Market Analysis

Market Analysis February 2022 - Time for a rethink, and a sunny future

The three-year peak in module prices now seems to have subsided. Prices are again in a slow but steady decline, particularly for project modules. For larger order quantities, panels in the 400W class and above can occasionally be ordered again at prices below the €0.26/W mark, with a delivery date of April or May at the earliest. Goods available on short notice, already produced and transported at higher costs, also trade at a significant price premium. This is the reason why this month’s index does not yet properly reflect current price development. We are still in the range of significantly above €0.30/W for high-performance modules. Although the price hikes of the past few months have levelled off, a real downward trend is not yet discernible at this point.

But what does the current price structure and the subsidy situation mean for the work of the photovoltaic project developers and their customers, the investors?

New installations in Germany in 2021 are expected to reach 5.3GW, a figure some 10% higher than last year. And within the different market segments there are major shifts going on. The elimination of the EEG surcharge for installations of up to 30kW has fueled strong growth in the small residential systems segment. The ground-mounted segment also saw a boom due to rising electricity prices under power purchase agreements (PPAs). The picture was completely different in the commercial segment, with large rooftop system (100 kW and up) seeing a massive slump: installation volume in the second half of 2021 was only around a sixth of the capacity installed during the same period the year previous.

Large rooftop projects that feed all of their power to the grid are no longer economically viable over the year due to the increase in component prices of at least 20%, and a simultaneous drop in feed-in tariffs, also by nearly 20%. Current installation prices would require a rate of at least €0.08/kWh, which is also reflected in the bid and award prices in the most recent public bidding rounds. The 300MW per year envisaged for the auctions was far too modest. Standard incentives outside of the tenders are unattractive for systems larger than 300kW due to the compulsory self-supply requirement, but even systems between 100 and 300kW can no longer be built profitably.

Since several measures aimed at mitigating the present obstacles have been announced by the German Ministry of Economics and others, there is huge potential for 2022 and the following years. For self-consumption systems exceeding 30 kW, the reduction in the EEG levy from €0.065/kWh to €0.037/kWh as of January 1, 2022, is likely to have a marked effect even now. An increase in module costs of €0.10/W translates into additional compensation requirement of about €0.01/kWh in order to maintain the economic viability of a project at the same level. However, the reduction in the EEG surcharge has already reduced costs for investors by some €0.03. Put another way, the lower surcharge has overcompensated for the higher production costs by €0.02/kWh. The complete elimination of the EEG levy effective January 1, 2023 - it was even suggested recently that this should be pushed forward to July 1, 2022 - would further incentivize self-consumption projects. This would mean that even projects with a very low self-consumption rate, say 10 percent self-consumption and 90 percent grid feed-in, would still be economically viable.

For full feed-in systems of 301kW and above, the Federal Network Agency's tender volume for 2022 has been massively increased from the current 300MW to 2.3GW. If we assume that there will initially not be enough proposed projects and that the awards will therefore be made at maximum prices of around €0.09/kWh, this should also trigger a boom in new installations. But the tender conditions have already been improved here. Specifically, the security deposit required has been halved from €70 to €35/kWp. As a result, more projects will probably be able to participate in the tender process.

PV systems up to 300kW without some self-consumption are still not economically viable at the currently valid feed-in tariff of €0.05 to €0.06/kWh. The new Minister of Economics and Climate Protection, Robert Habeck, has announced an amendment to the EEG to take effect as early as April 2022. He specifically envisions an increase in the feed-in tariffs for this segment. If this is implemented and the rate is adjusted to the current price level needed at current project costs, this market segment should also see a revival. This segment has a huge number of projects that are currently on hold, and which could be built on very short notice if the right conditions were in place.

Despite the imminent boom, the target formulated by the German government for 2030, namely, an increase in installed German PV capacity by 140GW to a total of 200GW, will not be achieved under the present conditions. This would require an annual addition of at least 15GW across all segments, which is not conceivable even under the improved conditions described here. It would require further measures such as an increase in the tender volumes to 10GW per year - from the legally stipulated 6GW for 2022 and just 2GW for 2023 - and an opening up of the tender process to include projects with capacities of 100kW or more. Inclusion of self-consumption projects should also be on the table. Why only full feed-in projects are allowed to participate in the tenders is incomprehensible. Unfortunately, even after all these ideas have been implemented, there remains a central question that has already been asked in recent months: where will the skilled workers come from to implement and build all this?

The co-author of this article, Tobias Kurth, is the founder and CEO of DETO Solarstrom GmbH. Since 2010, he and his companies have been designing and building PV plants in Germany. DETO Solarstrom GmbH currently operates some 100 MWp of PV installations across Germany, mainly rooftop systems. The company leases large roofs on agricultural, commercial and industrial buildings and also open areas. Since 2021, the focus has increasingly shifted from full feed-in systems to integrated self-consumption solutions ranging from tenant electricity to energy contracting.

Overview of price points broken down by technology in February 2022 including changes over the previous month (as of 17 February 2022):

Overview of price points broken down by technology in February 2022 including changes over the previous month