Oil Report

CORRECTED - Germany to add record 5 GW solar power in 2010-govt

(Corrects headline to GW from MW)

* Plans to cut incentives fuel record solar power demand

* German govt defends plans for further one-off cuts in July

BERLIN, March 18 (Reuters) - Germany will add more than 5,000 megawatts of photovoltaic capacity this year -- or nearly double the previous record of 3,000 megawatts that was installed in 2009, a senior German government official said on Thursday.

Karin Freier, head of the Environment Ministry’s solar energy department, said planned cuts of 16 percent in state subsidies that will take effect in July were fuelling the boom as investors rush to beat the deadline.

“This year we’ll definitely have 5,000 megawatts or maybe even more,” she told a Euroforum conference.

Germany is the world’s photovoltaics leader with about 9,000 megawatts installed at the end of 2009 and some 58,000 jobs created in the last decade.

“We want to maintain our world technology leadership and jobs. But on the other side we don’t want to overheat the world market. We had to make the correction.”

She said it was still possible there could be small changes before the cut in state incentives takes effect on July 1.

She acknowledged the proposed Renewable Energy Act (EEG) cuts, which still have to pass through parliament, will make it hard for German firms to compete with Asian rivals -- especially because the 16-percent July cut will be followed by a further 11-13 percent cut in January.

“The crucial point will be the cuts of another 11 percent in January 2011,” she said. The sector will have to absorb a total of nearly 40 percent reduction in prices within 13 months. The feed-in tariff (FIT) was already cut by 9 percent in January.

“That will be an enormous challenge for German industry,” she added.

The plans to curb support to the solar sector -- which the government sees as overly subsidised -- have hit the share prices of companies such as Q-Cells QCEG.DE, SolarWorld SWVG.DE and Phoenix Solar PS4G.DE.

Feed-in tariffs (FIT) -- or the prices utilities are obliged to pay to producers of renewable energy -- are the sector’s lifeline until grid-parity, the point where renewables cost the same as fossil fuel-based power, is reached in about 2015.

The tariffs have made Germany the world’s top market for solar power, accounting for half of all 2009 installations in the 18 billion euro ($24 billion) global market.

Freier defended the mid-year cut in the FIT and said the government’s aim was to restructure the incentives so that public sentiment does not turn negative. Utilities charge consumers higher electricity rates to finance the system.

“Without a correction the (cost to consumers) would rise from 3.8 billion euros a year now to six billion euros in 2015,” she said. “There are enormous costs to the economy associated with the Renewable Energy Act.

Freier said Germany will remain a highly attractive market.

“It’s not only the high FIT. The key advantage is the lack of bureaucracy. There are guarantees that utilities will buy the solar power. It’s a risk-free investment with better returns than for other renewable energy investments. Germany will remain an extremely attractive market.” (Editing by Elaine Hardcastle)