Dusseldorf Three million solar systems are connected to the German power grid. Only a few weeks ago, Germany cracked this mark. At the start of Europe’s largest industry meeting, the “Intersolar” in Munich, the photovoltaic industry is now announcing new figures.
And they could hardly be better: Homeowners alone put twice as many solar systems into operation in the first quarter of 2023 as in the previous year. And already in June as many new solar batteries will be installed as in the whole of 2022.
Carsten Körnig, Managing Director of the Federal Association of the Solar Industry (BSW), is pleased with these figures: “Almost all signs continue to point to growth: solar systems are inexpensive, the number of specialists is increasing, the delivery situation is brightening, and market barriers are increasingly being removed.” The industry is expecting double-digit growth rates again in 2023.
The industry sees risks in persistent problems in the supply chain or increased financing costs due to high interest rates. Euribor has risen significantly over the past year and a half. This is the interest rate at which banks lend money to each other. Accordingly, the banks are increasing their interest rates for companies and consumers more.
Solar project costs are increasing
Before the turnaround in interest rates, large solar parks were profitable even without government subsidies. That should change now. According to energy market researcher Rystad Energy, the cost of European solar projects rose by 15 percent between 2019 and 2023. That could become a problem. And this despite the fact that the global solar industry has never been so strong.
With costs of between three and four cents per kilowatt hour of electricity, solar energy remains the cheapest form of electricity generation.
(Photo: obs)
The photovoltaic business has been going extremely well, especially since 2022. Russia’s war of aggression against Ukraine, the energy crisis and rising electricity prices have driven demand for decentralized and self-sufficient energy solutions.
The International Energy Agency (IEA) estimates that the generation of renewable energies will grow faster than ever this year. Reasons are “growing political support, rising prices for fossil fuels and concerns about energy security,” write the IEA authors in a recent report. Photovoltaics should therefore grow particularly strongly.
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Two-thirds of the expected increase in renewable energies is accounted for by solar systems. In the face of rising electricity prices, consumers tried to reduce their bills by installing solar panels on their roofs, for example. Exactly this phenomenon is reflected in the German solar industry.
Last year, with 7.5 gigawatts of solar power output, as many new systems were connected to the grid in Germany as last ten years ago. In 2022, solar energy accounted for more than ten percent of the power supply in Germany, making it the fourth most important energy source after coal, wind and natural gas.
The solar industry is expecting exponential growth again this year, despite the recession. The head of the Dresden-based module manufacturer Solarwatt told Handelsblatt: Compared to 2022, the industry is noticing that the market has normalized somewhat and “the sales curve is less steep”. “Nevertheless, we see healthy growth at Solarwatt and are on course to actually reach half a billion in sales in 2023.” In 2022, the Dresden-based company had sales of 330 million euros.
Prices for solar systems have risen sharply in 2022
The prices for solar systems had risen by up to 20 percent in 2022. According to experts, however, they are now stabilizing again. The demand is still high, reports the photovoltaic specialist SMA Solar from Kassel. “We expect a slight drop in prices on the market due to the overall improved supply situation, but we don’t think that prices will fall back to the pre-crisis level,” clarifies SMA CEO Jürgen Reinert.
According to the Fraunhofer Institute for Solar Energy Systems (ISE), solar energy remains the cheapest form of electricity generation at all, with costs of between three and four cents per kilowatt hour of electricity (for large parks in open spaces).
Only the rising interest rates for financing solar projects are currently causing concern for the industry. Industry participants report that even a KfW loan for the financing of solar systems, which is described as low-interest, has risen from 1.06 to 4.75 percent interest.
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Tim Koenemann, head of renewable energy at Commerzbank, also says: “Due to inflation, increased commodity prices and supply chain problems, the investment costs for renewable energy systems have risen significantly. That is why many projects are in fact now paying off less and are being put to the test.” Individual companies are hit hard, says Koenemann.
Solarwatt boss Neuhaus reports that the higher interest rate level is causing general uncertainty: “The financial framework has changed, so that the implementation of the projects has to be recalculated – this affects homeowners as well as companies or large project developers.”
High interest rates slow down payback of solar systems
BSW boss Körnig is convinced that although there is a great deal of interest in solar energy, many companies are not now putting the project into practice. Mainly because the increasing interest burden for raising outside capital has massively extended the payback periods for new solar roofs.
More and more large-scale solar parks adorn German fields and meadows.
(Photo: IMAGO/Action Pictures)
With a system on a typical photovoltaic commercial roof, it takes more time to recoup the investment costs: it takes around half a year longer for each percentage point higher interest rate. The increase in the Euribor interest rate alone would then extend this period by more than two years. “The interest rate screw deters many commercial PV investors. The high interest burden is currently also slowing down the construction of subsidy-free solar parks,” warns Körnig.
Commerzbank expert Koenemann also fears this: “But there is a regulatory counter-movement,” he says. In view of the high interest rate environment, many countries have increased government subsidy rates, lifted limits or set up new subsidy programs, including Germany. “It works: Globally, we don’t see any decline in the expansion of wind and solar projects.”
On the contrary: According to the experts at Rystad Energy, global solar construction will increase by 13 percent this year – despite increased costs. Because many countries in Europe in particular are even improving the political framework for solar expansion, this number must be adjusted upwards, if at all.
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