news conference on Thursday the acceleration and deepening of the incentive cuts are designed to slow the rapid growth in solar power in Germany, where more than 7,500 megawatts was installed last year,
Roettgen, who designed the reduction with Roesler, dismissed fears raised by solar power manufacturers and installers that the change would endanger thousands of jobs in the booming sector that employs over 100,000 workers.
"We've had an enormous reduction in the incentives in the past few years but the incentives were still too high," Roettgen told reporters. "Solar is a success story made in Germany. We want it to be an acceptable technology not only in the future but right now. The cost factor has to be at acceptable levels."
Installations of solar panels have boomed in Germany over the last two years due to feed-in tariffs, generous subsidies utilities are forced to pay by the government to those who generate their own solar power that is pumped into the grid.
Eventually power companies pass on the costs to their customers, and the government wants to limit the ultimate impact of soaring prices on energy consumers.
Germany's adding of a record 7,500 megawatts of solar capacity in 2011 brought its total to 25,000 megawatts, which is nearly as much as the rest of the world combined. Germany is the world's leader in installed solar power capacity with about 25,000 MW. But in terms of new annual installations, it was overtaken by Italy last year.
The Berlin government wants to add only between 2,500 and 3,500 megawatts capacity each year and that is why the incentives are being cut so aggressively this time, Roettgen said. It has a goal of 66,000 MW of solar capacity by 2030.
Slap in the face
The incentives will fall to 19.5 cents per kilowatt hour (kWh) for small plants up to 10 kilowatt (KW), to 16.5 cents for plants up to 1,000 KW and to 13.5 cents for plants of up to 10 megawatts (MW). After that there will be further monthly cuts of 0.15 cents per kWh.
German retail electricity prices are 21 to 24 cents per kWh.
The incentives were already cut by 15 percent on January 1 to 24.43 cents for small plants up to 30 h. Over the last three years they have been cut in half. They were set to be reduced by 15% on July 1.
Despite the steep cuts in the past, yields for investors remained attractive as equipment prices fell. But manufacturers and investors fear the next accelerated reduction could spoil returns and lead to a major contraction of demand, putting jobs and investment in jeopardy.
"They're putting thousands of jobs in the solar sector at risk," said Carsten Koernig, head of the BSW solar lobby. "These plans can be described as a 'solar-exit law'."
"The radical cuts have an existential impact on the solar industry in Germany," said Pierre-Pascal Urbon, chief executive of SMA Solar, Germany's top solar company that produces inverters sold around the world has 5,000 workers.
David Wortmann, a manager at First Solar, said: "This is a slap in the face."
"This could choke off the German market," said Frank Asbeck, chief executive of SolarWorld, a world leader.
Germany gets 20% of its electricity from renewable energy and nearly 4% from 1 million photovoltaic producers, who generate power from rooftop solar panels.
"All German solar stocks are likely to suffer," Silvia Quandt analyst Sebastian Zank said. "We only recommend selected companies which have chances to defend business volumes due to their already existing or future international footprints."
Roettgen said the cabinet would receive the draft for the cuts next week and that the March 9 target was not yet fixed, adding it could still be April 1 depending on how quickly it passes through the cabinet and parliament.