Solar: German Subsidy Cuts Coming?

Analysts this morning are parsing the fine print of a four-year coalition agreement ratified in Germany today that will likely have an impact on funding for solar technology projects, and on solar technology vendors such as First Solar (FSLR) and SunPower (SPWRA).

As Bloomberg notes, German Chancellor Angela Merkel’s Christian Democratic Union pushed through measures for a $36 billion tax cut meant to spur economic growth, a compromise with more aggressive proposals. The measures relating to solar funding appear vague and thus open to widely differing interpretations.

The agreement does not call for immediate cuts in the so-called feed-in tariff for solar projects, subsidies that have helped boost German investment in the technology, writes Collins Stewart analyst Dan Ries. The agreement “highlights that the coalition is committed to solar and indicates that the government will pursue a dialog with the solar industry and community leaders to determine if the current subsidy is too generous.”

Ries is optimistic, writing that “we do not believe the outcome will be as harsh as the “enormous” one-time cut of perhaps 20-30% reported in the press.”

Hapoalim Securities analyst Gordon Johnson, on the other hand, believes cuts to subsidies won’t be “less severe,” as Ries and others believe. In fact, “we see this as confirmation that Merkel’s new coalition sees an immediate need to adjust current incentives for solar PV technologies,” he writes. “Furthermore, there was mention of focusing incremental ground based solar PV systems on “sealed” land - our discussions with contacts in Germany this morning suggest this could materially limit the sites new free-field solar projects in Germany can be placed.”

But as Johnson notes, it’s possible that a future limiting of subsidies will have a positive near-term impact on demand, causing projects to rush to use existing subsidies. But Johnson believes this will be small comfort given what he argues is an industry-wide glut of polysilicon (the raw material for many solar devices), solar wafers, and photovoltaic cells and modules, “we see acute risk of industry wide multiple compression on the horizon.”

The effects of the a potential tariff cut have already begun to be felt by some vendors. SunPower, for example, last Thursday offered a disappointing Q4 revenue outlook, which some analysts attributed to orders being pulled into last quarter from the current quarter, as projects scrambled to buy panels before tariffs run dry.