Solar Energy System of the Month:

Economic feasibility of PV systems in Germany:
more than just a little sunshine

by Dr Andreas Wutz and Rainer Weng
13 April 2006

The demand for photovoltaic systems has remained continually high for a full two years. However, the paradigms in Germany have shifted during the past year. Everybody thinking of acquiring such a system should calculate his investment carefully to avoid nasty surprises. Economic consultants Dr Andreas Wutz and Rainer Weng have done their research for this Solar Report and highlighted the most important decision criteria.

With the aim of increasing the share of renewable energy in the energy mix, the red-green Federal Government of Germany set a framework in its renewable energy law of 1 August 2004 to promote electricity from renewable energy sources. This target was to be achieved through above-market-price feed-in tariffs for electricity from wind, geothermal energy, water power and bio-energy as well as solar power.

Solar power plant on the roof of the “Bielefelder Alm” soccer stadium.

This led to a true “gold rush”: the demand for photovoltaic systems by private home owners and industrial enterprises with large roof surfaces exploded – which should have come as no surprise in view of the expected profits of up to 20 %.

Higher demand than ever before: solar power is booming in Germany on the grounds of a reliable legal framework. Photovoltaic power plants are continuously increasing in size. On the pic: solar power plant on the roof of the “Bielefelder Alm” soccer stadium. Photo: Bundesverband Solarwirtschaft (BSW); SMA Technologie AG.

Whereas it was still possible two years ago to obtain solar modules directly ex factory, the boom led to all suppliers of solar power plants currently having sold their module stocks until deep into the year. Should you decide to install a solar power system, you must expect long delivery times.

System price has a significant impact on returns

Even if the basic conditions remain promising, two factors should lead investors to do their calculations carefully. Firstly, the feed-in tariff as envisaged in the renewable energy law was decreased by a further 5 % at the beginning of 2006. Solar power from roof systems with a peak performance of up to 30 kWp is now compensated with 0,518 €/kWp instead of the former 0,545 €/kWp. Secondly, the increased demand in photovoltaic modules led to significant price increases. A survey conducted by the Photon magazine showed that the prices at the beginning of 2006 had increased by approximately 10 % in comparison to the previous year. It is not uncommon that complete solar power systems are sold at a price of up to 5 000 Euro per kWp. Calculations have shown that a price difference of 200 Euro per Kilowatt installed performance, with all other factors remaining constant, can make a difference of one percentage point in returns.

Returns depend on system price of solar power systems.
Returns depend on system price of solar power systems. Source: Rainer Weng, RWC.Wording of graph: Returns; Price €/kWp

Not only the module price is of importance

Whereas it is expected that demand will decrease slightly in Germany as a result of less favourable legal conditions, it is anticipated that in other European countries such as Spain or Italy new, advantageous regulations will lead to a rise in demand, resulting in the overall European demand remaining on a high level. A decrease in prices cannot be expected with any certainty in Germany. In the selection of a module the price should play a pivotal yet not the only role: factors such a the loss of efficiency of a module (degradation) during the course of its operating time can also have a significant impact on the long-term returns of a system.

Limit tariff and average feed-in tariff depending on size of solar power system.
Limit tariff and average feed-in tariff depending on size of solar power system. Source: Rainer Weng, RWC. Wording in graph: Limit tariff and average feed-in tariff ; Façade, Roof system, Open space

Calculation planning and banks

Any decision for or against an investment of this nature should be based on a thorough calculation taking into consideration all relevant return and cost items. If the construction worker or investor has not himself done any feasibility studies up to this stage, he will have to present these at the latest when taking up negotiations with a bank to prove the feasibility of the investment. With the help of special software, such as the program PV-Kalk, an integrated return and liquidity planning can be done for the entire lifespan of the system. PV-Kalk established the internal interest rate as profitability ratio which is a commonly used ratio in investment decisions in companies of all sizes. The planning of profits must be complemented with a liquidity planning to prove that future interest and redemption payments (capital service) can be effected from current income.

The basis for calculations of the development of turnover is the feed-in tariff and the expected average solar power return.

Different tariffs for small and large systems
on roofs, façades and open spaces

The feed-in tariff depends on the building type (roof, façade, open space) as well as its size. Whereas the limit compensation tariffs are contained in the renewable energy law, the average price that can be achieved will depend on the size of the system. Façade systems will receive higher feed-in tariffs than roof systems and systems on open spaces. Because of the lower efficiency of solar power façades, the higher feed-in tariffs will not necessarily lead to better profitability of the investment.

