German Policy Could Make Solar In America ‘Wunderbar’

by John Farrell, via Renewable Energy World

The Germans are debating significant revisions to their landmark renewable energy policy, and instead of declaring the death of the German solar market, Americans should focus on why solar still costs so much on this side of the Atlantic.

After a significant step-down this month, revisions to the German feed-in tariff will require utilities to buy electricity from solar projects 10 kilowatts or smaller for 19.5 euro cents per kilowatt-hour (kWh) on a 20-year contract.  Larger projects (over 1 megawatt) will get just 13.5 euro cents per kWh.  Using insolation data for Munich, these prices translate to installed costs of approximately $2.24 and $1.55 per Watt, respectively.

For comparison, in the U.S. in the 3rd quarter of 2011 the average installed cost of solar was $5.20 per Watt with residential-scale projects costing $6.40 per Watt.

What would German installation costs mean for the U.S. solar market, where sunshine is 29% (in the cast of Minneapolis) to 70 percent (Los Angeles) more abundant?  Americans could buy solar on long-term contracts – with no subsidies – for 18.6 cents per kWh in Minneapolis, and just 15.4 cents in Los Angeles.  Factor in the federal 30 percent solar tax credit and Minneapolitans could get solar for 14.3 cents per kWh, Los Angelenos for 11.8 cents.

Already, the trajectory of solar costs and electricity prices suggests that 100 million Americans will be able to get cheaper electricity from their rooftops than from their utility in the next decade (see ILSR’s new report – Rooftop Revolution: Changing Everything with Cost-Effective Local Solar).

But if Americans could install solar at the same price as the Germans, 47 million Americans in the nation’s largest cities would be at solar grid parity – without subsidies – right now.  By 2015, assuming no change in the cost of solar and a modest 2 percent per year inflation in retail electricity prices, 100 million Americans in major cities could beat grid prices with rooftop solar.

Yes, Germany is cutting their solar contract prices.  But this is in a market that installed 7,000 megawatts of solar per year in the past two years – 20 times the U.S. pace on a per capita basis.  And they are doing it at half the cost (or better).  That’s the benefit of a decade of consistent renewable energy policy – the feed-in tariff – that provides a low-risk, long-term contract for solar project owners.  Compare that to America’s hodge-podge of fifty individual state policies, stacked on top of federal incentives that can only be used by businesses with big tax liability (or their Wall Street partners).

The irony is that Americans point to Germany and say, “they pay too much for electricity,” while a majority of Germans continue to say, “we’re willing to pay more for clean power,” because they can (and do) own it.  In fact, over half of Germany’s renewable energy capacity is locally owned, multiplying the economic benefits of their renewable energy policy and reinforcing political support for clean energy (while support for clean energy has declined in the U.S.).

Quite a few folks have decried the price cuts to the German solar feed-in tariff as “the end is nigh,” but especially in comparison to American solar policy, it’s more appropriate to declare, “mission accomplished.”

John Farrell directs the Energy Self-Reliant States and Communities program at the Institute for Local Self Reliance. This piece was originally published at Renewable Energy World.

24 Responses to German Policy Could Make Solar In America ‘Wunderbar’

  1. Tom King says:

    The trade benefits will be enormous. I’ll pay a premium for products from a zero carbon country. I’ll even consider paying a premium for products from low (but not yet zero) carbon countries. A whole type of purchasing suddenly opens up.

  2. Mike Roddy says:

    I’d be interested in more specifics about why German solar costs are so much lower. The panels themselves are commodities. Where does that savings come from?

  3. Mike 22 says:

    The German “installed cost of residential rooftop (ICoRR)” very likely includes the FIT, but the American ICoRR does not appear to include the 30% Federal Tax Credit, nor any SREC income driven by state mandated renewable energy goals. Perhaps Mr. Farrell would update his article with these details.

    An underlying assumption to the FIT versus RPS debate is that FITs are as politically achievable here in the US as they are in European countries. That assumption is in my opinion far from true, just as universal health care is not politically achievable here but a given in Germany.

  4. Bill Green says:

    Quite misleading to say no subsidy — 19.5 euro cents equals 25.8 U.S. dollar cents. SO somebody is paying nearly 26 U.S. cents for each kilowatt-hour generated. By way of comparison, gas-fired generation from existing plants in the United States costs under 2 cents per kilowatt-hour at today’s natural gas prices. Even with significantly higher natural gas prices (i.e. $6 per million Btu) gas-fired generation from an existing plant is a little over 4 cents per kilowatt-hour. And the gas power, unlike the solar power, has the considerable advantage of being dispatchable.

