Unlike wind power, solar power is widely accepted, and solar panels are increasingly popular among homeowners, not least because of supporting regulations. Can solar energy resolve the challenges of Germany’s energy transition? In the next part of our series "The Future of Energy," we turn our attention to solar power.

Solar power – A breakthrough after the slump?

"The sun doesn't send a bill," proponents of solar power have been arguing for decades. Yet the history of Solar energy has had an eventful history over the past 20 years in Germany: at the beginning of the millennium, after the introduction of feed-in tariffs under the Renewable Energy Sources Act (EEG), the solar industry in Germany boomed due to a generous subsidy of around 50ct/kWh. In Germany, solar energy has had an eventful history spanning more than 20 years: At the beginning of the millennium, after the introduction of feed-in tariffs under the Renewable Energy Sources Act (EEG), the solar industry in Germany boomed due to a generous subsidy of around 50ct/kWh.

However, a combination of dramatically reduced subsidies and the rapid rise of China as a global market leader shattered the dreams of a German solar industry ten years ago. China pushed down the prices of PV systems by 90% since 2010 alone. the technology has become much more profitable for plant operators worldwide, but not for producers of PV systems in China and elsewhere. Hopes have been growing recently for a renaissance of the European solar industry, driven by the European Union's more ambitious emission-reduction targets and the goal of creating and maintaining value chains on the continent.

China's price-dumping strategies are reflected in the costs of producing electric power. Solar parks have become competitive vis-à-vis conventional gas and coal-fired power plants. In 2020, Germany’s first PV plant that does not receive any EEG subsidies was built in the region of Brandenburg. With an output of 187 MW, this plant alone supplies electricity to around 50,000 households. Solar power accounted for slightly less than one-tenth of Germany’s gross electricity consumption in 2020. On sunny days, almost two-thirds of total electric power is generated by PV systems. This contribution, however, is highly variable. With cloudy skies, during nighttime, and throughout the winter season, little solar power is generated. Sunny days pose a challenge of their own, as the power grid runs the risk of being overwhelmed. This is why PV systems are legally required to be able to restrict their feed-in to 70% of their maximum output, and large commercial solar parks must be able to be switched off by the grid operator via remote control (“shutdown”).

Fortunately, wind and solar power are in many ways complementary in terms of daily and seasonal output. Grid expansion and storage options could further stabilize the grid in the future. According to the German Federal Network Agency, the nation’s energy-supply security has increased in tandem with the expansion of renewables. At the same time, the agency assumes that electricity production will need to be curtailed more frequently in coming years in order to ensure the stability of the grid. The expansion of renewables also poses many challenges in terms of connecting the many individual plants to the lower-level distribution grids. Moreover, the massive simultaneous feed-in of PV plants on sunny days can cause electricity prices to slump and even turn negative. This could lead to a considerable loss of profit, especially for larger plants. In order to smooth out the electricity production from PV, surplus electricity could be “stored” through the production of hydrogen via electrolysis.

A major advantage of solar power are the relatively low investment costs, which is why a growing number of citizens are willing to get involved in the solar sector. In comparison to wind power, there is less need for extensive land-development plans. Creative approaches like floating solar parks on artificial lakes created from former open pit mines or combinations with agriculture ("Agri-PV") allow solar power to be produced in areas where other options for productive use are limited. Yet laws making mandatory the installation of PV systems on buildings of various types–already in place in some states (like Baden-Württemberg, Berlin, and Hamburg) and, potentially, nationwide–meet considerable resistance. Opponents argue that such requirements delay the urgently needed construction of residential real estate, leading to even higher housing prices.

Even without such requirements, the installation of PV systems in practice involves a great deal of red tape. For example, subsidies and feed-in tariffs differ based on the size of the PV system. Reduced EEG-mandated levies apply to small systems with a minimum of 30kW nominal output used for own-consumption purposes. Between 100kW and 750kW, there is no fixed feed-in tariff but an obligation to market the generated power directly, while the rights to run large plants are allocated through annual, narrowly defined calls for bids. As a result, the expansion of solar panels has not met the numerical targets issued by the federal government. In order to achieve the federal government’s current (and recently tightened) climate targets, an annual expansion of 12 to 20 GW per year is required. In 2020, the actual figure was just below 5 GW, and significantly lower in the previous years.

Until 2020, a "solar cap" was in place that would have stopped the disbursement of subsidies for new systems once a total nominal output of 52 GW was achieved. This limit would indeed have been reached in 2020, but the federal government eventually decided to abolish the cap.

The considerable technological progress in making and running PV systems have rendered solar power increasingly profitable. A new wave of panel technology is under development that, in comparison to existing systems based on silicon, could further boost efficiency and cut costs. The profitability of PV systems will also heavily depend on the availability of scalable energy storage systems and on alternative uses for surplus energy at peak times.