So why is solar pv so much cheaper and better in Germany?

Germany is issuing much larger volumes of auctioned contracts for large-scale solar pv and renewable energy this year compared to the UK, but what is especially notable is the ever-plunging prices for solar pv. These continue to fall well below the prices at which the Government is awarding contracts to solar farms in the UK. Indeed solar farms in the UK , won at the Government’s auction, cost prices that are around 60 per cent higher than the contracts that are being awarded by the German Government. So what’s causing this apparent chasm of difference?

Around 8 GW worth of solar pv and 10 GW of onshore wind contracts are being issued this year by the Federal Network Agency (Bundesnetzgentur). That compares with the 3.3 GW of contracts issued last month to solar pv and the 1GW awarded for onshore wind by the UK Government. Even in offshore wind Germany leads the UK with 8 GW of contracts being issued this year compared to 5 GW offshore wind issued by the UK. For comparative details of the numbers in the two countries see HERE and HERE.

So far 4.4 GW of German contracts for ground-based solar pv farms have been issued this year. The latest round rewarded 2152 MW of solar farms with a maximum price of 5.24 c/kWh. See HERE.

Of course, these Germann prices are in current prices, and in euros. Hence when you factor in that the UK contracts are issued in 2012 value of British pounds, the UK solar windfarm contracts come out as being 60 per cent more expensive than German solar farm contracts issued almost in the same month! And this happens despite the fact that the German schemes are much smaller in size (up to a 20MW limit) and the bulk of farmland is not eligible for funding under the Federal regulations (only low value farmland or degraded land can be used). By contrast in the UK there are no funding limits on any type of farmland and schemes can be as big as they want to be.

Indeed, the German programme even has a substantial facility for issuing contracts for large scale solar projects on rooftops, with around 750 MW of such contracts being issued this year. Under this scheme noise shielding solar pv schemes (mainly on autobahns) are also given contracts. (Such concepts appear to be very foreign to British policymakers!). Even so, these rooftop and noise abatement schemes workout as being cheaper than the cost of conventional fixed tower offshore wind contracts sanctioned in 2024.

An important factor is that on average there will be more sunlight per year in Germany. The schemes are spread around Germany from north the south, and the northern ones will have little, if any, more sunlight than in the south of the UK where most of the British schemes are sited. Nevertheless, if we assume that there is 20 per cent more sunlight available to German schemes, in line with academic analysis (see HERE) this still leaves the British solar farm prices being at least a third more expensive than the German ones.

I put forward two hypotheses for explaining this difference. The first one is simply that there just a lot more people in business and in communities who rate the importance of developing renewable energy in Germany very highly. This has built up over time from the first campaigners for feed-in tariffs in the 1980s. Investment in solar pv is regarded as being an important cause, not just as a transactional activity, as many see it in the UK. This also reflects itself in the continued political support for feed-in tariffs for solar pv on home rooftops.

The grass-roots support for solar pv may also be linked to a second reason why German solar farms are cheaper than British ones (despite all the restrictions relative to British conditions), and that is the sources of capital for the projects. Local and national banks in Germany have been very keen to lend to renewable energy projects. This has allowed high rates of financial gearing. By this I mean that the projects can be financed mostly from bank loans rather than from equity sources. Equity sources require much higher rates of return. In the UK, however, it seems that equity sources of capital are much more dominant.

According to the Frauhofer Institute (see HERE) in 2023 a total of 14.7 GW of solar pv was installed in Germany. Around 30 per cent of that came from large-scale ground mounted schemes, the rest being installed on buildings. Domestic-sized pv accounted for around a quarter of the total capacity, the remainder coming from commercial-sized building projects. Historically, the majority of German solar pv has been installed on buildings.

It is a sobering thought that the solar pv installed in Germany in just one year, 2023, is approaching the entire capacity of solar pv installed in the UK over all time! On the other hand total British solar installation (of all sorts) plods on at barely 2 GW per year. Meanwhile, Germany is accelerating its solar pv installation in 2024 compared to 2023.