EU solar subsidy cuts may aid Gulf

Moves by Germany, Spain and Italy could provide opportunitie2.

Spain's plans to cut subsidies on solar power plants cast a cloud feasibility of the Sanlucar La Mayor, pictured above.

Sparkling growth in the European solar power industry is expected to be dulled this year as policymakers curtail subsidies that have turned Germany, Spain and Italy into the world's largest markets. The policy changes could have big implications for Abu Dhabi's own investment in solar power manufacturing in Germany and is likely to push solar panel makers to tap into new markets in the US, China and the Middle East.

The latest blow to the industry came this week in Spain, where the government is weighing a 30 per cent cut in subsidies to existing solar power plants and a 45 per cent reduction in payments for some future plants, according to a Spanish solar lobby group. News of the possible reductions followed publication of a government forecast that showed subsidy cuts would reduce the amount of electricity generated from solar energy in 2020 by 14 per cent to 13,446 megawatts from previous forecasts.

"This would destroy the government's renewables-friendly policy and kill us all off," Tomas Diaz, a spokesman for the Spanish solar lobby group ASIF, told Reuters. "We don't think the sector can survive if it accepts these proposals." Electricity from all solar power plants, including solar thermal mirror arrays and photovoltaic panels, costs more than energy from conventional sources meaning it requires a subsidy to compete in the marketplace.

The industry has grown fastest in European countries that have offered the highest payments to investors, including homeowners who install panels on their roofs and utilities that build larger arrays that rival the output of small conventional power plants. Last year, the EU accounted for 77 per cent of new orders for solar panels, said the European Photovoltaic Industry Association (EPIA). The Spanish government has declined to comment on the proposed reduction, but analysts had been anticipating cuts in Spain's subsidy system as the government struggles to pull back deficits and reduce a payment scheme many said was too generous.

Spain was the largest market for solar power in 2008, but growth was curtailed sharply last year with a cap on subsidies. The move to reduce the country's feed-in tariff, a scheme that pays solar power plant owners more for electricity than market rates, comes as the industry is preparing for significant cuts in Germany, the world's largest market, and Italy, the second-largest area of growth last year.

Germany's government has planned to reduce tariffs for new rooftop arrays by 16 per cent next month. The move has been held up by parliament but is expected to be passed this summer. "The new law is expected to considerably affect the market in the coming years," the EPIA said in a report last month. "The substantial feed-in tariff decrease could jeopardise the development of the German industry, shifting the market to non-European, low-cost manufacturers and potentially destroying jobs by thousands in the German industry."

In Italy, the government has proposed eliminating ?600 million (Dh2.7 billion) in financial aid to the renewable energy industry by eliminating a guarantee to purchase credits from utilities that generate electricity from solar plants and wind farms. The guarantee ensures utilities will receive a return on costly investments in renewable energy. Together, the subsidy cuts will give solar power producers an incentive to cut production costs and move to other markets, including the Middle East, said Christian von Tschirschky, a solar energy expert at AT Kearney.

"There's an option here for the Middle East to jump in and play a larger role in the solar industry," he said, assuming the region's governments can put in place policies to support renewables. "The cuts in the feed-in tariffs have been forseen for a long time - politically the solar industry was highly over-subsidised for quite a while." @Email:[e-mail]