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Shedding light on the impact of solar PV growth on European power markets

Redpoint Energy consultants Marc Daube and Edmund Phillips explore some of the potential consequences of the rapid growth in solar capacity on Europe’s power markets.

First of all: the result of the quality process
The solar photovoltaic market has seen rapid growth in Europe. According to the European Photovoltaic Industry Association, total installed solar PV capacity reached 40 Gigawatts (GW) globally last year. This has the potential to generate sufficient electricity for more than 10 million households. The total was reached after 17 GW of new capacity was added during the year, of which the EU accounted for more than 13 GW. This rapid growth in Europe is largely attributable to Germany, which is pushing for aggressive carbon reduction targets far beyond EU commitments. The latest revisions to Germany’s energy strategy sets a minimum requirement of 35 per cent of renewable energy in electricity supply by 2020, 50 per cent by 2030, and 80 per cent by 2050. In comparison, EU targets do not extend beyond 2020.
Other countries have also seen significant growth in 2010: the Czech Republic experienced a burst of 1.5 GW and Italy passed 7 GW of total installed solar PV capacity from almost 250,000 systems. Meanwhile, France installed over 700 megawatts (MW) and Spain added a substantial 370 MW. Nevertheless, with a total of 18 GW of installed capacity, Germany continues to lead Europe, and the world, on solar power.

The sheer scale that solar PV capacity is now attaining in Germany is a positive stride forward in the decarbonisation of Europe’s power sector. As new capacity continues to be added however, it is inevitable that the characteristics of solar PV will begin to have an effect on the power market. This article explores what those effects might be, both in Germany and beyond.

The solar investment bubble
Investment in solar PV is often driven by government set subsidies in the form of Feed-in-Tariffs (FiTs). These offer payments for every kWh of electricity produced, usually on a sliding scale linked to capacity. Despite progress, solar PV remains an expensive generation technology, and in order to incentivise investment the level of subsidy has to be set much higher than for other competing forms of renewable energy, such as wind. Setting this level successfully, so as to achieve the growth rates desired, has to date been a task with which governments have struggled.

Attractive rates guaranteed over a 20 to 25 year period offered under many European support schemes have sparked national booms in solar PV installation that have surpassed all expectations, and eclipsed growth in other forms of renewables. According to the European Photovoltaic Industry Association (EPIA), solar PV was the leading renewable energy technology in 2010 in terms of new capacity growth in Europe.

Such rapid uptake of these subsidy programmes has forced a larger than expected burden on governments and consumers. It is now widely accepted that the subsidy levels set initially were too generous, and governments have looked to reduce the cost of support by cutting subsidies and introducing programmes of ‘degression’. These are programmed, periodical, steps down in tariff levels, often as a function of the number of new installations in a year. They are designed to avoid over-subsidisation and encourage innovation. In Germany last year, rates were reduced by 13 per cent for rooftop systems, 12 per cent for open-space systems and eight per cent for surfaces designated for land use change. Further reductions were subsequently voted in. However, Germany’s decision to quit nuclear power by 2022 following the nuclear accident at Fukushima in Japan, has forced the country to refocus its efforts on renewables, and the original programme of degression was retained.


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