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German Solar Cell Company Troubles Signal Cleantech Danger

By Andrew MacKillopStock MarketsDec 18, 2011 02:58AM ET
www.investing.com/analysis/german-solar-cell-company-troubles-signal-cleantech-danger-109052
German Solar Cell Company Troubles Signal Cleantech Danger
By Andrew MacKillop   |  Dec 18, 2011 02:58AM ET
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IS IT SO LONG - OR GOODBYE ?
Solon SE, in 1998, was Germany’s first listed solar photovoltaic producer. In Frankfurt trading on 15 December its stock price fell 46 percent to around 50 euro cents. The Berlin-based company had filed for insolvency after failing to reach an “arrangement” with banks and investors, its brief statement said. This was the first publicly traded German solar cell-making company to file for insolvency. Analysts noted the company had failed to cut costs fast enough and was unlikely to repay a 275-million-euro loan from Deutsche Bank and a group of seven German banks, due by 31 December.
 
The reasons for this sudden collapse are in fact endemic in the solar PV industry - even in China the industry has large, even massive surplus capacity relative to reasonable or possible market growth trends and absorbtion capacity.
 
Both in Germany, the world leader for cell making until this year, and in China the new No 1, growth went parabolic. In the German case more than 18 000 megawatts (18 GW) of solar power had been installed, and in year 2010 alone, the German solar PV industry produced and installed 7.4 GW in nearly one-quarter million individual systems. This supplied about 12  billion kilowatt-hours of electricity, around 2% of national consumption, which was used by solar buffs as an argument the industry could stay parabolic and attain a 25% share of total German consumption well before 2040. The outlook for this happening, now, is very unlikely.
 
 
WORLDWIDE OVER CAPACITY - FALLING SUBSIDIES
The industry, drunk on subsidies simply grew too fast. US and especially European producers are the hardest hit. Workers in Germany's once booming solar energy industry now face a shakeout of epic proportions driven by ever falling prices  for solar panels, which are more the result of commercial and economic factors, including company bankruptcies than technology or industrial progress driving down unit costs. Solar electricity was always expensive and will stay expensive  for some while - technology progress only makes it relatively less expensive.
 
Cuts in subsidies for solar electricity, the "feed-in tariff" issue, weaker demand for panels, tighter supply of loans and credits from crisis-hit banks, and fierce competition from cheaper Asian rivals facing the same challenges are eating into what was once the world's biggest producer of solar cells, taking the shine off an industry that was "born in Germany". Long-term employees in this young industry can only count about 7 years experience in what seemed a gold rush industry, but in Solon's case the downside is especially tough: one desperate last move of Solon SE was to fire one-third of its remaining employees in one day.
 
A simple check on solar panel firms and soalr markets indicates where the shakeouts will be most intense, and Germany comes out on top as the home to hardest-hit equities in the sector.
 
Early hopes in Germany that the Merkel coalition's decision to phase out nuclear energy would restore growth has done little to reignite the sector. The most likely near-term filler of Germany's power gap will be coal and gas, rather than solar and wind energy, simply due to building costs and the reliability of supply. Other negative factors, especially the need for a German Super Grid to transport intermittently-produced wind and solar electricity - which would take as long as 15 years to build, given the immense financing - only add to the negative outlook.
 
The emerging and deepening German solar energy rout affects all the industry's producers and their subcontracted support industries. In Solon's case these include the Vogt Group, a support firm supplying planning and logistics services for solar plants. Vogt had 160 employees in the high times of the solar boom, around 2005-2007, but shriveled as the young industry rapidly peaked out. Down to one-half its high times workforce, further lay-offs are now very likely as panel price declines and weaker demand dampen growth. The likelihood of austerity programmes even in Germany, and the certainty of slower economic growth in Europe contribute to a negative outlook for high-price solar.
 
German solar company Q-Cells is another example of companies most likely to be hard hit. In the mid-decade early peak of the solar industry, Q-Cells was at one time the world's largest maker of solar PV cells. In mid-November 2011 the company said it would firstly lay off 250 employees, and, if unable to repay a convertible bond due in February 2012 could double the job losses. As with Solon, Q-Cells and other worried German cell producers, hopes that the German nuclear exit decision will produce big new orders are already fading, resulting in last-ditch fantasies like the 400-billion-euro Desertec project.
 
 
THE SOLAR ENERGY ILLUSION
Average solar energy falling on the edge of the Earth's atmosphere is around 1.36 kW (Mercury about 6 - 14 kW; Venus about 2.5 - 2.6 kW) per square metre, but things like the tilt of the Earth, thickness of the atmosphere, clouds and other factors affect how much gets to ground level through the year. One handy average in middle latitudes is about 345 Watts per square metre throughout the year on a 24-hour average basis. Over tens of millions of square kilometres this adds up.
 
