|Fig. 1: Solar panel farm in Pölzig, Germany (Source: Wikimedia Commons)|
Germany became one of the first European countries to promote renewable energy through the 1991 Stromeinspeisungsgesetz (StrEG), also known as the Grid Feed-In Law. This law obliged utility companies to connect renewable power plants to the grid and pay renewable energy producers a guaranteed feed-in tariff.  Feed-in tariffs have been referred to as the most effective method of promoting growth in the renewable energy space due to its structure: governments pay an over market price premium to utility companies for the renewably generated electricity.  Furthermore, the tariff is locked in for a 10 to 25-year period at stable prices, allowing energy producers to earn a profit. The StrEG was later replaced by the 2000 German Renewable Energy Sources Act (EEG), and later revised in 2004 and 2014. 
Under the renewable energy act, Germany's renewable energy industry boomed, seeing growth as high as 40% each year. By 2004, the industry growth had reached 100% as solar had become profitable due to the above market feed-in tariff investors received for producing excess clean energy.  The effect subsidies had on Germany's solar industry continued to snowball, and Germany became the global leader in installed photovoltaic cell capacity with 5.3 GW of cumulative installed capacity. 
The financials of German solar companies also exemplified the immense growth the solar industry continued to experience. Q-Cells, a German manufacturer of solar panels, saw its revenues grow from 17.3 million euros in 2002 to 299.4 million euros in 2005. Similarly, Conergy, a German PV manufacturer and EPC firm, saw its sales increase by 132% in 2004 alone. 
The subsidy-fueled rapid growth of the German solar industry continued for several years and was further encouraged by a significant transition in Germanys energy policy that was passed in 2011.  This pivotal transition in Germanys energy policy, also known as the Energiewende, included an aggressive 80-95% reduction of greenhouse gases by 2050 and a 40% reduction of its CO2 emissions. 
As Germany's solar industry continued to grow, China's solar market dropped world solar panel prices by 80% between 2008 and 2013.  Chinese solar panel manufacturers took advantage of overwhelmed German solar companies due to the domestic response caused by government incentives and flooded the market with cheap panels.  China's ability to dominate the world solar panel industry is, in part, due to China's government aggressive subsidy structure. This created a large domestic demand that by 2015, China's domestic solar market bypassed Germany's to be the largest in the world.  To put it into perspective, China installed 20 GW worth of solar in the first half of 2016, while the entirety of U.S. solar capacity was only around 31 GW at the time. 
As Germany began phasing out subsidies and Chinese panels flooded the market, Germany's solar industry experienced a surge of insolvencies. For example, Gehrlicher Solar, a distributer of PV components for solar projects, reported $415 million in revenues in 2011, but by 2013, they filed for bankruptcy.  Both previously mentioned companies, Q-cells and Conergy also filed for insolvency in 2012 and 2013, respectively.
Although Germany's solar industry has seen its ups and downs, it is still a developing industry that can have considerable impact on reducing the worlds carbon footprint and lead the way for other nations to grow their domestic solar industries. Nations need to look back at the failures and successes of Germany and China in order to ensure that solar energy can grow and begin to replace conventional energy sources. By analyzing Germany's subsidy structure, domestic and international competition, and spurring of domestic demand, governments and companies can learn what they need to do to overcome the boom to bust cycle.
© Arturo Rojas. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
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