Solar power has been one of renewable energy’s biggest success stories, especially in Europe. But a combination of austerity measures by cash-strapped governments and the industry’s own success are creating cloudy skies on the clean energy horizon.

New grid-connected global photovoltaic (PV) capacity nearly doubled in 2011, from 16.6 gigawatts (GW) in 2010 to 27.7 GW (with almost 21 GW in Europe), according to the European Photovoltaic Industry Association. 2011’s boom pushed total installed capacity to 67.35 GW.

Favorable government feed-in-tariff (FIT) programs fueled this solar boom by guaranteeing above-market rates to solar power producers. But ironically, the FIT programs worked too well and by exceeding their goals, have become too expensive to maintain. This quandary is most explicitly seen in Europe’s biggest solar market – Germany.

Germany

At the end of 2011, Germany had the most cumulative installed solar capacity in the world, with 24.7 GW.  New installations reached a record 7.5 GW last year and solar output reached 18 billion kilowatt-hours, but the record jump was largely attributed to prices falling ahead of planned FIT reductions, made every six months. Solar panel prices have fallen 50 percent since 2007, and as prices fall, government officials have begun to debate how much they should scale back subsidies.

Germany’s economy minister has proposed legislation to limit new FIT-supported installations to 1 GW per year, accelerate planned subsidy cuts to an every-month basis rather than twice a year, and phase subsides out completely for some facilities by 2017. Unsurprisingly, the CEO of German manufacturer Bosch said “should we do that, then photovoltaic is dead is Germany.”

However, the harsh proposal has been countered by a more moderate proposal by the country’s environment minister. The alternate plan would cap new subsidized PV installations at 5 GW per year, and seems to have a better chance at passage. While Germany is the biggest market scaling back solar subsidies, it is not the only European country doing so.

United Kingdom, Spain, Greece

The United Kingdom is expected to announce plans this week that would reduce subsidies at routine intervals to curb new solar installations through a trigger mechanism once installations reach a predetermined level. The UK’s plan has exceeded all expectations and cost estimates – 284 MW of installed capacity were expected by April 2013, but 780 MW had been installed as of January 2012.

Conditions are even worse in Spain and Greece, two of the hardest-hit economies in the Eurozone. Spain, home to the world’s highest unemployment rate, passed a decree last week to “temporarily suspend” subsidies for all new solar installations. The move is expected to save 160 million Euros in 2012, but could have a severe impact on employment.

Spain first cut its renewable subsidy by 35 percent in 2008, a move that cost 20,000 jobs, and this suspension is expected to cut just as many jobs. Spain had the fourth-most installed solar in the world at the end of 2011, with 4.2 GW, and the government once estimated renewables would create 300,000 jobs by 2020.

Greece, the epicenter of the Eurozone economic crisis, has also targeted solar subsidies as a way to trim spending. Installed capacity more than doubled in 2011, with 350 MW of new capacity and 550 MW cumulative installed solar.

But last week the government drastically cut FIT subsidies, saying it can’t pay the current rates and had licensed enough new capacity to meet its renewable energy targets. All new solar power plants that go online starting in February would be reduced, with those generating more than 100 kilowatts facing an initial 12.5 percent subsidy cut with additional reductions every six months until August 2014.

Grid parity?

Fortunately though, the end of generous subsidies may not spell the end of renewables. Manufacturing costs have fallen fast, and the CEO of Suntech Power, the world’s biggest solar panel manufacturer, recently predicted solar will be as cheap as fossil fuels, saying “we believe that by 2015, there will be around 50 percent of countries where it reaches grid parity.”