MUNICH -- The German solar industry was left to lick its wounds yesterday after the country's new government-proposed energy legislation emerged. It favors wind in the race to replace the power generation capacity that will be lost by the shutdown of all German nuclear reactors.

The 39-point update of the German Renewable Energy Act envisions accelerated cuts in preferential tariffs for solar power that increase with capacity installed, while subsidies for wind energy were cut by less than expected.

"We've installed a record 7.4 gigawatts of solar power last year, but I'm not quite as optimistic about this year," said David Wedepohl, spokesman for the German Solar Industry Association, speaking at the Intersolar conference in Munich. "With Germany phasing out nuclear power, we should see a boost rather than a cut when it comes to building photovoltaic systems."

Nuclear plants supplied some 22 percent of German power last year, while renewable sources provided 17 percent. After the Fukushima Daiichi nuclear disaster in Japan, the Merkel government decided that all nuclear reactors would be shut down by 2022. The eight currently closed reactors will never restart, and the remaining nine will be gradually taken out of commission.

To live up to its pledges as an E.U. member to cut carbon emissions from burning fossil fuels, Germany will have to get 35 percent of its power from renewables by 2020, according to the government.

Germany's solar market is the largest in the world, with photovoltaic (PV) generation expected to cover 3 percent of electricity demand in the country by the end of this year. Wedepohl's Berlin-based group represents 900 companies, from solar producers to suppliers, wholesalers and installers.

It didn't have enough clout to avoid the cuts in the feed-in tariff -- the first one likely to be 6 percent and come as early as July 1, triggered by the expected installation of 4.8 GW of new PV capacity in the country this year. But at least it avoided a second cut of 6 percent that had been proposed for March 1, 2012.

More emphasis on wind and power lines

The degression now will be between zero and 15 percent, in 3 percent intervals, depending on installed capacity. For example, the amount of solar capacity installed between October this year and April the next will decide how much the feed-in tariff gets cut by on July 1, 2012.

Meanwhile, the renewable energy bill cuts subsidies for wind energy by only 1.5 percent instead of the previously expected 2 percent. To allow the transport of more wind-generated electricity in Germany's north to industrial centers in the south, the government plans to cut average planning and construction time for power lines to four years from 10 years, Economy Minister Philipp Roesler said at a press conference in Berlin.

"This is a good signal for the further development of onshore wind energy, which is urgently needed," said Germany's BDEW utility association in a statement. The shares of German wind turbine maker Nordex surged as much as 7.5 percent after the plan's details were announced.

Still, the German Wind Energy Association wasn't pleased, calling the reduced cut "cosmetic" and still an obstacle to the industry, especially in the south of the country, where it is less developed.

For its part, the solar industry admits things could have been worse for its members.

"Today's decision won't change the basic principle that the electricity produced by PV has to be bought by utilities at a preferential price," said Wedepohl. "So far, no absolute cap for installations has been introduced, and we can be grateful and breathe more easily because of that."

Still world's largest solar market

No cap means Germany's solar industry will avoid the fate of its Spanish counterpart, which enjoyed generous subsidies that briefly made Spain the world's No. 1 solar market in 2008, with 2.5 GW of new installed capacity. The tariffs were cut in 2009 by nearly a third, and a cap on new installations was imposed, which led to only 70 megawatts of solar capacity going online that year in Spain.

"It's good that we're staying with the flexible mechanism based on market development. This is not the end of the industry," Wedepohl said.

Despite the tariff cuts, German solar companies aim to install between 52 and 70 GW of solar capacity in Germany by 2020 while cutting system prices by 50 percent over that period, Wedepohl said.

"We want to build up about 8.5 GW of PV production made in Germany, employing at least 130,000 people in the sector, and generate a net economic contribution of up to €75 billion by 2030," he said. "System prices have fallen by 50 percent since the second quarter of 2006. Consumer systems are now cheaper in Germany than anywhere else in the world."

Wedepohl added that consumer systems will actually be hurt by the new bill, as owners will no longer receive higher payments for direct consumption that exceeds 30 percent of electricity produced by their roof-based installations.

"Direct consumption is key to net integration, and I don't understand why they want to eliminate that," he said. "The government is pushing centralized power generation rather than decentralized power generation."

He added that Germany is likely to maintain its position as the leading solar market for now, but others are increasingly becoming more relevant. "A broader diversification of PV markets is already visible not only in Europe but also outside," he said. China, India and Australia aim to boost their solar markets considerably and are looking at Germany, Spain and Italy to avoid those countries' early solar pitfalls.