Policy

What the U.S Can Learn From China, Germany, and Japan’s Solar Energy Markets

Solar coverage is fairly US-centric. Faiza Haq, DG+Design's Policy and Communications Specialist, looks at how solar incentives work (or don't) in the other top markets around the world.

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September 10, 2020 - Solar energy is more economical, accessible, and commonplace in the United States than ever before. In the past decade, solar installations have risen 50-fold to 81 gigawatts (GW), which is enough capacity to provide electricity for 15.7 million average American homes. This colossal shift in the solar market was only possible due to strong federal policies such as the Investment Tax Credit (ITC). 

The U.S is considered as one of the top players in the global solar market. However, China, Germany, and Japan also boast some of the highest solar outputs in the world. How have government incentives shaped these three solar markets and what can the U.S learn from them?

Germany

Despite being a country with relatively less sunlight around the year, Germany is  a pioneer in the solar energy innovation. Much of it can be attributed to the Electricity Feed-In Act of 1991 and the Renewable Energy Act of 2000, which implemented and then increased  feed-in tariffs for renewable energy resources. 

The feed-in tariff policy was designed to advance investment in renewable energy technologies by providing investors remuneration above the wholesale or retail price of electricity. The incentive led to a boom in the country’s solar market, whereby solar capacity increased drastically from 6 GW to 36 GW between 2008 and 2013. 

By the end of May 2019, Germany’s cumulative solar power capacity reached 47.72 GW and the country was able to meet its 35% by 2020 renewable energy target early with 38% renewable energy on the grid in 2018. The country is continuing its leadership by targeting 50% by 2030 and 80% by 2050. 

The 2017 Renewable Energy Sources Act took Germany’s renewable energy procurement model to a new era by awarding incentives through an auction-based model. Incentives declined from 9.17 to 4.33 cents per kilowatt-hour as a result of the auctions while still supporting new capacity on the grid, reflecting a more efficient program.

While Germany’s domestic solar manufacturing has experienced some setbacks due to foreign competitors, such as China, they maintain an edge when it comes to research and innovation. German companies remain at the forefront of creating integrated solutions, such as solar home systems with cutting-edge storage technologies. The government’s progressive renewable energy policies continue to play a large role in maintaining Germany as a solar innovation hub.

Currently, it is estimated that government subsidies for solar projects is at 1.7 billion yuan (USD 247.74 million).

China

China dominates the market for photovoltaic (PV) panels and has the highest installed solar capacity in the world at 204.7 GW. China’s rise in the solar energy sector began due to Germany’s progressive renewable energy policies in the 1990s, which created a huge demand for PV panels in the European Union. China used its competitive advantage in manufacturing and borrowed capital, technology, and experts from Germany to meet this demand. Finally in 2015, China surpassed Germany in terms of total solar capacity installed. 

Given the organic success China experienced in the global solar PV panel market, the government has taken an active interest in increasing national solar capacity as well. In 2010, a feed-in tariff was introduced, whereby any projects completed before September 2012 received 1.15 yuan (USD 0.18) per kWh. Currently, it is estimated that government subsidies for solar projects is at 1.7 billion yuan (USD 247.74 million). 

Japan

Japan’s solar market is comparatively new to Germany, China, and the U.S, but has experienced unprecedented growth since the beginning of the decade. This is evident as Japan is now globally ranked third in cumulative solar capacity installed at 63 GW

After the Fukushima nuclear disaster in 2011, the government shifted its attention towards solar energy and introduced a feed-in tariff policy similar to that of China and Germany. Following this, the feed-in tariff policy has been iterated to support Japan’s growing solar industry. The country aims to have 24 percent of its electricity mix from renewable energy sources by 2030. 

Japan is also at the core of cutting-edge solar energy research and development. Given the fact that a majority of the country’s land is used for agriculture and housing, and residential solar is still not being largely incentivized, Japan has turned to its lakes and reservoirs to host 73 of the world’s 100 largest floating solar plants. 

When we start analyzing the installed capacity per capita for each of these countries, the rankings shift significantly.

Market Comparison

In the past decade, the evolution of the international solar market has not been a clear upward trajectory for all the countries mentioned above. While Germany had the highest installed capacity at 18,000 MW in 2010 (compared to 3,618 MW for Japan, 2,534 MW for the U.S, and 800 MW for China), it is now ranked fourth globally. On the other hand, China, which had the lowest capacity installed a decade earlier, leads the current market, followed by the U.S and Japan. 

However, when we start analyzing the installed capacity per capita for each of these countries, the rankings shift significantly. In 2020, Germany still leads the way with 589 watts of  installed capacity per capita, followed by Japan at 491, the U.S at 231, and finally China at 146. This shows that while China and the U.S have experienced unprecedented growth in the solar market, the energy is not necessarily reaching everyone in the country due to their significantly larger populations. Furthermore, this makes the slowdown and in both Germany and Japan also more understandable. 

What the U.S Can Learn 

What the Chinese, German, and Japanese solar markets have in common is a committed and continued interest from the central government to advance national solar and renewable energy. Unlike these three countries, the U.S does not carry a country-wide mandatory renewable energy target. In addition, given the uncertainty around the continuation of the ITC, the U.S may be withdrawing a key piece of legislation that has boosted the U.S solar market. 

Moreover, a feed-in-tariff model like those in Germany, Japan, and China simplifies the incentive process by not requiring tax equity to reap the benefits. The U.S. did implement a program that allowed for incentive payments in lieu of tax credits, known as the 1603 program, but it ended in 2011.

The recent administration’s choice to withdraw from the Paris Climate Agreement has also signaled a decreased interest in implementing climate and clean energy policies. By retreating from the agreement, the U.S has also ceded climate leadership to China, Japan, and Germany--all of which are rolling full steam ahead with national policies to curb emissions. 

In all instances of flourishing solar markets we see that government policy and targets are crucial in maintaining an upward trajectory. Therefore, the U.S should develop a long-term federal renewable energy policy to continue strong leadership in the global solar energy market. 

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