GB & EU Markets
6 mins

A Deeper Dive into Solar in Germany

With our ongoing expansion into the UK and Europe, we are sharing insights into more European markets. Following on from our recent video, let’s dive further into the German solar landscape. 

Though not the first destination that comes to mind for abundant sunshine, Germany is leading the solar PV deployment race in Europe. Not only does the country have the highest European PV ambitions for 2030, but it has also deployed the most solar capacity in Europe to date - as depicted below in a graph from Solar Power Europe’s EU Market Outlook for Solar Power 2023-2027 report.

EU-27 solar PV cumulative capacity in 2025 and 2030 (projected), compared to NECP (National Energy and Climate Plans) targets

Solar Outlook in Germany

Germany aims to achieve 215 GWp of installed solar capacity by 2030. As of May this year (2024), Germany has 88.9 GWp of installed solar capacity and is therefore well on track to achieve these high ambitions (see chart below). The nation’s solar deployment goals are underpinned by robust financial support schemes and progressive regulatory frameworks.

German solar PV build-out compared to EEG targets in MW

Regulatory environment

Regulatory support for solar in Germany is strong. In recent years Germany has implemented the Easter Package of 2022, published the Solar Strategy in 2023, introduced the EEG 2023 and is currently in the process of implementing Solar Package 1 (“Solarpaket 1”). These policies have defined Germany’s solar goal and are laying the stepping stones of how to reach it. They are in line with the EU's Green Deal and the REPowerEU Plan from 2022; the latter published by the EU as a reaction to Russia’s invasion of Ukraine and the resulting global energy market disruptions, aiming to help the EU to save energy, diversify energy supplies, and produce clean energy.

The EEG 2023 

The EEG in particular constitutes two schemes, which are valid depending on solar array size:

  • Feed-in tariffs: For deployment of solar ≤750 kWp (recently reduced from 1 MWp via Solar Package 1, see below), there are guaranteed feed-in tariffs, depending on the size of the project. The tariffs are being reduced by 1% every half year, however, tariffs for solar >40 kW in size recently were raised by 1.5 ct/kWh via the Solar Package 1. Assets receive a higher rate of pay if they feed all produced electricity into the grid (rather than consuming some, and feeding some into the grid), and all assets >200 kW in size have to sell directly into the market and receive the difference to the tariff as a payment. Check out the table below for detailed German solar feed-in tariffs valid from May 2024 since implementation of Solar Package 1 (green numbers have changed with implementation of the new package).
  • Solar tenders for rooftop and ground-mount: There are 2-3 tenders per year for solar developers to participate in, where the winners receive a surcharge (which basically acts as a floor to the wholesale market price) that is paid out via the EEG levy. The EEG 2023 pre-determines the volumes that are tendered in each round, which will reach 9.9 GWp p.a. between 2025-2027 for ground-mounted and 2.3 GWp p.a. for rooftop between 2026-2029. Winners are selected based on merit order, where lower prices are preferred, and if prices are equal, lower volumes are preferred.
Solar Package 1

The Solar Package 1, is an additional amendment to renewable energy laws in Germany, intended to facilitate and accelerate the expansion of solar energy. It was adopted in August 2023, and the first part entered into force in December 2023, while the second and larger part was implemented in April 2024. The main changes carried out via this package include the increase in feed-in tariffs and the lowering of the lower tender bid limit mentioned above, as well as a raise of the upper bid limit for ground-mounted solar systems in tenders (from 20 to 50 MW), specific regulations facilitating the deployment of “special” solar PV (such as plug-in balcony solar or AgriPV), and ease of permitting procedure. 

(Image: Getty Images) Plug-in balcony solar has experienced a boom in Germany last year with over 400,000 installed to date, compared to only 230,000 installed by mid-2023
Solar deployment statistics for 2023 in Germany

In 2023, 15.1 GWp of solar PV was deployed in Germany, of which ca. 7 GWp (~46%) were residential systems (<20 kWp in size), 3.9 GWp (~26%) were C&I rooftop systems, and the rest, so 4.2 GWp (~28%) were ground-mounted systems.

