13 Apr 2022, 15:00

Solar power in Germany – output, business & perspectives

Solar power in Germany has gone through turbulent times since it got off to a flying start in the wake of Germany's Renewable Energy Act in the year 2000. German companies quickly ascended to global leadership in solar power technology before a collapse after 2012 forced many of them to drop out of business. However, far from being a sun-drenched country, Germany has one of the highest solar power outputs in the world and still boasts cutting-edge research and many new industry actors. The governments aim to achieve an energy system fully based on renewables by 2035 is expected to give the industry an unprecedented push. [UPDATES Government's 2022 "Easter Package" on renewable energy law reform]

 Parabel GmbH Quick facts

(Figures for end of 2021; Sources: BSW Solar, Fraunhofer ISE)

Start year: 1991 (first support)

Number of solar arrays installed: 2 million (2020)

Total capacity installed: 59 GWp

Output: 51 TWh

Projected expansion: 215 GWp in 2030

Share of power consumption: 10 %

Output

Despite being among the countries with the least sunshine hours, Germany is one of the largest solar power producers in the world. With an installed capacity of nearly 60 gigawatt (GW) in 2021, the country ranked 4th globally after leading the fied for several years, according to the International Renewable Energy Agency (IRENA).

In contrast to conventional energy systems focused on big and centralised producers, thousands of small solar panel operators have become an important part of the German energy system. In 2021, all solar operators together produced about ten percent of the country’s net power consumption, out of a total renewables share of just under 46 percent, according to research institute Fraunhofer ISE. Solar power’s global share in power generation surpassed two percent for the first time in 2019, according to the IEA. 

The technology can contribute a much greater share to the German power mix at particularly sunny times. Between March and August 2021, solar panels generated more power than all of the country's hard coal-fired plants combined. In June, they generated 7.99 terawatt hours of electricity - more than ever before in a single month - accounting for 20.6 percent of net electricity generation. In 2020, solar power reached new record weekly share of 23 percent over a whole week and a daily record of almost 28 percent, research institute Fraunhofer ISE found. At about noon, when both sun intensity and usually also power consumption are at peak levels, solar power can account for more than 40 percent of Germany’s power production. Overall, solar power arrays produced about 51 TWh of power in 2021. 

Adding more capacity also acts as a check against oscillating solar power production levels due to weather effects. Despite experiencing a comparatively cloudy summer, Germany’s solar PV installations between January and August 2021 generated roughly the same as during the same period in the previous year, when much more sunshine hours were recorded, thanks to capacity expansion.

Solar power influx at peak demand time - around 12pm -  has a stabilising effect on the grid but also greatly reduces profit margins for power providers, who in the past were able to charge the highest prices at this time of the day , when demand reaches a maximum and supply used to be scarce. However, sunny weather and hot temperatures are not automatically leading to higher solar power output, as solar modules lose electric tension when they become hot, which brings down their capacity despite the stronger radiation.

The high output, both in the short-term around midday and in the long-term during summer, is offset by a reciprocally lower or non-existent output during the winter and at night, respectively, highlighting the need for reliable storage technology to complement renewables expansion. Fraunhofer ISE says solar panels achieve up to 980 full load hours per year in Germany, about ten percent of the total hours per year less than half of the amount that wind power can deliver. The researchers estimate that 1,030 full load hours are possible in the country but this is still far below the nearly 6,600 full load hours that lignite plants ran in 2016.

 Solargis

Expansion

Germany added about 5.3 GW of solar power capacity in 2021, ten percent more than in the year before but still much less than during its boom years around 2010. But the industry can expect installation numbers to climb up soon, as it is a key component of the country's push for greater energy independence following Russia's invasion of Ukraine. In April 2022, the government released its "Easter Package" of renewable energy policy reforms. It aims for a share of renewables of 80 percent in 2030 and 100 percent in 2035, which means annual expansion volumes have to quadruple to reach the target of having 215 GW installed by the end of the decade.