Solar power systems that can be moved with the sun (SolonMover) on open spaces

The German renewable energy law (EEG) guarantees feed-in tariffs for 20 years so that no price fluctuations need to be taken into consideration in the planning process.

Solar power systems that can be moved with the sun (SolonMover) on open spaces. Photo: Bundesverband Solarwirtschaft (BSW); S.A.G. Solarstrom AG

Solar power returns depend on numerous factors

The second important value is the average yield of electricity. With the help of a global radiation map, the long-term average solar radiation at the required investment location can be established. The values measured stretch from a mere 800 kWh/m² in Northern Germany to over 1 200 kWh/m2 at particularly good sites in Bavaria or Baden-Württemberg. What the exact electricity yield will be at a specific location is, however, determined by a mix of various factors. These include, besides the location, also the orientation of the modules to the south, the tilt of the roof, the level of efficiency of the technical elements, such as the inverter or the modules, as well as the ambient temperature.

Photovoltaic System

Thus besides the strong sunny summer months also the light-intensive months of spring can achieve high returns, because the degree of efficiency can be increased at a lower ambient temperature.

Photo: Bundesverband Solarwirtschaft (BSW); SunTechnics Solartechnik GmbH

All costs to be taken into consideration in the calculation

Since the actually generated annual solar power can deviate from the long-term average because of the above factors, various scenarios with different electricity yields per installed module should be calculated. This will show the connection between the return of a system and the electricity yield. This in turn will lead to safe planning and a reduction of risks in the investment decision. Besides the once-off investment costs the running costs should be taken into consideration in the profitability and liquidity calculations. These include insurance premiums, costs for repairs and general administrative costs, as well as interest payments. If the system is installed on a let property and must be disassembled upon expiry of the contract, these costs should also be included in the calculation.

Financing the system: own capital and loans

Financing costs, especially in very large systems, can form a significant share of the total costs. Generally, financing should be done with sufficient own capital – as a guideline we recomm end values of over 20 % of the total investment costs. The rest can then be financed with a bank loan. A photovoltaic system can in principle be financed by banks offering home loans. Since interest rates vary significantly from one bank to the next, a comparison of the various financing options may be worthwhile. As a reference you can use the credit conditions offered by KfW for various aid programmes, which are relatively competitive.

Planning your profits
Source: Rainer Weng, RWC

Wording of table: Planning your profits, Turnover, Depreciation, Insurances, Repairs, Administration etc., Interest, Profit before tax, Tax, Profit after tax
Planning should be done at least for the period of guaranteed feed-in tariffs. Planning in the form of a standardised normal year on which the projection for the coming years is then based, will not allow any well-founded statements on the profitability of a system. All planning should also include projections of annual cost developments and the inflation rate over the entire investment period. To reduce risks, here too it is worthwhile to carry out projections with different values (planning parameters).
Example of projected liquidity for a solar system that is to be connected to the network in 2006.

Example of projected liquidity for a solar system that is to be connected to the network in 2006. Source: Rainer Weng, RWC.

Wording of graph: Total liquidity, Instalments Loan 1, Instalments Loan 2, Possible withdrawal p.a. before pers. tax, Current capital account without investment

The calculation of profitability should be complemented with a liquidity forecast considering repayment instalments and private withdrawals. The liquidity surplus generated through the production of solar power should be used first for loan repayments. If the loans are structured to allow for years without repayments, reserves should be built up during this period to make provision for costs that may be higher than calculated, e.g. possible repairs. Since larger reinvestments generally do not play a role, the liquid funds remaining after deduction of all loan repayments will remain with the operator of the system.

The parameters for photovoltaic systems differ from one project to another, as has been outlined. This is why thorough calculations should be done before every investment. Since the planning process will involve variables, these parameters should be varied and different scenarious should be projected. An example calculation can be done with the free demo version of PV-Kalk 5.12. This can be downloaded from the service pages of the Solarserver under

The authors: Dr. Andreas Wutz is free-lance employee of RWC. He has many years’ experience in the fields of Controlling, Financing and Establishment of New Businesses. Dipl.-Kfm. Rainer Weng is Managing Director of RWC Wirtschaftsberatung with its head offices in Nördlingen and author of PV Feasibility Calculations "PV-Kalk". E-Mail:


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