France wants to avoid becoming Spain.
The Ministry of Sustainable Development is expected to cut the country's generous feed-in tariffs by 12 percent beginning September 1 in an effort to rein in demand and curb spending, according to analysts and news reports from France.
The cuts -- which were expected some time in the future -- will dampen demand and put pricing pressure on solar modules, according to a report from Aaron Chew at Hapoalim Securities. Still, the impact will be muted. Germany represents a far bigger market and the imposed and anticipated impact of its feed-in cuts are already baked into industry forecasts. Italy is also a larger market than France. A looming global surfeit of components will also likely have a larger impact. At most, France will account for 5 percent of shipments this year.
Nonetheless, the cuts will hurt demand and remind investors and others about the volatility of solar market. The spread between the feed-in tariff, essentially the price that French utilities pay for solar energy, and the price of conventional electricity right now is somewhat large. The feed-in tariff ranges from 31 to 58 Euro cents per kilowatt hour, depending on the type of installation and module. The 58 cents a kilowatt hour tariff, paid to those with building-integrated photovoltaic panels (BIPV tiles), has been one of the highest in the world. The cuts will impact ground-mounted systems and BIPV, but not small residential systems.
Regular electricity runs 5.6 cents per kilowatt hour. (France gets the lion's share of its power from nuclear plants -- the cost of many of the plants have been amortized and the government owns the bulk of the stock of Areva, the large nuclear power plant operator. So, no, it's not a completely fair world.)
The high price for solar energy prompted a surge of demand. Chew earlier predicted that France would install 398 megawatts of solar this year and government numbers indicate that the total could be 85 to 90 megawatts higher than that. France had already cut the feed-in tariff once this year.
Cutting the tariff, of course, would dampen demand. Spain still remains the example not to follow in this department. Back in 2008, Spain offered generous tariffs, prompting a mad dash of solar module makers to the Iberian Peninsula. When the country suddenly pulled back, a glut resulted.