Bloomberg News

Merkel’s Government Wins Deal on Solar Subsidies, Carbon Capture

June 27, 2012

German Chancellor Angela Merkel’s government won agreement on cuts to solar-power subsidies and plans to store greenhouse gases underground, breaking a deadlock that threatened to hold up the country’s energy transition.

Under the deal reached with Germany’s 16 states in a panel of arbitration, the government will maintain a solar “growth corridor” of 2,500-3,500 megawatts a year, Environment Minister Peter Altmaier told reporters in Berlin late yesterday. There will be a cap on subsidies at 52 gigawatts, at which point a new formula will be found, he said.

A new category will subsidize mid-size roof systems of 10- 40 kilowatts at 18.5 euro cents ($0.23) per kilowatt/hour, higher than planned, the upper house of parliament, where the states are represented, said in a separate statement after the panel met. Otherwise, new installations will be subject to subsidy cuts from April 1 as envisaged, it said.

“We’ve confirmed the expansion of solar energy, while taking care that excessive growth is avoided,” Altmaier said. Growth in installations “will be kept at a calculable level.”

The breakthrough will help spur Merkel’s plans to speed the transition to renewable sources of energy driving Europe’s biggest economy while closing Germany’s nine remaining nuclear stations by 2022. The solar accord will probably be addressed by both house of parliament this week, the Bundesrat said.

‘Here to Stay’

The solar compromise involves the annual growth corridor being “maintained at 2.5-3.5 gigawatts and not lowered and capped as previously discussed,” Jefferies clean energy analyst Jesse Pichel said yesterday in a note released before the announcement. “While no cap is a positive, large rate cuts are here to stay and monthly cuts haven’t been ruled out.”

The two sides also reached a deal on government plans to create a legal framework for carbon capture and storage, known as CCS, a technology that is intended to reduce greenhouse-gas emissions from coal and gas stations. That was blocked in the Bundesrat in September last year after utilities and energy analysts said the legislation as proposed would fail to promote the technology.

Merkel’s government is pushing to reduce the pace of annual installations in the world’s largest photovoltaic market after 7.5 gigawatts were built last year, compared to a target of 2.5- 3.5 gigawatts. A plan to lower subsidies by as much as 29 percent from April 1 was blocked in the upper house in May, and an attempt at mediation failed last month.

State leaders had opposed Merkel’s planned subsidy cuts because of concerns the legislation would cost jobs by hurting domestic manufacturers including Solarworld AG (SWV) that are already suffering from Chinese competition. Pressure to reach a deal came as installations of panels through April more than tripled.

Altmaier, a Merkel ally, was appointed to the post on May 22 vowing to break the impasse over the level of subsidy cuts by parliament’s summer recess on July 6, saying that solar-industry jobs “can’t be saved by subsidies alone.”

-- With assistance from Stefan Nicola and Naomi Kresge in Berlin and Marc Roca in London and Will Wade in New York. Editors: Alan Crawford, James Hertling

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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