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Germany Feed Law

April 3, 2007
Paul Gipe

German Solar PV for Free Says Walter Fischer


Protecting creation. Lutheran church with a roof top of solar PV in the village of Schönau, Baden-Württemberg.

 

In Germany, Walter Fischer argues, you can install solar for free. Yes, that's what he said. I didn't believe it either, so I asked the diminutive German how this was possible.

Fischer, who speaks English with an American accent (at first I thought he was American), knows what he's talking about. He has a solar system on his on home, one of the first in his area to do so. And Fischer is a member of a Solar photovoltaic (PV) Bürgerbeteiligung or share cooperative. In fact, Fischer is one of the founders of his community's solar project.

There are two elements critical to making his statement possible.

 

  • The German electricity feed law that pays homeowners and businesses for their solar electricity, and
  • The German low interest loan program that makes it possible for anyone to install solar.

Germany's electricity feed law, the EEG or Renewable Energy Sources Act, is famous for not only requiring utilities to allow renewables on their system but also for stipulating how much they pay for the electricity. Germany pays a lot, more than any other country, for its solar electricity. Their program is intended to do just that. Solar electricity costs a lot today and Germany pays a high enough price so homeowners who install it properly and operate it efficiently can make a profit. (What a radical idea!)

France has adopted a similar policy for the same reasons. Italy is following suit.

Germany pays $0.65/kWh for electricity from small rooftop solar systems. If everything is done right, during the 20 years that the payments last, the owners should earn about a 6% rate of return, not a lot it is true, but enough to make the project worth their while.

The second part of the German program, the low-interest loans, makes its policy the most equitable in the world.

Under the program, local banks are obligated to provide loans from KfW (originally the Kreditanstalt für Wiederaufbau), to applicants who meet the program's lending criteria. Loosely translated as the German Bank for Reconstruction and Development, KfW has a program specifically to promote renewable energy. Loan terms can be up to 20 years for typically 1% below prime. Payments can be waived during the first three years of the loan.

So, here's why Walter Fischer says that you can buy the solar system for free.

Let's assume you buy a one-kilowatt solar system for 5,000 Euros. You take out a 20-year loan from KfW with a 200 Euro down payment. Your debt is 4,800 Euros.

In southern Germany a 1 kW PV system will generate 1,000 kWh/yr. The German feed law will pay you 0.50 Euros/kWh, so you gross 500 Euros per year.

After the three-year grace period on the loan expires, you have earned 1,500 Euros less the 200 Euros down payment. Your net over the first 3 years is a positive 1,000 Euros.

In fact, the solar plant generates a net positive cash flow for the entire period.

The balance of the debt must be paid over the remaining 17 years. If KfW charges 5% interest, then the annual payment on the 4,800 debt is 426 Euros per year. If the system works as suggested here, there is net positive cash flow from year one through year 20. After year 20 the PV system is debt free.

This is why Walter Fischer says "you can install solar for free" in Germany. You only pay a small amount out of pocket for the down payment and that's returned in the first three years of operation, after that revenues from PV system pay for its annual payment to the bank.

What a radical idea!

The following chart is from photovoltaik-profit.de an xls detailed spreadsheet calculator.


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