The real problem is collecting it, like the few grams or milligrams of lithium or gold in every ton of seawater, converting it to electricity, and transporting this with as little loss as possible to where it can be sold and used. One idea is to go where the sun shines strongly and both clouds and people are rare - the deserts - and then somehow send the power back to where the people are.
 
The German-initiated and European backed version of this idea is a 400-billion-euro Dream Project called Desertec, to produce the electricity in the Maghreb countries and perhaps in the Mashraq near east, and send it back to Europe mainly using undersea cables. Supposedly, it will be fine to depend on Arab exporters of electricity while fearing dependence on Arab oil:  oil import dependence was a main driver - along with the fear of global warming - of the EU's massive climate-energy programme to radically shift to green energy. Times change.
 
Why the Desertec idea has been floated with some determination and some energy sector corporate, investor and governmental seed cash features the heavy clouds hanging over solar electricity and the growing rout of green energy in Europe - and even worldwide. Major projects, especially big projects are the hope, but their likelihood of happening is nearly zero.
 
 
SPAIN - TILTING AT WINDMILLS
Spain's green energy programme, including massive subsidies for solar PV but also large subsidy payments for wind electricity and grants for windfarm development, have been dashed with the country's slump into deep recession. Its "green dream", before government budget deficit trimming started in 2008, then accelerated to slashing in 2010 and intensified again in 2011, was costing the nation more than 12.5 billion euro a year. Costs for its "solar family power plant" programme, might have spiralled as high as 180 billion euro for the 2007-2017 period if the programme, covering about 400 000 "family plants" when the plug was pulled in 2010, had continued floating ever higher on a magic carpet of feed-in tariffs, cheap loans and grants. Particularly in solar energy, green energy job losses have grown rapidly to an estimated 15 000 through 2008-2009.
 
Due to more drastic economic problems facing Spain, exposed solar and wind energy companies (like Solaria Energia y Medio Ambiente, Gamesa, Ecotecnica) may more rapidly lose equity value in easily factored "worst case" outlooks. Political sentiment in Spain is shifting much faster away from green energy than in Germany, due also to the bad record for jobs creation and sustainability of green energy in Spain. The jobs dream in Spain has been a particularly cruel failure.  Dr. Gabriel Calzada Álvarez of the King Juan Carlos University in Madrid  found that each green energy job in solar energy, created in Spain, cost taxpayers about 570 000 euro. The smaller subsidies paid to the equally high-tech wind power sector produced much fewer jobs, with a cost-per-job rate of about 850 000 euro. Even worse, his 2009 study found that for every four jobs created by Spain's expensive green technology program, nine jobs were lost because the electricity generated was so expensive that each "green" megawatt installed in the power grid destroyed five jobs elsewhere in the economy by taxes levied to fund the green energy, resulting in sharply higher business costs.
 
In Spain, the choice available is now brutal: the government must slash subsidies not only because the energy supplies failed to materialize in any easily-utilisable way, but because Spain is going broke and can no longer afford this folly. Not only in Spain’s case, but more intensely because of the depth of financial and economic crisis, the luridly high minimum electricity prices needed for, or rather thrown at renewable-generated electricity, often 5 - 8 times the price of coal-fired or gas-fired plants, wasted a vast amount of capital that could have been otherwise allocated. Major exposed Spansh utilities with a high proportion of wind and solar in their generating portfolios, notably Iberdrola, are more targets for likely stock price slides in coming weeks and months.
 
Arbitrary, state-established price systems inherent in hastily cobbled “green energy” schemes, operated by governments who preach "neoliberal free market" doctrine, resulted in an overextended, subsidy dependent new industry hanging by an ever weaker thread. Doomed to dramatic adjustments any time the real world gets a hold, always the first to collapse when recession hits, the inevitable results are massive unemployment, loss of capital, abandonment of industrial plant, waste of raw materials, loss of know-how and the loss of credibility for the notion of Energy Transition.
 
 
BIG CASUALTIES
Solon was the worst casualty in the worst year so far for the European solar industry's short history. Equally bad things, for exactly the same reasons are threatened for wind energy. The bloodletting is particularly bitter for a stack of reasons including the confused mental state of deciders, wedded to their "let the markets decide" mantra but driven by political pork barrel pressures into locating high cost production sites in high unemployment regions with low level infrastructures and then "letting markets play". The Spanish and German solar industries show this trait, like Denmark's wind energy boom and the almost overnight boom-and-bust wind energy "bubble" in the UK through 2010-2011. Industry jobs are or were located in high jobless rate disadvantaged areas, where young, educated people will exit fast when things go bad.
 
