Due to the German government's successive cuts on feed-in-tariff (FIT) for photovoltaic (PV) solar systems, the country's internal rate of return (IRR) for investments in solar systems has retreated to a level unattractive for consumers. Demand has cooled off in the past six months and the system installation was particularly disappointing in the fourth quarter of 2010.
Germany is the world's largest PV market. Though it still installed 7.2GW in 2010 versus 3.8GW in 2009, demand was clearly down in the second half when the government reduced FIT in both the third and fourth quarters.
System installation in October, November and December fell 10%, 28% and 20% on year, respectively, to 340.5MWp, 359.9MWp and 1,174MWp. Overall fourth quarter installation dropped 19.76% from a year earlier. To put the figures into perspective, Germany installed 2,126MWp in January of 2010.
The FIT cuts combined with strong demand from Italy, the Czech Republic and France buoying solar product prices brought down the investment return in Germany. Furthermore, unstable global climates during winter also played a part in curbing PV system demand.
Despite a decline in solar product prices recently, IRR is still unattractive to investors since Germany also lowered FIT by another 9% in January. Some bearish system installers are projecting a mere 50-100MWp for the first quarter.
However, the earthquake and subsequent nuclear plant crisis in Japan have brought the risks of nuclear power generation to the spotlight, and has forced Germany to place more emphasis on improving grid-connected PV infrastructure. The long-term outlook for the country's solar industry remains positive.
In related news, although Italy has already announced that it will not cut government subsidy, manufacturers in Asia indicated that orders have yet to rebound, and attributed the slow demand to rumored high inventory in Europe. On a positive note, Japan is scheduled to kick off a new subsidy program in April with generous terms for medium-to-large size systems, which should help to stimulate installation in the country in 2011.