German REFIT Scare

Solar took a nasty dive last week after the German government began debating the country's solar feed-in tariff.

The REFIT rate (Renewable Energy Feed-In Tariff) has been a vital driver of the huge leap in Solar PV production,installation and exports,led by companies which have largely located in areas of high unemployment in the former DDR.

The feed-in tariff basically requires utilities to buy electricity from solar sources at a fixed, above-market rate for 20 years. And each year the law is in effect, the size of the tariff declines for new entrants. This allows for the fact that the first movers had higher costs since they would have had all the hassle and expense that Pioneers and Early Adapters usually have to go through.

The aim is to offer consumers a payback time of about 8 years, although some claim payback times as low as 4 years. Financial Companies and Banks compete to offer financial products for purchase and installation of the Solar PV units.And as the technology improves and the numbers of customers builds up, so the cost of entry reduces,which is the reason for the gradual reduction.The cost of this subsidy has the merit of only paying for power produced. Since the cost of the subsidy is usually spread across all electricity users,it is usually just a pretty small bit of the averagee consumer bill.

The alternative subsidy driver has been the nameplate consumption figure and this relies on the manufacturers claimed output. Now I am a great believer in the public having their money spent cost-effectively, and can't help but think that this method might lead to a certain amount of inflation in claimed output figures.

However, because the scheme has been such an enormous success in Germany some parties fearws that the tariff could cost taxpayers up to €120 Billon by 2035,x there was a proposal to change the 15 percent reduction scheduled for 2010, to a 25 percent reduction.

By last weekend, happily,an agreement was reached where support would decline by only 8 percent in each of the next two years, and by 9 percent in 2011.

With Germany home to some of the most enticing and consumer-friendly initiatives in the world,there are lots of solar companies there,and this poloitical interference caused the stock prices to sneeze a bit. Although the market recovered it is a reminder that the sector is volatile and can yo-yo a bit.Green Capitalists can take advantage of lower prices to top up or to get in for first time. My guess is that the shares will seem cheap soon enough,As the cost of producing solar cells keeps reducing,parity arrives earlier than forecast.