Market Analysis September 2022 - Discussion on excess profit tax is slowing down the rapid expansion of photovoltaics

Prices for solar modules ticked slightly downward this month for the first time since February. The dip occurred for a number of reasons; one is the shortage of inverters and poor availability of electronic components, which is slowing the pace of expansion. Plant builders have warehouses full of PV panels but are limited in how many they can install because they lack critical system components. These installers have plenty of modules for the time being, which is why they are trying to delay pending deliveries as much as possible. This has left wholesalers and manufacturers sitting on some of their products, which they then have to try to bring to market elsewhere, sometimes at a discount.

Following initial exuberance surrounding the rapid expansion of renewables in general and the announcement of the German government's new support package for renewables last spring, disillusionment has set in. Normally, the astronomical prices seen recently on electricity exchanges should be conducive to market growth. And yet, not a day goes by without discussion of a restructuring of the electricity market or the levying of an excess profits tax on PV system operators - possibly even with retroactive effect. This is causing uncertainty in the industry.

Previously, operators of PV systems had to content themselves with the 20-year feed-in tariff stipulated in the Renewable Energy Sources Act (EEG), which offered them more or less predictable returns, depending on how optimistically they planned their projects. Banks usually based risk assessments on rather conservative scenarios and supported projects with appropriate financing. Today, the legally assured remuneration is so low that economic operation on feed-in rates alone is no longer feasible, all the more so given current system prices. The latest increase in the revised legislation to €0.081/kWh - the rate for rooftop systems between 400 and 1,000 kW - will do little to change this situation.

Economically viable operation of medium to large PV plants is now only possible under power purchase agreements (PPAs) or through direct marketing of the generated power. At currently 30 to 40 cents per kilowatt-hour, the market value for solar power is already many times higher than the increased EEG compensation. The all-important question is, of course: how long will it last: Since the fixed feed-in tariff now only serves as a backstop against sharply falling market prices, there is no longer any reason to base economic calculations on just 20 years of plant operation - most project planners are already assuming service lives of 25 years or more. But a lot can happen in 25 years.

Some models assume high electricity prices of more than €0.20/kWh over the long term, while others take an increase in solar generation capacity into account and calculate prices approaching zero. If a large number of wind turbines or solar farms generate power simultaneously, the electricity will ultimately be worthless unless massive storage capacities or conversion options (power-to-X) are available. Still other theories assume a completely different market structure, such as flat rates for electricity or other progressive models whereby end customers pay only for the connection, regardless of how much they actually consume. This idea is based on models in the mobile communications and internet market, where contracts at fixed monthly prices are now the standard. The introduction of a capacity market has also been discussed in Germany and Europe for years.

The announced tax relief, on the other hand, offers few benefits in the model discussed above, which is expected to make a significant contribution to achieving general expansion targets and therefore urgently needs support. Instead, a market segment that was already highly lucrative is getting favorable treatment and was therefore successful even before the introduction of the new legislation. After all, the excess income tax exemption under discussion only applies to PV systems smaller than 30 kilowatts-peak. The reason that more of these small systems are not being built has less to do with incentives than with the serious lack of available installation capacity. It is even valid for multi-family homes, for which the income tax exemption applies for systems up to 100 kW. This segment is currently almost non-existent due to other bureaucratic hurdles and is therefore irrelevant. The same applies to the sales tax exemption for these systems. It is a nice gesture, but it offers no meaningful help in achieving the expansion targets. Getting such projects off the ground will require a whole new tool kit.

The discussion about the additional taxation of commercial and investment plants, which is unaffected by the above-mentioned tax relief and which, after years of tight calculation and disillusionment, has finally put smiles on the faces of plant operators and brought them a nice return. Even with a strict time limit on the skimming of so-called "excess profits" - whatever that is supposed to mean, exactly - the lingering uncertainty remains that this form of taxation could be reintroduced at any time, depending on the political climate and the state of the economy. Planning security on the basis of grandfather policies would thus also be lost in Germany, as is already the case in some neighboring European countries. In the future, project planning and profitability calculations will have to be carried out with a myriad of variables and wide safety margins.

A key intention for policy makers has always been to keep the economic success of an industry or technology under control and to avoid uncontrolled growth and over-subsidization, which is understandable. However, this can have unintended consequences, as we have seen with energy policy in Germany under the leadership of the CDU over the past 16 years. At worst, solid development is stifled, and mature, forward-looking technologies such as wind power and PV are held back. By the time those in charge realize that they cannot get by unless renewables make up a dominant share of total energy production, it will almost be too late.


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 September 2022 including changes over the previous month (as of 19 September 2022):

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