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% (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% 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% 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 it is 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 ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His latest paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development. Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (energyselfreliantstates.org), and articles are regularly syndicated on Grist and Renewable Energy World. John Farrell can also be found on Twitter @johnffarrell, or at firstname.lastname@example.org.