Interestingly, in 2023 almost 1.5 GWp or 32% of large scale solar that was built was not subsidised by the EEG support schemes. Although this shows that developers still prefer the long term security of the EEG schemes (subscription rates of the latest tenders were as high as 3.5 times the tendered volumes), they are seeking other financing routes, such as PPAs. This is a big shift as the first large-scale solar plant outside of the EEG, 8.8 MWp large Barth V by BayWa r.e., was only deployed in 2019, followed closely by the much larger 187 MWp Weesow-Willmersdorf solar park by EnBW, commissioned in 2020. 

PPAs

Renewable PPAs are hot in Germany, with the country having experienced a 323% increase from 2022 to 2023, according to the German Energy Agency (dena), rendering Germany the second-largest PPA market in Europe after Spain. Drivers for this growth are increasing demand by more and more corporate customers who are required to report on their environmental standards, due to a recent EU directive requiring companies, and of course power price spikes in 2023 (Germany’s benchmark front-year power contract was at >150 EUR/MWh in 2023 vs. ~70 EUR/MWh in Feb 2024, according to Montel News). 2024 PPA demand is projected to be higher than ever with multiple GW-scale contracts already signed this year (e.g., Vattenfall as reported by S&P Global). Commonly, solar PV PPAs are created over a duration of 10 years and have a “generation PPA” structure.

Modelling German large-scale solar in Gridcog

To compare the different commercial options, we spun up a model in Gridcog that looks at solar under the EEG scheme and outside of it, trialling solar sizes between 1.2 MWp and 50 MWp for each scenario (adding 100 MWp and 1000 MWp to scenarios 2-4, to see how scenarios behave at scale), and modelling them over a period of 20 years, with a discount rate of 4%. Wholesale markets added utilise Germany’s 2023 Day Ahead Hourly wholesale market as a basis.

Specifically, the modelled scenarios (see also screenshot below) are:

  1. Baseline: this is a Gridcog-must, as it enables comparisons later (here, the scenario is empty)
  2. Solar supported via the EEG surcharge (i.e., wholesale market floor) of 5.17 ct/kWh for 20 years
  3. Solar directly selling into wholesale market
  4. Solar sold via generation PPA over 10 years (at price of 60 EUR/kWh), and then on the wholesale market
  5. Solar sold via generation PPA over 10 years (at price of 70 EUR/kWh), and then on the wholesale market
5 scenarios for Germany large-scale solar in Gridcog

Our model's results give 5 key insights: 

  • EEG surcharges improve the positive cashflow by up to ~75% for smaller systems (at around 7 MWp size) but only by ~25% for larger systems (at around 50 MWp size) - compared to selling directly on the wholesale market. This gap could possibly be made up for by Guarantees of Origin, which a producer can only get if they don’t make use of the EEG already (... let’s keep this for another blog)
  • Non-EEG wholesale market sales seem to yield positive overall (20 year) cashflow from ~7 MWp system size onwards 
  • PPA-backed (at 70 EUR/MWh) projects seem to yield positive returns from ~7 MWp system size onwards
  • PPA-backed (at 60 EUR/MWh) projects seem to yield positive returns from ~10 MWp system size onwards
  • PPA-backed systems yield only seem to make sense well over the EEG maximum threshold, as a 100 MWp 60-EUR-PPA-backed system only generates around 4% more overall profit than a 50-MWp EEG system, at 2x capex 

An important note: with all project models, the results depend on the input assumptions, and this is a simplified model for the purposes of this blog.

Watch the video below where Laura walks through a similar project using Gridcog.

                                                                                              

If you want to learn more about how Gridcog can model solar PV projects and commercials in Germany, reach out here to speak to one of our team.

 

Laura Hoffmann-Ostenhof
Energy Associate
Gridcog
July 4, 2024
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