According to one French newspaper, the original feed-in tariff in France of €0.55 has led to the creation of a speculative bubble, with the Government receiving as many as 3,000 applications a day in the past two months compared to around 5,000 a month last summer.
In order to burst this bubble before it grows too big, the French government has intervened with a 24% tariff cut. In doing so, it will undoubtedly avoid the painful scenes experienced in Spain last year when the Spanish government reacted to an even more significant solar rush caused by excessively high feed-in tariffs by imposing a draconian capacity cap on solar installations, which burst the bubble it had created. Thousands of jobs were lost and several businesses closed their doors.
While the French solar industry is only small in comparison with Spain’s and does not even enter the solar Top 10, the news is a concern for Germany’s solar industry, with many players seeing it as a warning of worse to come for Germany. Indeed, the German environmental minister was recently quoted by Reuters as saying that an announcement about deep feed-in tariff cuts could be made within days.
The German industry accounts for around 55% of the global solar market and the major solar players such as First Solar, Yingli, Trina Solar, Suntech Power and SunPower are all anxiously awaiting news from the German government.
According to Reuters, lower prices could result in a shakeout in the industry, with higher cost players disappearing and new entrants struggling to find a foothold in the sector.
Shares in solar companies have plummeted since Reuters reported that in April, the German government could introduce a one-off cut of 16-17% on top of the 10% already set out in the German Renewable Act.
"This is negative for the whole sector as the mentioned cuts are not only higher than the 10 percent expected, but in particular would also be implemented one quarter earlier," UniCredit analyst Michael Tappeiner said. "In addition, the subsidy cuts would initially reduce investment returns in the ground-mounted solar park segment to unattractive levels."
Where if not Germany?
Solar majors are now asking themselves where to go next if the German’s do cut their feed-in tariff. Many are heavily dependent on the German solar market and it will be difficult to find a replacement. Q-Cells for example made 56% of its sales in the first three quarters of 2009 in Germany, while China's Yingli and Suntech also made around half of their sales in Germany. U.S.-based First Solar, which is set to become the world's biggest maker of solar cells and has a manufacturing site in Germany, made over 60% of its sales there last year.
Analysts are unsure whether other European countries will be able to compensate for a slump in demand in Germany. While companies could try to boost sales in the other leading markets in Europe (France, Italy, Spain and the Czech Republic), EPIA, the European solar trade association, reports that these markets will only have a combined volume of 1.96 GW in 2010 (18% of estimated global 2010 output) compared with 2.8 GW for Germany.
It is hoped that further reductions in solar manufacturing costs could boost demand in the near term, but what will happen in the second half of 2010 remains unclear.
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