The German Ministry of Economic Affairs has proposed a plan to phase out all feed-in tariff subsidies for distributed photovoltaic (PV) power stations with a capacity below 25 kilowatts starting in 2027. This means that from next year onward, neither residential rooftop PV installations nor small commercial and industrial rooftop PV systems will receive any form of subsidy, potentially ushering in an era of subsidy-free distributed PV power generation in Germany.

Distributed PV power stations have long been the main driver of new PV capacity additions in Germany. Several German PV industry interest groups and analytical institutions believe that if this plan is implemented smoothly, it will have a devastating impact on the German PV industry in the short term. The scale of PV power generation installations is expected to plummet, making it impossible to achieve the established renewable energy development targets and hindering the energy transition process.

Impact on Distributed PV

It is understood that currently, all distributed PV power stations in Germany are eligible for varying degrees of feed-in tariff subsidies. This policy ensures stable and sustainable electricity prices for the power generated by German distributed PV stations, largely unaffected by fluctuations in the spot electricity market prices. This has significantly contributed to the growth of new PV capacity additions in Germany.

The German Ministry of Economic Affairs argues that over the past decade, the global cost of PV power generation has rapidly declined, leading to a substantial reduction in the standardized levelized cost of electricity (LCOE) for German distributed PV stations. The associated technological and economic viability has become considerable, reaching a point where large-scale, commercial development is possible even without any subsidies, thus eliminating the need for incentive measures.

However, this proposal has faced criticism from the German PV industry. Several related companies and institutions have warned that it will jeopardize renewable energy employment and climate goals in Germany. The German Solar Industry Association (BSW-Solar) even claimed that this is a "frontal attack" on Germany's energy transition.

Sura Heinäsel, President of the Renewable Energy Association of North Rhine-Westphalia, stated that if this plan is successfully implemented, it will bring a new wave of impact to the development of Germany's renewable energy industry. "A cliff-like cancellation of all subsidies for distributed PV power stations would be disastrous for the development of Germany's PV industry. This would dampen the willingness of homeowners and commercial and industrial enterprises to participate in the energy transition, increase public uncertainty about the prospects of PV industry development, and hinder Germany's energy transition process."

"Currently, the draft plan from the German Ministry of Economic Affairs runs counter to Germany's established renewable energy industry development plan. The renewable energy industry is one of the few sectors in Germany that sustainably creates job growth. This reform could lead to the loss of tens of thousands of jobs," Sura Heinäsel further added.

According to Germany's renewable energy power generation installation targets, by 2030, Germany's PV power generation capacity is expected to reach 22 gigawatts, while renewable energy will supply 80% of Germany's electricity, a significant increase from the 55% share proposed last year. In the latest reform proposal submitted by the German Ministry of Economic Affairs, this figure remains unchanged.

In June of last year, the German Solar Industry Association warned that the development of Germany's PV industry was falling short of expectations, with "half the journey still to go" to achieve the 2030 PV installation target, posing a risk of failing to meet the goal on time.

Centralized PV as a New Direction

Notably, in the future, Germany may shift its focus to large-scale, centralized ground-mounted PV power stations. According to disclosures, the German Ministry of Economic Affairs stated in its proposal that to further enhance the cost-effectiveness of the large-scale expansion of PV power generation, it is recommended to focus more on the construction of large-scale, centralized ground-mounted PV power stations going forward, helping Germany achieve its PV installation targets.

German Minister of Economic Affairs, Katharina Reiche, stated that the goal of the draft is to strive to improve the cost-effectiveness of funds used for the renewable energy industry. "In recent years, insufficient attention has been paid to the cost-effectiveness and supply security of renewable energy electricity." However, she declined to comment on specific details.

AIvest, an artificial intelligence financial big data mining platform, believes that in the future, large-scale, centralized ground-mounted PV power stations will become key to Germany's renewable energy development, and the elimination of subsidies for distributed PV stations aligns with this strategic shift.

AIvest noted that while investment in distributed PV stations may cool and decline, this policy shift will drive market investment toward large-scale, centralized ground-mounted PV stations. Simultaneously, demand for technologies related to grid integration and energy storage, as well as related services, will be activated. Investment in large-scale, centralized ground-mounted PV projects will attract institutional investors seeking long-term stable returns. The renewable energy industry development targets set by the German government for 2030 will boost the confidence of these investors, and investment predictability will also increase accordingly.

AIvest pointed out that Germany's policy change is less "anti-PV" and more a reassessment of the growth points and models for new PV capacity additions. In the short term, this policy may dampen the confidence of current German distributed PV investors and slow down the installation rate of distributed PV stations. However, as Germany shifts toward large-scale, centralized ground-mounted PV projects, related utility project auctions and tenders will increase, and large developers and infrastructure investors will play a greater role.

Grid Stability Faces Challenges

AIvest believes that for Germany to achieve its 2030 renewable energy development targets, in addition to promoting the growth of PV capacity, it must also address the challenges of grid security and stable operation. Currently, the "small and scattered" distributed PV stations have already brought crises to the German grid. Compared to the uncontrolled feed-in from distributed PV stations, large-scale, centralized ground-mounted PV stations can achieve balanced growth and maintain system stability, which is the need behind the German government's strategic adjustment.

Due to the rapid growth of distributed PV capacity, regions like Bavaria in Germany have already experienced grid management issues during peak noon hours. AIvest pointed out that for simpler grid management, large-scale, centralized ground-mounted PV projects have advantages. Not only is power generation concentrated and closer to the load, reducing the process of transferring electricity from distributed PV stations to the grid, but compared to distributed PV projects, large-scale, centralized ground-mounted PV projects also have lower standardized LCOE and lower costs for capacity expansion.

However, another viewpoint holds that Germany's "messy" grid has nothing to do with distributed PV stations. Shifting from distributed PV to large-scale, centralized ground-mounted PV ignores the resilience advantages of distributed energy. Developing large-scale, centralized ground-mounted PV requires supporting energy storage facilities, and adding storage also means increased costs.

AIvest also cautioned that distributed PV has always been a strong force in Germany's PV development, with extremely high social acceptance. Once policies change, reducing attractiveness to the public and small commercial and industrial entities, it may affect the original enthusiasm and support of the public for Germany's climate goals.

AIvest noted that Germany's policy shift reflects a broader, more common trend in the global renewable energy industry development: as technology costs decline, countries are reassessing the need for renewable energy subsidies to ensure optimal use of public funds.