Germany lies in the mid-latitude region (51.1657° N, 10.4515° E) of the earth where sun light is low compared to that in tropical and sub-tropical regions.
Let’s look at the solar insolation of the country:
The average value is 3.01 kWh/m²/day
If I compare this value with the countries in tropical region and sub-tropical regions like Colombo (Sri-lanka) and New Delhi (India) then it is quite low.
We all know that sunlight plays a very important role in determining the feasibility of the solar power system.
When sunlight is good, fewer solar panels can produce enough current to run your electrical appliances.
Despite this, more and more Germans are replacing grid electricity with independent solar installations and the country has become a hot solar destination.
The main reasons are as follows:
(1) Grid electricity is very expensive
The constant reduction in the cost and improvement in the technology have made solar one of the cheapest power generation source.
Moreover, it is environment friendly.
Germany has one of the most expensive grid electricity rates.
Please look at the chart below:
It has grown from 21.65 Euro cents/ kwh (23 US cents) in 2008 to 29.16 Euro cents/ kwh (32 US cents) in 2017.
1 Euro cent = 1.08 US cent
1 Euro = 1.08 USD
A growth of 35% in the last 9 years, making it an average annual growth rate of 3.85%.
Here are the reasons for this:
The tax components were:
There is a component called renewable energy surcharge is used for financing the renewable energy projects which is 6.88 cents or 23.6% of 29.16.
It is clear that German promotes renewable energy through surcharges on grid electricity.
It is clear that high tax on grid electricity and the government’s investment in the renewable projects have made people to consume less grid electricity and start generating own through solar PV installations.
(2) An Effective FIT policy mechanism
The FiT policy is very supportive and effective in promoting the solar installations in the country.
FiT is the fee paid to the renewable energy producers, in our case it is solar energy producers, for the period of 20 years, for each unit they produce and feed it into the grid.
In this way the FiT mechanism offers long term security to the renewable energy producers. Moreover, the remunerations are above the wholesale or the retail prices, further making solar energy investments lucrative.
(3) Solar installation is cheaper in Germany
The cost related to customer acquisition, installation, and profit/overhead cost are less. Moreover, the expenses related to permitting, interconnection and inspection procedure are lean in the country.
Here are the reasons for this:
(4) The Declining cost of solar PV Installation
The unanimous acceptance of the country’s solar program has played an important role in bringing down the cost of solar PV installation from Euro 5/watt in 2006 to around Euro 1-2 per watt in 2014.
The cost of installation is declining since 2006. It has declined from Euro 5,000/kWp to Euro 1640/kWp in 2014, a good 13% CAGR decline in the cost of installation.
The above factors have accelerated the growth of solar power installations in the country despite its low solar radiations.
If I assume that grid rate of 29.16 Euro cents in 2017 will grow at the rate of 3.85% for another 25 years that is also the average life of the solar panels.
Then the per unit electricity price at the end of the 25th year would be 75 Euro cents per unit of grid electricity.
With time, the grid prices are likely to increase and solar power system cost is going to come down.
The price gap is going to widen year by year, further motivating Germans to replace the grid electricity with the solar power systems and become the independent energy producers.
In addition, the investment in solar energy projects through renewable energy levy will boost the growth of solar in the country.