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Cablegate: Germany's Coming Solar Eclipse?

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R 231246Z FEB 10 ZDK UR SVC RUEHGO #9640 0550232
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC 6599
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEHDF/AMCONSUL DUSSELDORF 0003
RUEHFT/AMCONSUL FRANKFURT 0013
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RUEHMZ/AMCONSUL MUNICH 2250
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UNCLAS SECTION 01 OF 02 BERLIN 000206


SIPDIS

STATE FOR EUR/CE PETER SCHROEDER

E.O. 12958: N/A
TAGS: ECON ENRG PREL GM
SUBJECT: Germany's Coming Solar Eclipse?

BERLIN 00000206 001.3 OF 002


1. Summary: Environment Minister Norbert Roettgen plans to
cut Germany's solar feed-in tariffs by 15 percent as of April
2010. While the proposals are much less dramatic than the 30
percent reduction advocated by consumer organizations, the
solar sector has indicated that any subsidy cut above 10
percent would be intolerable. Roettgen's plans, which still
need parliamentary approval, are controversial even within his
own party, the Christian Democratic Union (CDU).
Representatives from CDU-governed federal states with a high
concentration of solar companies fear job and tax revenue
loss. Some have threatened to oppose the amendment in the
upper house of parliament, the Bundesrat, potentially blocking
the law. End Summary

German Solar Feed-In Tariffs - the Basics
-----------------------

2. (U) On January 20, 2010, Environment Minister Norbert
Roettgen (CDU) presented an amendment to Germany's Renewable
Energy Law that would cut solar feed-in tariffs (FIT) for new,
roof-mounted solar-powered devices and open field sites by 15
percent from April 1, 2010 and July 1, 2010 respectively. FIT
for farmland sites would be cut 25 percent from July 1, 2010.
The proposed amendment reflects the newly-elected government's
October 2009 coalition agreement, which contained plans to
reduce solar subsidies by more than 9 percent annually.
(Comment: Since 2000, Germany's generous FIT have provided a
20-year guarantee on above-market prices for electricity
generated by renewable energy. The rates are financed through
surcharges on consumers' electricity bills and, therefore, are
technically not a state subsidy. Nevertheless, the tool
effectively shifts the burden of subsidizing renewable energy
deployment from taxpayers to electricity ratepayers. End
Comment)
Supporting Legislation and Party Positions
---------------------------

3. (U) Germany's revised Renewable Energy Law, effective
since August 2004, increased the overall solar tariff rate,
but provided for 5 percent yearly cuts thereafter. In 2008,
many CDU/Christian Social Union (CSU) and Free Democratic
Party (FDP) politicians argued that the feed-in tariff was
generating an unaffordable proliferation of solar farms.
Along with consumer advocates, they called for a 30 percent
cut in the tariffs to mirror the 30 percent decrease in the
cost of solar cells. Despite strong opposition from federal
states home to solar industries, the then CDU/CSU and Social
Democratic Party (SPD) government decided to increase the rate
of yearly tariff cuts: a 5 percent reduction in 2009, 8
percent in 2010 and 9 percent in 2011.

Germany's Solar Boom
--------------------
4. (U) Germany's Renewable Energy Law created a solar boom
market, making Germany the world's largest photovoltaic
market. Installed capacity jumped from 768 megawatts (MW) in
2004 to 5,300 MW in 2008. According to the German Solar
Federation (Bundesverband Solarwirtschaft, BSW), the solar
industry generated 10 billion euros in revenue and accounted
for 60,000 jobs in 2009. The generous tariff rates -- 39 euro
cents per kilowatt hour in 2010 -- have provided enough
incentive for 98 percent of Germany's solar producers to
connect to the grid. Nevertheless, photovoltaic electric
energy generation still accounts for less than 1 percent of
total electricity production.

Consumer Protection Concerns
----------------------------
5. (U) Environment Minister Roettgen (CDU) plans to develop
mechanisms to promote renewables that can better adapt to
market developments. As he explained, the tariffs have led to
over-promotion: "Too many subsidies were granted, costing
consumers billions." Consumer advocates echo his calls for a
drastic subsidy reduction, arguing that the renewable energy
law should not finance extra income for producers. Feed-in
tariffs came under additional pressure as the price of solar
panels dropped approximately 30 percent due to oversupply in
2009. With the high tariffs and reduced production costs,
solar companies were among Germany's most profitable
enterprises in 2008.

Necessary Incentives?
---------------------
6. (U) Representatives of Germany's solar industry will

BERLIN 00000206 002.2 OF 002


accept a FIT cut, but have indicated that anything above 10
percent would be intolerable. They fear that customers may be
less willing to make the initial investment in solar panels,
if the compensation for selling power back to the grid is
slashed too drastically. Due to high labor costs,
installation costs for solar systems have not decreased as
much as the cost of the panels themselves. German solar
industry representatives thus argue that the 15 percent cut
would lead to 50,000 job losses and significant investment
cuts. Moreover, the Federation of Renewable Energy (BEE)
argues that the proposed cut threatens Germany's
transformation to a low-carbon economy: "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 Crisis of Germany's Solar-Panel Manufacturers
-------------------------------
7. (U) In spite of the tariffs, Germany's solar energy
industry has lost market share to competitors. China's solar
industry, which has gained 30 percent of the market share
since 2009, particularly benefits from on-going demand for
solar panels, often from German consumers, as well as lower
labor costs. Global economic conditions further damaged
Germany's solar industry. Following the global financial
crisis, many banks have been unwilling to finance major solar
projects. As a result, German companies have cut jobs and
changed manufacturing practices. Saxony-Anhalt-based, Q-
cells, for example, plans to lay off 500 employees. The
company now ships solar cells to China for final assembly.
Similarly, Bonn-based SolarWorld completed in 2009
construction of a factory in South Korea.

Comment
--------
8. (U) Some German lawmakers and companies forecast a shaky
future for the country's solar industry if the government
removes too much financial support. The cuts may not leave
breathing room for investments to compete internationally.
However, the amendment to cut solar feed-in tariffs is not a
done deal. Even if the amendment obtains Cabinet and
parliamentary approval, it is by no means certain that the
Bundesrat will approve it. Some states in Eastern Germany,
including CDU-led states that are home to leading solar
manufacturers, have threatened to block the law. Solar
industry employees in these states have begun to protest the
cuts, given even more reason for opposition to the amendment.
Given the coalition's slim majority, the law could still fall
in the Bundesrat. This would not be the first time that
coalition legislation has been blocked in the Bundesrat by its
own party members. End Comment

MURPHY

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