In early 2022, the first two German states implemented a solar-PV obligation for certain construction projects, and several other states are expected to follow suit with similar legislation. The national government proposed in its coalition agreement to make rooftop solar mandatory for new commercial buildings and establish them “as a rule” on new private buildings. The government also agreed on opening up more agricultural spaces as well as moorland to solar PV installations.

Many citizens want to take part in solar power expansion, as more and more homeowners mull installing panels on their roofs, often together with solar-powered batteries in their cellars. As of late 2021, one in three households had considered an installation either for power generation or heating, with the main drivers being greater energy autonomy and rising prices, according to the Renewable Energy Agency (AEE). BSW Solar said this trend had only been amplified since the Russian invasion started.

The 43 GW installed in 2017 occupied a space of just under 300 square kilometres, either mounted on buildings or built on open spaces. If the average degree of efficiency of arrays increases as assumed, the capacity Germany’s envisaged carbon-neutral energy system would consume up to 1,000 square kilometres. This equals about 2 percent of the country’s entire settlement and infrastructure area, or 8 percent of the area available on buildings. According to a study by the transport and infrastructure ministry (BMVI), the total area without restrictions for solar power installations in Germany would allow for an additional 143 GW on open spaces and 150 GW on buildings.

Installed solar power capacity by country in 2020. Source: IRENA
Installed solar power capacity by country in 2020. Source: IRENA

Business

After going through a rough period around 2015, business confidence in Germany's solar power industry has squarely bounced back. Already in 2020, it reached the highest level in ten years, as the introduction of carbon pricing in the buildings sector and the increasing popularity of home batteries are about to substantially increase the panels' value for power users. The German government's 2022 announcement to aim for 100 percent renewables in the power system by 2035 will likely bolster investor confidence, as expansion levels have to mulitply. A first oversubscribed auction in early 2022 that received more bids than it could award despite an increased volume seems to back this assumption. However, a shortage of skilled labour for installing panels and several other factors could still hamper a quick growth of solar power to enable Germany's energy independence push.

European solar power companies have called for a full-fledged renaissance of the sector, arguing that only about two percent of the solar PV modules installed in the EU in recent years were produced domestically, while the vast majority of installations has been imported from China, where environmental and labour standards are often far less strict and some producers appeared to even take advantage of forced labour. New and tighter rules for supply chain management introduced in Germany and the EU could tilt the balance in favour of European producers who can offer advanced life-cycle emissions reduction for their products and also provide more sustainable solutions regarding raw material sourcing and disposal.

The rapid growth of Germany’s solar power capacity - despite the country’s modest potential for harvesting solar energy - had been made possible by its Renewable Energy Act (EEG), introduced in the year 2000. The EEG gave precedence to renewable energy sources and allowed investors guaranteed remuneration for a 20-year-period. The number of solar panel producers and service companies skyrocketed quickly, as investors rushed to reap the benefits of this large-scale technology support. Especially between 2008 and 2013, Germany saw its solar power capacity increase rapidly from about 6 GW to 36 GW, with annual expansion peaking at more than 8 GW and creating about 150,000 jobs in the country by 2011.

However, after its quick ascent to world leadership within less than a decade, Germany’s solar industry’s faced an even more rapid decline after 2012. Competitors from abroad, especially from China, offered solar panels at a much cheaper rate than German manufacturers, while support rates remained stable regardless of the panels’ country of origin. Consequently, many investors swapped domestic for foreign suppliers to maximise their returns and left the freshly expanded German industry bereft of customers. Due to a parallel drop in guaranteed remuneration, solar expansion fell by 80 percent between 2013 and 2015, while it doubled globally during the same period.

The effects on the German solar power industry were harsh. Many major players, such as Q-Cells, Solon and Conergy - which often had just invested large sums of money to ramp up production - were forced to close down. As a result, the number of jobs plummeted to just over 45,000 in 2016. SolarWorld, once one of the three biggest solar power companies in the world and the last major solar panel producer from Germany, finally succumbed to Chinese competition and filed for insolvency a year later. The industry initially secured protection from Asian competitors through the implementation of trade barriers by the European Commission in 2013, which imposed minimum prices on Chinese imports. But as it did not succeed in keeping European manufacturers afloat, the EU Commission abandoned trade limitations in 2018.

