September 30, 2008
Soaking Up the Sun: Solar Power in Germany and Japan
The following is an excerpt chapter from the Breakthrough Institute report, Case Studies in American Innovation: A New Look at Government Involvement in Technological Innovation. You can download the full report here or read more excerpts from the document here.
Two distinct paths led two very different nations--Germany and Japan--to become global leaders in the production and installation of solar photovoltaic technology. Motivated variously by concerns over security, health, climate change and high energy prices, these nations are now home to robust and growing solar industries and solar panels can be found on hundreds of thousands of rooftops across these nations. However, differences in the public policies employed by each nation led to different results: Germany's solar industry is still dependent on subsidized power production costs, while Japan's investments to drive down the costs of solar energy have successfully created a domestic industry that has been independent of federal subsidies since 2005.
In the 1970s, Germans were faced with soaring energy prices. Successive oil crises had sent price shocks throughout Europe, while heightening energy security concerns. In the next two decades, increasing pollution and the Chernobyl nuclear disaster made the environment a central concern for the German public.
Thus, it was no surprise when, in 1998, Germany's Green Party won enough votes to form a coalition with the Social Democratic Party and gain control of parliament. Meanwhile, global warming presented a moral imperative that demanded international cooperation. Under the resulting Kyoto Protocol, Germany committed to a 21% reduction in emissions from 1990 levels by 2012.
All this marked the beginning of a massive government investment in renewable energy deployment, particularly solar photovoltaics. To surmount the myriad challenges to emissions reductions, the government invested in a new industry that would establish Germany as a global leader in clean energy technology.
The German solar photovoltaic (PV) industry began with the passage of the "1000 roofs program" in 1991, in which the government gave subsidies to individuals to cover the cost of installing a PV rooftop system. The aims of the program were to gain experience with solar installations, make new housing compatible with renewable electricity generation needs, and stimulate consumer usage of solar power. By the mid 1990s, 2,000 grid-connected PV systems had been installed on the Germany's rooftops.
This successful initiative soon expanded into the 100,000 roofs program to drive further expansion of the industry. The program aimed to drive down the price of solar PV and invited private entities to participate. Each participant was given a loan of 6,230 euros per kilowatt (peak) for PV systems with an output less than five megawatts and 3,115 euros per kilowatt if the output was higher. The program ended after 2004, with the successful installation of 100,000 grid-connected rooftop solar systems. By its end, Germany's solar PV industry had moved beyond niche markets to become capable of mass manufacture.
The German government also supported the nascent solar industry and the solar roofs programs by establishing a policy known as a feed-in tariff. The feed-in tariff guarantees a higher-than-market price for electricity generated by solar PV which is fixed for 20 years beyond the installation date, providing investment certainty for firms and individuals. The tariff, a component of the country's renewable energy law, has been a part Germany's energy policy since 1991 and continues to this day.
In 2000, with the demonstrated success of the 100,000 roofs program, the new government increased the feed-in tariff rates for solar PV. Part of the updated tariff, however, was a 5% decrease each year in reimbursement for newly installed systems, providing a clear incentive for the solar industry to develop more cost effective panels.
Meanwhile, in Japan, the Ministry of Economy, Trade and Industry (METI) in 1993 embarked on the New Sunshine Project, an effort to create a Japanese solar photovoltaic industry and a domestic market for solar power. Through a series of publicly funded and coordinated research, development, demonstration and deployment ventures, Japan has taken great strides in manufacturing and driving down the costs of reliable photovoltaics.
A combination of public concern for global warming as well as the high price of energy in Japan--the country imports nearly 85 percent of its coal--have made a national priority of solar PV. Various initiatives and projects focused on growing Japan's solar industry and capacity have come out of METI, including the aforementioned New Sunshine Project, as well as the "5-Year Plan for Photovoltaic Power Generation Technology Research and Development," and the "Residential PV System Dissemination Program."
METIs coordinated effort to grow both industrial capacity and consumer demand has been incredibly effective, installing rooftop PV systems on nearly half a million homes, while driving down the costs of solar power. In 1994, installing a rooftop PV system on a residential home cost $60,000 (in 2007 dollars). By 2005, installations costs had dropped to $20,000, making solar photovoltaics competitive with domestic electricity rates in Japan. Soon after, Japan ended federal subsidies for rooftop systems. In addition, Japan is now home to several of the world's top solar companies.
Their success can be attributed to Japan's embrace of coordinated public investment in each stage of the solar technology innovation pipeline, including not just funding for research and development, but also demonstration and early-stage deployment efforts. These efforts to support the demonstration and early-stage deployment of solar photovoltaics ensured a market for the emerging technology; without these policies photovoltaics would have faltered before reaching costs that were competitive with market electricity rates.
As a result of strategic public investments, Germany's solar PV industry is booming. Germany is the world's leader in solar PV installation and manufacturing and German firms make up 46% of the global market, generating over 10,000 jobs for the German workforce. However, the feed-in tariff has been at the core of the industry's success and continues to be a key driver of solar installations in Germany. Japan, on the other hand, has successfully implemented a suite of policies that have made solar photovoltaics competitive with domestic electricity rates and has stopped subsidizing solar. While METI still plays a robust role in research and development of next generation photovoltaic technologies, the Japanese solar industry is still growing and the government now seems on track to reach the its goal of bringing solar power to 30 percent of Japan's rooftops without further direct subsidies for deployment.
- International Energy Agency. " Japan: Photovoltaic technology status and prospects." URL.
- Solarbuzz. "Fast Solar Energy Facts: Japanese PV Market." URL.
- Kestenbaum, David (2007). "In Japan, Going Solar Costly Despite Market Surge." National Public Radio, October 1, 2007. URL.
- "Solar panels to go in 30% of houses by 2030," Japan Times, January 1, 2008. URL.
You can download the full report, Case Studies in American Innovation here or read more excerpts from the document here.