The net result is the total opposite of the false promises spun by green energy charlatans dredging government subsidies and playing it on the pinwheels of the global financial casino. In Germany, by federal government decision the solar industry was located in former communist East German Lander.
Before German reunification, these were reputed for their stability when the region used to be the hub of former East Germany's heavily polluting chemicals and metals industries. Since then, those who flee from permanent unemployment in these Lander have to jump from job to job.
 
We have to turn back to Germany's decade-long flirt with forcing green energy to understand how fragile the industry has become, and why things are so bad for the cozy government-subsidized green energy boom, that is presently collapsing. Legislation introduced in the 1999-2001 period by the centre-left coalition of Social Democrats and Greens led by then-Chancellor Gerhard Schroeder offered massive incentives to make Germany into the world's largest producer, and market for solar panels. This sparked thousands of start-ups, some of which became global leaders but in every case it was subsidies that kept them above water.
 
 
GLOBAL FALLOUT
This political-driven forcing of green energy became global by as early as 2005 and with the post-2008 crisis has matured. There is now a major geographic rift in the becoming-fragile green energy industry. The U.S. International Trade Commission earlier this month approved an investigation into charges of unfair Chinese trade practices in the solar energy sector, further ratcheting tensions with Beijing over trade. The same moves could start in the wind energy sector, with Danish, Spanish, German and US mill makers accusing China and India of dumping. The Chinese and Indian countercharge is that they are subsidizing green energy plans and programmes in the Old Rich countries - the same which preach that China and India must adopt low emission climate policies and shift faster to green energy.
 
The Chinese-driven solar crisis has led to a wave of bankruptcies in the United States, notably of panel maker Solyndra LLC, showing that European solar players are not the only ones suffering from the industry glut. European windmill makers in Denmark and Spain, the former world-leaders, face the same new struggle against Asian competition in markets that for onshore windfarms are oversupplied, stagnant or declining as subsidies are cut and austerity bites.
 
The only hope for wind energy resides in the move to offshore windfarms - at capacity costs per-kiloWatt as high as the European EPR reactor if not higher. Stepwise jumps in electricity prices are threatened in Europe by the convergence of the anti-nuclear political movement, the ageing reactor fleet needing very high cost dismantling - and the choice of high priced green energy. More expensive electricity may itself and alone trim expected growth for national power demand, already threatened by austerity and economic recession. This again makes it unlikely to see growth in equity values in the wind and solar sector, and large selling opportunities, except in special situations.
 
To be sure, uncompetitive Old World producers of green energy equipment claim that not only the large direct financial support given by Asian countries to their own green industries, but also unrealistic and undervalued national currencies are unfair. What is certain is that national trade surpluses in green energy equipment and services of the US, Japan and European countries have quickly melted - unlike the Himalayan glaciers the UN IPCC invites us to believe in ! Given the rising unattractiveness of the industry and global-level overcapacity, government largesse in the shape of more and larger subsidies are yet more unlikely. This will ahrpen the downturn for the industry and could cause a rout.
 
The prospect is that solar and wind energy producers will have to take massive writedowns for at least the next 12 months, especially at expensive European and US plants, for example SolarWorld which has shut down production at one of its U.S.-based solar plants to save costs. Industry analysts focusing the shakeout in the German solar sector say it is unlikely to kill it off altogether but will force uncompetitive companies out of the market and drive an across-the-board move to lower industry costs more rapidly. There is clear overcapacity across the whole solar value chain, and probably soon in the wind energy sector, making it certain that many US and European companies will go out of business over the next year. Government deciders who first used subsidies to artificially promote growth in the industry, then pulled the plug on it can be congratulated on a fine piece of anarchy with the least possible benefits to everybody, except parasitic financial players.
 
To be sure, in the long run price declines will be healthy for an industry that so intensely relies on government subsidies but wants to become cost-competitive with fossil fuels. In the short-term however, investor funds, environment associations and the workers lured into the green energy sector by its heavily-promoted promises will suffer loss, disillusion, and leave empty handed. The industry grew too fast, had unrealistic expectations, was driven by massive subsidies, and will be handicapped by the loss of know-how, one of its key resources, whenever it starts growing again.
 
*****
German Solar Cell Company Troubles Signal Cleantech Danger
 

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German Solar Cell Company Troubles Signal Cleantech Danger

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