Costs

Many commentators lamented that the support policy effectively meant that German power customers subsidise Chinese producers domestic suppliers were unable to compete with due to higher labour costs and stricter environmental regulation on panel production. Others lauded the combination of steady German capital and cheap Chinese labour as a catalyst for cost reduction that helped boost capacity growth and paved the way for the technology’s competitiveness.

Solar power has become the cheapest mode of power generation in Germany, according to research institute Fraunhofer ISE. Depending on the type of installation and sunshine intensity, generating one kilowatt hour (kWh) with solar panels can cost no more than 3.7 eurocents, it says. Costs for for new panels have fallen by about 90 percent between 2010 and 2021, the researchers said. An analysis by British climate NGO Sandbag found that costs fell so much that new solar (and wind power) installations in German auctions are not only cheaper than new hard coal and gas plants, but also undercut the operation costs of existing fossil power plants.

However, support payments for existing and new solar power installations still carry substantial costs for German power customers, amounting to over 10.3 billion euros in 2018 alone, according to the economy and energy ministry (BMWi). Average support for solar power installations in Germany’s climbed up again somewhat in the 2021 auctions and stood at just over 5 cents per kilowatt hour (kWh), up from 4.3 cents in 2018. But many solar power users install their panels also without participating in auctions: According to the Federal Network Agency (BNetzA), just under 3.8 GW out of a total solar PV expansion of more than 5.2 GW in 2021 were installed outside of the tendering process.

However, falling panel prices that have been a large driver in the latest surge in solar power expansion could soon hit a plateau. This would allow other factors, such as greater productivity, sustainability and flexibility, gain in importance for researchers and investors. Regardless of future breakthroughs in panel development, German citizens already embrace solar power as their favourite form of renewable energy generation, stating that greater expansion of the technology would bother them the least. In fact, solar power ranked first in a survey by pollster Allensbach on what Germans believe to be the most important power source in the future. Eighty percent of respondents expected solar power to take the lead and an even greater share, 85 percent, said they wish this would be the case.

Storage and innovation offer business perspectives for German companies

Even hardware-producing solar power companies in Germany have gone through tough times due to cheaper competition from abroad, the expected further drop in costs could inject new life in other sectors of the solar power industry. The removal of trade barriers has lowered systemic solar power costs and led to a boost in European demand, making 2021 the industry's most productive year ever on the continent so far. Solar power companies that offer technical and digital services or who are pressing ahead with development of complementary technologies like home storages could turn out to be the new trade regime’s great beneficiaries. Right after the invasion of Ukraine, homeowners in record numbers rushed to install solar power systems coupled with home storage batteries.

While German solar power companies struggle to compete with Asian manufacturers, they retain an edge when it comes to research on the modules’ system integration and the implementation of innovative applications. Foreign market leaders are often focussed on large-scale projects that yield high returns but will likely only account for a part of future growth, where small-scale prosumers are expected to play an important role as well.

Companies like Solarwatt or sonnen offer integrated solutions that allow for storing surplus solar energy at home and also sharing or trading it with neighbours and other prosumers around the clock. As prices for home storage technology have fallen sharply over the past years, they are set to benefit from a trend towards self-supply and decentralised production that makes them less reliant on support rates and could soon initiate a new wave of solar power investments in the country.

Although guaranteed support rates have fallen considerably since 2010, the German market has picked up again considerably in the past years. Of the new installations added, large parts were mounted on the roofs of private investors. Solar arrays with a capacity rating below 10 kWp accounted for over 60%of Germany’s total installations in 2021, many of which were installed by households and small businesses seeking to become more independent of market power prices.

Sector-coupling approaches like power-to-heat also allow the direct integration of renewables into the heating sector. In its coalition agreement, the government said that as of 2025, every new heating system had to be operated with 65 percent renewable energy, such as green hydrogen.

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