    It is also extremely misleading to compare wholesale electricity prices to retail electricity prices, as the article does. The latter include the costs of the distribution system, which still has to be paid for as residential solar PV installations need a connection to the local network to dump excess power and provide firm service when the sun isn’t shining. Net metering-type comparisons simply transfer the cost of the distribution network to other consumers, which is yet another form of subsidy.

    Bottom line: Its fine to support solar power, but it is ridiculous to make claims that it does not require heavy subsidies. CP should hold its “guest posts” to a standard of scientific integrity and “apples to apples” comparisons rather than pure propaganda to mislead the unwary..


  5. This article is comparing apples and oranges. The subsidy paid by Germany for new solar installations is not the full installed cost of the systems, and you can’t compare the subsidy levels to the full cost of systems installed in the US.

    There is a cost advantage for German PVs, it’s just not as big as claimed here. The analysis from LBNL showed US PV installed costs at about $6/W with German installed costs at about $4/watt (this is the total societal cost for these installations, after subtracting out the subsidies, which are a transfer payment).

    This is a big advantage for Germany, and it shows the power of deployment as a way to drive down costs in all parts of the value chain. The article above, however, exaggerates that cost advantage.

    Barbose, Galen, Naïm Darghouth, Ryan Wiser, and Joachim Seel. 2011. Tracking the Sun IV: An Historical Summary of the Installed Cost of Photovoltaics in the United States from 1998 to 2010. Berkeley, CA: Lawrence Berkeley National Laboratory. LBNL-5047E. September. []

  6. Joe Romm says:

    Good catch. Will have to ask Farrell to redo considering all subsidies on both side.

  7. Leif says:

    A big unappreciated saving in going solar PV is having the Green energy expenses stay within the local community. That money is then recycled over and over within the community and not whisked out of town in and electronic transfer to the mega-rich to not even pay tax upon and stash in a Swiss bank account. Another is that for most of us that do not have a company gas account it also means that I did not have to earn ~$1.25 to have $1.00 after tax to buy fossil electricity. I love my cash cow!

  8. AlaninAZ says:

    I installed a 8.5kw solar panel system in Tucson 16 months ago for a total project cost of 4.6 $/watt. I seems to me that German and American unsubsidized costs are much closer than indicated in this article.

  9. kdebrab says:

    Mike, as a European, I tend to turn the question around: Why are domestic solar systems so expensive in the US? I live in Belgium: domestic PV systems here cost ca. 2,5 euro (or $3,3) per Watt (unsubsidized and excl. 6% tax). That’s a little higher than in Germany, but only half the cost in the U.S.

    Material prices should be the same: panels cost at most $1,30 per Watt (down to $1/W for Chinese panels) and the inverter 40 ct/W. With other material costs at roughly 60 ct/W (educated guess), that leaves $1 per Watt for the installer, which seems fair to me.
    Where are the other 3 $/W going in the US? 3 dollar per Watt ?! That is $15 000 for a typical 5 kW system! I heard you have a lot of other, so called ‘soft’ costs in the US: permitting, interconnection, incentive applications, financing,… In Belgium, we have (virtually) none of these. Just install (as if you were installing a new kitchen) and get your installation inspected ($150, the same applies for a new kitchen). After that, you connect to the grid (by turning on the switch) and apply for the incentives (by filling in a form on Internet) and that’s it. No permits are required. Do you really pay $15 000 for these kind of things in the US?! Or are there other reasons for this huge price premium?

  10. kdebrab says:

    The ‘Tracking the Sun IV’ report indeed (correctly) states system prices in Germany as $ 3,7/W (or € 2,9/W) in 2010. However, PV system prices in Germany went down by 20% in 2011. Thus, (unsubsidized, excl tax) PV system costs should be $ 3/W. Noteworthy, this is equal to € 2.26/W.

    So, I guess, Farrell mixed euros with dollars…

  11. Is your total project cost in Tucson before tax credits or after tax credits?

    Your 8.5 kW system is also bigger than average for residential, which also probably drove down the cost per watt compared to average installations (which is what the LBNL report analyzed).

  12. The savings are in the balance of system plus installation costs, also in the so-called “soft costs” that kdebrab refers to in comment #7 below.

    What happens is when the number of installations goes up a lot, the government folks have to make the permitting process easier, cheaper, and quicker, and the installers move from being niche suppliers (with high markups) to low margin suppliers to the broad market. Those cost savings can be substantial.

    There are also learning by doing effects that affect the non-panel costs that can only be achieved by actual implementation at large scale, such as innovations in installation methods that reduce costs and time to project completion. This is the main reason why Joe is so (rightly) insistent that the only serious way to attack the climate problem is to do massive deployment, with R&D occurring in parallel.

