German industry turns to solar power in race to cut energy costs

By Riham Alkousaa

BERLIN (Reuters) – Philip Matthias tried for months to persuade his father to install solar panels on the roof of their company in Thuringia, an eastern German state, to cut electricity costs and carbon dioxide emissions at a metal products factory.

Initially skeptical about the €2.3 million ($2.5 million) investment, a significant sum for mid-sized company Tridelta, his father calculated the costs and decided to nearly double the project’s capacity, installing photovoltaic panels that could power about 900 homes, in addition to the factory.

“Photovoltaic systems pay for themselves in about seven and a half years. The manufacturer gives a 20-year warranty. That means it’s an extremely lucrative investment,” Matthias told Reuters.

Since the war in Ukraine and the sharp decline in fossil fuel exports from Russia to Germany, Berlin has introduced regulations aimed at accelerating the expansion of solar power. The regulations are part of a plan to generate 80% of the country’s electricity from renewable sources by 2030.

German companies, encouraged by a feed-in tariff system that gives renewable energy producers selling their power a guaranteed price, as well as the lower costs of solar panels, are increasingly turning to solar power to circumvent high energy costs.

Although Germany has the largest solar and wind power generation capacity in Europe, its small and medium-sized businesses have not yet benefited from lower electricity prices because of the high grid fees and taxes they have to pay. By generating their own solar power, they avoid these fees and taxes.

In 2023, utilities consumed around 69% of Germany’s domestic electricity consumption, according to data from the BDEW association of public utilities.

“With electricity prices in Germany showing no signs of falling as previously expected, companies are increasingly seeing the economic feasibility of installing solar panels,” said Marie-Theres Husken, energy expert at the BVMW association of small and medium-sized enterprises.

CORPORATE SOLAR SHIFT

In the first four months of the year, the number of newly installed commercial rooftop solar installations rose by 81% year-on-year, outpacing the 1% increase in the residential sector, according to data from the BSW Solar Power Association.

A May study by polling firm YouGov found that more than half of German companies with suitable roofs plan to install solar power systems within the next three years. BVMW predicts that almost all manufacturing companies in Germany will use solar power by 2030.

In response to growing demand, Germany’s largest developer of residential solar solutions, Enpal, announced in April its expansion into the commercial market.

“The demand wasn’t that immediate… but the growth will be very sustainable,” Melchior Schulze Brock, CEO of commercial and industrial solar startup Enviria.

A study in April by the Freiburg-based Institute for Applied Ecology found there is potential to install up to 287 gigawatts (GW) of solar capacity, more than enough to meet Berlin’s 2030 target of 215 GW, along Germany’s roads, railways, parking lots and industrial areas. This could significantly reduce reliance on agricultural land, where planning permissions and approvals can take up to a decade.

The decline in global solar panel prices since last year has prompted companies to look into solar energy.

“The market is flooded with cheap but good panels from China. This means that the system we are building now is about 20% cheaper than a year ago,” Matthias said.

A package of German regulations easing regulations and increasing subsidies for large rooftop systems, adopted in April, as well as a pending tax reform for real estate funds investing in rooftop solar panels, are likely to boost demand further.

The state subsidies introduced in 2021 for large rooftop photovoltaic installation projects, selected through a tender, also contributed to strengthening this trend.

In the last tender for subsidized projects, held in February, the number of offers increased by 107% year-on-year, according to data from the Federal Electricity Grid Agency.

The feed-in tariff of 9.3 euro cents per kilowatt-hour, higher than Tridelta’s purchase price of electricity, makes it cheaper for the company to sell future electricity generated to the grid and buy it back, Matthias said.

The German Economic Ministry declined to comment on the companies’ strategy for electricity trading.

“There is a strong correlation between feed-in tariffs and the development of rooftop solar projects,” Hugo Willink, chief executive of solar roof developer Sunrock, told Reuters.

Sunrock, which in May received an order from Mercedes-Benz to build a 23-megawatt photovoltaic project on the roofs of the carmaker’s factory, sees Germany as its main sales market in the coming year.

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(Reporting by Riham Alkousaa; Editing by Emelia Sithole-Matarise)