Q+A: How much will Germany cut its solar feed-in tariff?

A worker of the solar park project in Goettelborn near the western German city of Saarbruecken sets up photovoltaic panels June 21, 2004.

BERLIN (Reuters) - The German government is working on plans to speed up cuts in solar feed-in tariffs (FIT) beyond the annual 10 percent drop that took effect January 1. Here are some questions about looming changes in the world's top solar market:

WHY DOES THE GOVERNMENT WANT TO CUT THE FIT AGAIN?

The new center-right government wants to cut the FIT further in 2010 as overall price declines outpaced the annual FIT cut of 8-10 percent in recent years due to strong demand. The coalition's pro-business wing called for a 30 percent cut.

WHAT'S THE STATUS NOW?

The Christian Democrat/Free Democrat government was unable to agree additional cuts in their coalition talks in October, in part because environment politicians in the ruling parties and regional leaders with solar industries opposed steeper cuts.

The issue was put on a back burner. The Environment Ministry now in conservative hands held hearings this week, listening to arguments from business, consumer and solar groups. It will present a proposal "within days," a spokeswoman said this week.

WHAT'S THE LATEST PROPOSAL?

Government and industry sources told Reuters the government plans to cut solar feed-in tariffs for new roof and open-field sites from April by between 16 percent and 17 percent.

Utilities are now obliged to pay 39 euro cents per kilowatt hour of electricity produced for 20 years for most systems installed in 2010, down from 43 cents for those built in 2009.

The sources also said that additional cuts to the FIT will be made from 2011 if solar projects amount to more than 3,000 megawatts and even more if they total more than 3,500 megawatts.

WHAT DO GERMAN SOLAR COMPANIES SAY ABOUT THAT?

Some German companies doing well have called for a modest additional cut in the FIT. But SolarWorld CEO Frank Asbeck dismissed anything more than an added 5 percent as unacceptable. He said it would kill jobs -- a powerful argument in Germany.

Analysts say it could lead to a shake-out and reduce the number of competitors, benefitting the stronger firms.

WHAT DOES THE SOLAR LOBBY SAY ABOUT THE PROPOSED CUTS?

Germany's BSW solar industry association offered a one-off 5 percent cut in mid-2010 on top of the 10 percent annual reduction implemented in January. It has warned a double-digit cut would ruin many German companies and spell the end of Germany's worldwide leadership in solar technology.

WHAT WOULD BE THE IMPACT OF A STEEP FIT CUT?

The Landesbank Baden-Wuerttemberg (LBBW) said in a research report that steep cuts would hit demand, hurting European and German manufacturers that could no longer compete with the prices of Asian producers. Returns would fall under the critical 7 percent level, dampening investor interest.

WILL THE GOVERNMENT'S PLAN AS IT STANDS BECOME LAW?

That's unclear at this point. Chancellor Angela Merkel's center-right government could pass it through the lower house (Bundestag). The law also goes to the upper house (Bundesrat), where states are represented, but does not need its approval. The Bundesrat could nevertheless seek changes to the law in the mediation committee made up of the two houses.

WHO PAYS FOR IT?

Utilities are obligated to pay producers of solar power the higher FIT. That has gradually fallen from 57 cents per kw in 2004 to 39 cents. Utilities pass the higher costs to consumers. The FIT adds 3 percent to consumers' monthly electricity bills.

Critics point out that solar power is far more expensive than the 6 cents per kw of conventional coal and nuclear power. Proponents say the annual 10-percent drop in the FIT means grid power parity will be achieved by about 2015.

(Reporting by Erik Kirschbaum; Editing by Mike Nesbit)