  13. AlaninAZ says:

    My cost is without any subsidy or credits. The size of my install is not large for the area. AZ has a very intense summer with high air conditioning loads that probably results in higher electric loads compared to more temperate parts of the country.

  14. AlaninAZ says:

    My system cost 16 months ago in Tucson was 4.6$/watt that included $2.3/watt for panels and 2.3$/watt for everything else. If I could have obtained panels for 1.3$/watt my cost would be very close to the quoted Euro cost of 3.3$/watt.

  15. kdebrab says:

    After rereading, I see Farrell didn’t mix euros with dollars.

    $2.24 is what PV system cost (unsubsidized) should be to remain profitable (with the feed-in tariffs as income) after the FIT cuts have taken place (which will happen most probably in April). One could say that it is the expected 2012 PV system cost.

  16. kdebrab says:

    Makes sense to me. Maybe there is something wrong with the residential installed system prices reported for the U.S. (figure 2-4 of the US solar market insight report)?

  17. Good to have this detail. Even though your installation isn’t large for the area, it is still larger than most US domestic installations, which if memory serves are more like 3-4 kW. That means the fixed costs of installation are spread over more kW, lowering the cost per kW compared to the average numbers that are laid out in the LBNL report. But it’s also true, as kdebrab indicates, that total installed costs in Germany are a moving target and are falling fast, so the exact timing of the comparison matters a lot.

  18. kdebrab says:

    German “installed cost of residation roof top” does not include the feed-in tariff (FIT), neither does it include other subsidies. The FIT is the revenue you get for each kWh produced during 20 years. It allows the owner to pay back his (unsubsidized) investment over time.

  19. Mike 22 says:

    I am not disagreeing, but Mr. Farrell wrote: “Using insolation data for Munich, these prices translate to installed costs of approximately $2.24 and $1.55 per Watt, respectively.” Insolation would not affect the installed system costs unless there was also some impact from the actual system production, which in Germany is the FIT. I looked for numbers at the German Solar Industry Association to support a $2/watt installed cost, and elsewhere, but couldn’t find anything. One possibility is that the installers are doing revenue sharing with the system owners–that would allow very low up front costs. The FITs are quite generous. Or, the German solar manufactures are cranking out really low cost per watt products, in order to (further on) capture the FITs. I look forward to seeing Mr. Farrell’s supporting information.

  20. nyc-tornado-10 says:

    Was that a roof mounted system? Perhaps labor costs are lower in Az than in other parts of the country.

  21. Mike 22 says:

    Mr Farrell provided the basis for the German ICoRR over at Cleantechnica:


    This link will be helpful. It’s an index of installed costs for solar projects in Germany 100 kW and smaller:

    Right now it says $2.56 per Watt.

    Now, my estimates were a bit lower because I’ve been using the feed-in tariff rates as a proxy for the installed costs (usually the ratio between the FIT rate for the smallest projects and the price index is about .117). The steep downward turn in rates in March (a 20% cut from the first of the year) is quite a bit more than the drop in price according to the index, but would have corresponded to a cost of about $2.16 per Watt.

    There’s generally about a 25% savings in cost per Watt between small-scale and larger distributed solar (10 kW to 1 MW or more), so that would be around $1.60 per Watt installed.

    I probably should have just used the price index, but it hadn’t been published when I wrote this piece several weeks ago.




  22. Steve says:

    This seems like a fairly well-informed discussion involving specialized knowledge. I’m in Southern California under a net metering arrangement where our house is a net producer of electricity, usually on any sunny day regardless of season and certainly on an annualized basis.

    I cannot think of a single thing a person can meaningfully do to be part of the solution, rather than part of the problem, that beats installing a rooftop solar system… and that is without making any lifestyle sacrifices whatsoever (not to say those are not separate and important agenda items).

    How many states other than California have similar state-level incentives, rebates, and net metering programs? Thanks in advance.

    If you are in one of those states and have not done so already, make a commitment to installing solar. I agree with Leif on this issue wholeheartedly.

  23. AlaninAZ says:

    I do not think we can compare American and German residential costs without considering the nature of the residences. I cannot see installation labor and racking materials on a single family home with a pitched concrete tile roof like mine costing much less than my actual cost of about 1.9$/watt. Most Germans live in apartments or small houses and I suspect that the German costs are low because multiple residences are sharing the same solar panel infrastructure, possibly installed on apartment house rooftops. Germany has the lowest home ownership rate in western Europe.

  24. Mike 22 says:

    I agree. In addition to the points you make:

    a) US installers travel further for each job
    b) Each installer is on average less experienced–German crews are on average much further along the learning curve
    c) German installers are buying local, US installers are mostly buying imported
    d) US incomes are higher