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German Feed in Tariffs

The Germans are the world leaders in implementation of solar energy. In Germany, 12% of its energy comes from renewable sources, with 3% due to solar photovoltaic alone. The goal is to have 35% renewable energy generation by 2020 and it is estimated that up to 25% of energy generation in the country could come from solar sources by 2050. The German FIT program has been so successful that half of the total solar PV capacity in the world has been installed in Germany.

Germany has been aggressive with its FITs. The first Fit program was introduced in 1991 and was then altered in 1999 and in 2004. The tariff led not only to the generation of 12% of Germany’s power by renewable means, but also created 300,000 jobs and is expected to create a total of 500,000 by 2020.

How German FITs Work

The German program offers FITs of UP TO four times market rate for 20 years. While there are many nuances, the end result is that the payback on most investments in renewable energy is on the order of 10 years or less. This helps to ensure that the system remains viable and that demand is high over the long term. The anticipation of high demand makes it profitable for companies to invest in solar production capabilities.

One of the major benefits of FITs in Germany is that they are not restricted to the size of the installation, but rather the FIT itself scales based on the energy generated. Larger systems get a lower FIT per kilowatt hour than smaller systems. This is all designed to accommodate economies of scale and ensure that limited benefits are equally distributed. The result of such an approach is that multiple individuals can form cooperatives that purchase large numbers of solar panels. Individuals own shares of these cooperatives, even if they don’t directly receive the electricity themselves, and thus reap the rewards. For many individuals, there is a 5 to 10 year return on investment in these programs, an almost unheard of turnaround time.

Another major foresight in the German FIT program was the introduction of tariff decreases from the very inception of the plan. Unlike in the UK, where prices were guaranteed for 25 years and now have to be renegotiated in very contentious policy and court battles, the German plan included reductions in Tariffs over time to account for the reduced cost of solar installations and the changes in prices that would occur as the scale of solar production increased. The result is that FITs in Germany have decreased by about 57% since their inception, but people are still installing record numbers of solar panels and the industry is thriving because it was planned, accurate, and responsible. This is in contrast to the current crisis in the UK in which unplanned and poorly implemented FIT reductions are threatening to destroy the country’s fledgling solar industry.
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