Solar subsidies have massively accelerated the expansion of photovoltaics in Germany, and they now shape electricity prices and grid expansion. Feed-in tariffs, the EEG surcharge, grid fees, and periods of low wind and solar output are closely intertwined. Understanding this system also reveals its weaknesses. The German government is providing almost €30 billion for such subsidies in 2027, and this amount is increasing annually. Therefore, it is time to refocus on economic viability.
Solar Subsidies and Feed-in Tariffs: High Returns, Weak Cost Signals
With the introduction of the Renewable Energy Sources Act (EEG) in 2000, feed-in tariffs were established as a fixed payment stream for 20 years. For small PV systems, they initially amounted to almost 51 cents per kilowatt-hour, significantly higher than other renewable technologies. The feed-in tariff attracted capital, but it primarily rewarded installed capacity rather than system benefits. This resulted in PV subsidies that were not consistently geared towards cost efficiency; they were more of a good investment for investors.
At the same time, the specific yield in Germany was comparatively low. Around the year 2000, PV systems often only achieved around 850 full-load hours per kWp, while onshore wind power typically managed 1,400 to 1,700 full-load hours. This difference directly impacts the cost per ton of CO₂ avoided. Nevertheless, the investment signal remained strong because the feed-in tariff largely mitigated risks.
EEG surcharge and electricity prices: From promise to ongoing burden
For a long time, the EEG surcharge covered the difference between market revenues and guaranteed feed-in tariffs, and it increased the cost of every kilowatt-hour for private households. Jürgen Trittin said in 2004: “Promoting renewable energies costs an average household only about one euro per month… – about the same as a scoop of ice cream.” However, the renewable energy surcharge later developed into a significant cost driver.
Between 2010 and 2020, the EEG surcharge rose to 6.8 cents per kilowatt-hour, resulting in an additional annual burden of around €250 for many households. When the energy crisis further increased procurement costs, the surcharge was abolished. This shifted the financing to the federal budget, and taxpayers have indirectly continued to bear the difference ever since.
Grid charges and grid connection: Expansion costs end up with consumers
The legal priority given to renewable energy plants compels grid operators to connect them quickly, and for this, they must create suitable grid connection points. For large plants, this includes transformers as well as metering and control technology, while smaller PV systems often feed into the grid via existing residential connections. Nevertheless, the need for expansion in the distribution network is increasing, and the costs are being passed on to grid charges.
Grid charges are also rising because operators rarely optimize for grid capacity when choosing locations. Furthermore, many systems report a connection capacity of 100 percent of their installed capacity, even though PV connections are on average only utilized at around 13 percent. This creates an expensive infrastructure reserve, while everyday load profiles hardly benefit. As a result, grid fees become a key price driver.
Low-Growth and Low-Growth Winds: Costly Stability Through Redispatch
A high proportion of weather-dependent generation exacerbates the risk of low-Growth winds because winter days often offer little sunshine and periods of wind may be absent. Feed-in then drops abruptly, while demand from heating and industry remains high. During such generation gaps, coal and gas-fired power plants must step in, and imports stabilize the system. This further increases price volatility.
Conversely, sunny and windy days lead to low-Growth winds, resulting in oversupply in the grid. Grid operators curtail power generation through redispatch, and negative market prices occur more frequently. These interventions cost money because compensation payments and reserve capacities must be paid for. Solar subsidies amplify this effect when expansion grows faster than storage and control capacity.
Need for Reform: Incentives for Storage, Grid Services, and Reserves
The subsidy logic must better reflect system costs and make investments in storage more attractive. Without storage, the pressure on the grid increases, and redispatch becomes a permanent measure. At the same time, the system needs dispatchable power plants as a backup to prevent periods of low wind and solar output from becoming a supply problem. Flexible gas-fired power plants are considered a realistic interim solution, but with ever-increasing expansion, their operating times are limited, and electricity costs will rise even further.
Feed-in tariffs and PV subsidies can be more targeted if they reward grid-serving practices. This includes grid-friendly locations, dispatchable feed-in, and contributions to connection and expansion costs. Grid fees and the EEG surcharge will therefore remain key levers, as they either reveal or conceal costs. Solar subsidies must therefore focus less on sheer size and more on efficiency in the future.